Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp 6-K 2005
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For September 19, 2005(Commission File No. 1-31317)
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
(Exact name of registrant as specified in its charter)
Basic Sanitation Company of the State of Sao Paulo - SABESP
(Translation of Registrant's name into English)
Rua Costa Carvalho, 300
São Paulo, S.P., 05429-900
Federative Republic of Brazil
(Address of Regristrant's principal executive offices)
Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.
Form 20-F ___X___ Form 40-F ______
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1)__.
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7)__.
Indicate by check mark whether the registrant by furnishing the
If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b):
01.03 SHAREHOLDER DEPARTMENT IN COMPANY
ISSUING AGENT/DEPOSITORY FINANCIAL INSTITUTION
OTHER SERVICE LOCATIONS
01.04 DIRECTOR FOR INVESTOR RELATIONS (ADRESS FOR CORRESPONDENCE WITH THE COMPANY)
01.05 - REFERENCE/AUDITOR
01.06 - COMPANY CHARACTERISTICS
01.07 SHAREHOLDER CONTROL/SECURITIES
01.08 PUBLICATIONS AND DOCUMENTS
01.09 NEWSPAPERS WHERE COMPANY PUBLISHES INFORMATION
01.10 DIRECTOR FOR INVESTOR RELATIONS
02.01.02 CURRENT COMPOSITION OF AUDIT COMMITTEE
Brazil Representative in the Board of Directors As from 2000.
03.01 EVENTS RELATING TO DISTRIBUTION OF CAPITAL
03.02 POSITION HELD BY SHAREHOLDERS WITH OVER 5% OF VOTING SHARES
1 Date last alteration: 12/15/2000
04.05 COMPOSITION AUTHORIZED CAPITAL
06.04 BYLAW CHANGE
07.02 HOLDINGS AND CONTRIBUTIONS IN THE LAST THREE YEARS
1- FINAL DATE OF LAST FISCAL YEAR: 12/31/2004
2- FINAL DATE OF LAST BUT ONE FISCAL YEAR: 12/31/2003
3- FINAL DATE OF LAST BUT TWO FISCAL YEAR: 12/31/2002
08.01 CHARACTERISTICS OF PUBLIC OR PRIVATE DEBENTURES ISSUES
08.01 CHARACTERISTICS OF PUBLIC OR PRIVATE DEBENTURES ISSUES
08.01 CHARACTERISTICS OF PUBLIC OR PRIVATE DEBENTURES ISSUES
08.01 CHARACTERISTICS OF PUBLIC OR PRIVATE DEBENTURES ISSUES
08.01 CHARACTERISTICS OF PUBLIC OR PRIVATE DEBENTURES ISSUES
08.01 CHARACTERISTICS OF PUBLIC OR PRIVATE DEBENTURES ISSUES
08.01 CHARACTERISTICS OF PUBLIC OR PRIVATE DEBENTURES ISSUES
08.01 CHARACTERISTICS OF PUBLIC OR PRIVATE DEBENTURES ISSUES
08.01 CHARACTERISTICS OF PUBLIC OR PRIVATE DEBENTURES ISSUES
08.01 CHARACTERISTICS OF PUBLIC OR PRIVATE DEBENTURES ISSUES
Until the end of the 19th century, water and sewerage services in the State of São Paulo had been generally delivered by private utilities. In 1875, the Government of the Province of São Paulo awarded water services to private companies, and later, in 1877, granted the concession of sewerage services in the city of São Paulo. In 1893, the Government of the Province of São Paulo resumed the responsibility for the delivery of water and sewerage services provided by Companhia Cantareira de Água e Esgotos, and established RAE. Ever since, water and sewerage services in the Municipality of São Paulo have been solely managed by the Government of the State of São Paulo. Historically, water and sewerage services in most of the municipalities of the State have been directly managed by the relevant municipal government through municipal water and sewerage departments or autonomous companies.
In 1954, in response to the significant population growth in São Paulo Metropolitan Region, the Government of the State of São Paulo created DAE, an autonomous state entity. DAE delivered water and sewerage services to several municipalities of São Paulo Metropolitan Region.
A significant restructuring of such utilities in the State of São Paulo took place in 1968 upon the creation of COMASP, the objective of which was supplying bulk drinking water for public consumption in municipalities of São Paulo Metropolitan Region. At that time, all related assets formerly owned by DAE were then assigned to SAEC, an autonomous state entity. In 1970, the Government of the State of São Paulo created SANESP to provide sanitation services to São Paulo Metropolitan Region. All related assets owned by DAE were assigned to SANESP.
In 1973, COMASP, SAEC, and SANESP merged to constitute this Company, with the objective of implementing the Federal Government's guidelines set out in PLANASA. PLANASA was a program supported by the Federal Government, designed to apply FGTS funds to finance capital investments and promote the development of state water and sewerage utilities. Since its beginning, other public companies or entities controlled by the State of São Paulo, engaged in water supply, sewage collection and treatment in the State have been incorporated to SABESP.
The Company faced serious operational and financial problems all over the 1980s, which peaked in 1994, partly caused by macroeconomic conditions in Brazil in the hyperinflation period that preceded the implantation of the Real Plan, and partly caused by policies established by the Government of the State of São Paulo, which considered the Company as a state company, the financial performance of which was a minor concern. Thereby, the Company's tariff structure over that period was not able to generate sufficient revenue to deliver adequate services to consumers or meet its own needs of liquidity and capital fund for its operations.
As a result, the Company faced several operational and financial problems leading to constraints in the delivery of basic water and sewerage services to consumers. In 1994, the Company recorded a net loss of R$ 223.1 million, and hardly could fulfill its financial obligations.
Regarding the operational aspects, the Company's supply capacity was restricted. By the end of 1994, over 5 million people in the State of São Paulo were subject to alternate water supply. As the Company lacked funds to make the adequate maintenance of its systems, there were frequent ruptures in the water network of the sewerage collection and distribution systems, which intensified the water shortages. The general service deterioration, in turn, impaired the relationship with municipalities served by the Company.
In 1995, the Company, jointly with the Government of the State of São Paulo, started a restructuring program to improve the operational and financial conditions of the Company's activities, including an Organizational Restructuring, the implementation of initial stages of its strategies, and the development of a new focus on results.
In 1997, the Company restructured its tariffs to adjust the price of minimum water consumption; later, in 1997, 1998, and 1999, it adjusted all of its tariffs to all customers. Such tariff adjustments and productivity gains were the major causes of increased net operating income in those years. Moreover, the Company reduced the number of employees from 21,141 in December 31, 1994, to 17,735 in December 31, 2004.
SABESP has made investments to improve, expand, and protect its water and sewerage systems. Such investments have allowed the Company to eliminate the water supply alternation in São Paulo Metropolitan Region, and install additional water and sewerage connections to meet the increasing service demand all over its operation area, in particular the city of São Paulo. The Company understands that the measures referred to above and its overall strategy have led so far to its operational recovery and improved financial performance.
On April 24, 2002, SABESP adhered to BOVESPAs New Market rules, a segment of the spot securities market focused on the negotiation of stock of companies meeting corporative governance and information quality levels that are higher that those provided in the applicable law and regulations. Such adhesion implies the Company's commitment to a set of corporate rules generically known as "good practices of corporative governance."
In May of the same year, following extensive efforts made jointly with the Attorney-General, and the Secretariats of Finance, Energy and Water Resources of the State, the Company was granted its registration with SEC - Securities and Exchange Commission (Comissão de Valores Mobiliários CVM).
The major shareholder, through the State Secretariat of Finance, made a diluted sale of 4.78 billion of its Company's shares in both the national and international market. On May 10, 2002, the Company's shares started to be listed in the New York Stock Exchange in the form of ADRs American Depository Receipts Level III, thus allowing their negotiation in the international market.
On June 2, 2003, SABESP filed its first Form-20 Report, in compliance with regulations established by SEC - Securities and Exchange Commission, as SABESP shares are listed in NYSE. That report was accompanied of certifications by the President and the Economic-Financial Director, as required by Sarbanes-Oxley law of 2002.
Today, the Company is engaged in the direct supply of sanitation services to the population of 368 of the 645 São Paulo municipalities, in addition to the sale of treated water and provision of sewage treatment to 6 municipalities located in São Paulo Metropolitan Region, and serves directly 22.3 million people, plus a further 3.1 million people supplied with bulk water, amounting to a total of approximately 25.3 million people relying on a water distribution system that is approximately 58,100-km long and includes distribution and pipeline networks, in addition to a sewerage system that is approximately 36,500-km long and includes interceptors, trunk collectors, and outfalls.
Concession agreements cover the execution and exploration of sanitation services, and give the Company the exclusive right to implant, install, expand, manage and explore water supply and sewage collection and final disposal services in concession all areas.
In nearly all 368 municipalities, the Company operates under concession agreements, most of which have a 30-year term, whereas 17 of which are scheduled to expire in 2005 and the remainder between 2006 and 2034. Concessions may be automatically extended for periods similar to the original term, unless the municipality or the Company shall exercise the right to terminate the concession upon notice to the other party at least six months before the concession expiry.
Aiming to expand its operation base, in March 2004 SABESP took over the operation of water supply and sewage collection services in the municipality of Itapira, under a concession granted for a period of 30 years.
In 2003-2004, precipitation levels below the average led to insufficient water collection in reservoirs, especially in Cantareira System, the largest system in São Paulo Metropolitan Region. Because of that water shortage, SABESP implemented an incentive water consumption reduction program aimed to stimulate São Paulo Metropolitan Region's population to reduce water consumption. By an extensive media campaign, a large number of consumers joined the program, and the Company tackled successfully the water shortage problem and prevented some nine million inhabitants from water rationing.
In 10% (44 municipalities) of all served municipalities, concessions are granted for indeterminate periods, while 3.6% (9 municipalities) are operated without any concession agreements. Municipalities directly operated by SABESP account for 95.5% of the Company's revenue.
Bulk drinking water supply agreements account for 4.5% of the Company's total revenue, and have a 3-year term extendable for a similar period.
SABESP operates water and sewerage systems in 368 municipalities, including the recently-added municipalities of São Bernardo do Campo and Itapira, which joined the operating base in early 2004, of the total 645 municipalities of the State of São Paulo, including the municipality of São Paulo. In 2004, SABESP distributed water to approximately 22.3 million people, equivalent to some 60% of the urban population of the State of São Paulo, through approximately 58,100 km of water distribution networks and pipelines, and over 6.4 million water connections. SABESP delivers sewerage services to some 18.2 million people, or 78% of our water consumers, through approximately 36.400 km of collecting lines, trunk collectors, and outfalls, and some 4.7 million sewerage connections. SABESP also supplies bulk water to 6 municipalities in São Paulo Metropolitan Region for a population of approximately 3.1 million inhabitants.
Basic sanitation activities comprise drinking water production, conveyance, storage, and distribution, and sewage collection, treatment, and final disposal. Such activities are considered public services within the common competence of the Federal, State, and Municipal Governments, being therefore subject to the public law.
In Brazil, basic sanitation services are provided by a wide range of utilities, most of which are state-owned utilities controlled by the States or Municipalities, under public concession regime.
Basic sanitation services are directly related to public health and environmental issues. The increased capacity of drinking water supply to the population, and the increased volumes of collected and treated sewage affect public health indicators, such as child mortality and contagious disease control. Maintaining the drinking water production levels required to meet the population's needs will directly depend on the rational use of water resources. Finally, sewage collection, treatment, and final disposal aim to reduce or eliminate the quantity of pollutants and contaminants in the environment, a concept that is today defined by the term "environmental sanitation."
Because of the high public interest in the performance of basic sanitation activities, such activities are subject to extensive federal, state, and municipal legislation and regulation.Legal Status of Basic Sanitation
According to the Federal Constitution, it is the Federal, State, and Municipal Governments responsibility to jointly improve the basic sanitation conditions, as well as legislate concurrently on the preservation of natural resources, environmental protection, and pollution control.
Article 175 of the Federal Constitution assigns the government the delivery of public services, including basic sanitation services, either directly or under concession or permission regime always through competitive bidding.
Basic sanitation service concessions are formalized by concession agreements between the State or Municipal Government, as the case may be, and a concessionaire which is assigned the delivery of services to a particular municipality or region.
As provided in the Federal Constitution, by Complementary Law, the States may establish metropolitan regions in their respective territories, constituted of a group of bordering municipalities,
with the objective of integrating the organization, planning, and performance of public functions of common interest.
In Brazil, presently, there is no general law regulating or giving basic guidelines for basic sanitation services. Several bills have been submitted to the Congress, but no final decision has been made so far.
Specifically with respect to the State of São Paulo, the State Constitution establishes that the State will ensure the conditions for correct operation, necessary expansion, and efficient management of basic sanitation provided by a concessionaire under its shareholding control, recognizes SABESP as the provider of such basic sanitation services in the municipalities where it already operates, and determines that such municipalities, in their capacity of grantors of such services, are allowed to establish their own entities to deliver basic sanitation services within their respective territory, and should compensate SABESP in not more than 25 years. The Government of the State of São Paulo was granted a preliminary injunction against a Direct Unconstitutionality Action questioning the constitutionality of that compensation deadline provided in article 293 of the State Constitution.Use of Water Resources
Regarding the water resource policy, the Federal Law no. 9,984, of July 17, 2000, created ANA with the objective of implementing the National Water Resource Policy, which is an integral part of the National Water Resource Management System provided in the Federal Law no. 9,433, of January 8, 1997. According to the bill on the Sanitation Sector, ANA is expected to be additionally assigned the national coordination of the basic sanitation sector regulation.
At state level, Law no. 7,663, of September 30, 1991, as regulated by the State Decree no. 41,258, of October 31, 1996, sets out the basic principles governing the development and use of water resources in the State of São Paulo, in compliance with the State's Constitution. Such principles include: (i) rational water resources use, giving priority to services delivered to the population; (ii) optimization of economic and social benefits from water resources use; (iii) protection of water resources against actions that would adversely affect its current and future use; (iv) protection against critical hydrographic events likely to bring risk to the population's health and safety or economic and social damages; (v) development of river transportation for economic benefits; (vi) development of permanent programs for preservation and protection of groundwater sources against pollution and excessive exploration; and (vii) prevention of soil erosion in urban and rural areas, with the objective of protecting against physical pollution and water resource sanding up.
Pursuant to the State Law no. 7,663/1991, the implementation of any Project involving surface water or groundwater use will require prior authorization or license from the appropriate governmental authority, provided, however, that the use of water resources, either for water collection or discharge of effluents, shall be charged. Water resources use charge is under discussion in the Legislative Assembly of the State of São Paulo. Thereby, SABESP has carried out studies to evaluate the eventual impacts likely to be caused to its activities by water charge, but it is not able yet to estimate the extent of such impacts, if any.
DAEE's objectives include, without limitation: (i) establishing a new water resources use policy focused on the development of the water business in the State; and (ii) developing, either directly or under agreement with third parties, plans, studies, and projects related to the integral use of water resources.
Decree no. 41,258, of October 31, 1996, regulates the award of water resources use rights, and infractions and penalties related to that use. In light of existing legal attributions and impositions, DAEE Chief Executive Officer, by Order no. 717, of December 12, 1996, approved the rules and set out the procedures to be followed to allow any user to request the award of surface water or groundwater resource use.Water Quality
Decree no. 518, of 03.25.2004, issued by the Ministry of Health of the Federal Government, provides for water potability standards for human consumption in Brazil, which are equivalent to international standards adopted by developed countries. The Secretariat of Health of the State of São Paulo has also established minimum water potability standards for human consumption, which are however more restrictive than the national standards referred to above.Sewage Collection and Treatment
The State Law no. 997, of May 31, 1976, regulates the prevention and control of environmental pollution, and generally forbids pollutant emission in water, air, and soil in the State of São Paulo. In areas provided with public sewerage system, effluents from polluting sources should be discharged in that system, and the relevant polluting source shall make its necessary connection to the sewerage system. The law provides for minimum characteristics to enable such effluents to be treated by SABESP sewage treatment plants. Industries failing to meet the established standards should make a pretreatment of industrial waste to allow such parameters as pH, temperature, sedimentary material, and metals to be met.
The state law assigns CETESB competence to monitor the discharge of pollutants in public waters, and enforce the law requirements, in addition to the power of authorizing those companies unable to connect themselves to the public sewage system to discharge their pollutants in receiving waters on a temporary basis.
Disposal of mud from STPs should also meet the state law requirements. CETESB also regulates the discharge of effluents in water bodies in conformity with the state law, and approves SABESP sewage treatment plants.
The state law also provides the bases for tariffs to be charged to effluents discharged in water resources of the State of São Paulo. Although neither the State of São Paulo nor its agencies are currently charging such discharges, we cannot assure that such tariffs will not be imposed in the future.
SABESP Legal Status
In its capacity of mixed company engaged in the delivery of basic public services, SABESP was legally established by the Government of the State of São Paulo by State Law no. 119/1973, as amended by State Law no. 8,523, of December 29, 1993, with the objective of planning, implanting, and operating public sanitation services all over the territory of the State of São Paulo, taking into consideration the municipalities' autonomy. At its incorporation, DAEE paid up SABESP shares, and later fully assigned its interest to the Treasury of the State of São Paulo.
In its capacity of mixed company incorporated in the form of a joint stock company, SABESP is governed by the provisions of the Corporation Law. Law no. 10,303, of October 31, 2001, which amended the Corporation Law, revoked article 242 of that law, which excluded mixed companies from bankruptcy. Thereby, SABESP is currently subject to bankruptcy, after the revocation of the provision that gave the Government of the State of São Paulo, in its capacity of major shareholder, the collateral liability for the Company's debts.
Under the State Law no. 119/1973, SABESP reports to the Secretariat of Public Services and Works (now Secretariat of Energy and Water Resources) of the State of São Paulo, was established for an indeterminate term, and is allowed to open branches, subsidiaries, agencies, and offices anywhere in the State. The Government of the State of São Paulo shall hold a direct or indirect interest equivalent to no less than 50%+1 ordinary shares of SABESP.
In its capacity of mixed company, SABESP is subject to the Procurement Law that regulates the public procurement of contracts of services and works for SABESP.
At State level, SABESP shall comply with the State Law no. 7,835, of May 8, 1992, which complements the provisions of the Concession Law, and the State Law no. 6,544, of November 22, 1989, which provides for the legal procedures of procurements and contracts of works, services, purchases, sales, and concessions by entities under the direct or indirect State Administration.
The Concession Law establishes that awarding a concession for provision of public services or use of public assets is preceded by a competitive bidding process. In general, concessions awarded after the promulgation of the Federal Constitution without a prior competitive bidding have been terminated. Article 24 of Procurement Law establishes, however, the exemption of competitive bidding for services, among others, to be provided by any agencies or entities that are part of the public administration and have been created for that specific purpose prior to the effective date of the law, provided that the contract price is consistent with the market prices. Based on that provision and the Opinion no. 004/98 of the Attorney-General of the State, dated of February 2, 1998, and widely accepted doctrine and jurisprudence, the Conceding Entities have assigned SABESP concessions exempt from competitive bidding. No SABESP concessions have been cancelled or revoked after the promulgation of the Federal Constitution or the Concession Law. The requirements of the Concession Law and the State Concession Law shall, however, govern the award of new concessions to SABESP.
Finally, even though SABESP has not formalized so far any concession agreements, it provides water supply and distribution and sewage collection services to the Municipalities of São Paulo and Santos. SABESP understands that it is the legitimate holder of the right of providing such services, as the Federal Constitution provides that public services of common interest of metropolitan areas, such as São Paulo Metropolitan Region, are under the sphere of competence of the State of São Paulo. Further, in its capacity of successor of several state companies and agencies engaged in the
provision of basic sanitation services since the 19th century, it believes to hold the ownership and the right to operate the whole water and sewerage systems serving the City of São Paulo.
Should any municipality supplied by SABESP choose to take over the control of water and sewerage services, it should make a competitive bidding to award the concession to potential concessionaires, or enter directly into agreements with public utilities. The Constitution of the State of São Paulo anticipates that, if SABESP shall cease to be a concessionaire in any municipality, the relevant municipality shall compensate SABESP for the unpaid economic value of its investments.Tariff Regulation
On December 16, 1996, the Governor of the State of São Paulo issued the Decree no. 41,446 to regulate the tariff system, and allowed SABESP to continue to set its own tariffs on the basis of (i) use category, (ii) water meter capacity, (iii) consumption characteristics, (iv) consumed volume, (v) fixed and variable costs, (vi) seasonal consumption variations, and (vii) social and economic conditions of residential consumers. At setting its tariffs, SABESP may also want to consider the costs associated with water resources exploration, depreciation, provision for doubtful debts, expense paying off, and adequate investment remuneration. Changes of tariffs should be published in the Official Gazette of the State of São Paulo.
Since August 29, 2003, IRT - Tariff Adjustment Index of SABESP has been calculated by a formula where basic sanitation costs and expenses are grouped into two portions (A & B) to reflect more appropriately its development. Portion A includes expenses related: to power supply; treatment material; federal, state, and municipal taxes and duties including CPMF and COFINS/PASEP; and financial compensation charges from water resources exploration for public supply. Its update is determined by the annual variation of this group of expenses over the 12 months before the application of the adjustment. Portion B includes all other costs, and is updated by the application of the Comprehensive Consumer Price Index (IPCA ¥ndice de Preços ao Consumidor Amplo) published by the Brazilian Geography and Statistics Institute (IBGE Instituto Brasileiro de Geografia e Estatística).
By applying the formula to calculate the Tariff Adjustment Index (IRT ¥ndice de Reajuste Tarifário) implemented in 2003, SABESP adjusted the water supply and sewage collection tariffs on August 29, 2004, by 6.78% applied linearly to all consumption classes and ranges.
In April 2004, studies for SABESPs tariff restructuring started, which comprises the study of the Company's costs reflecting its economic efficiency and long-term self-financing, and including the payment capacity of low-income families. A Marketing Plan for customer and market segmentation will also be designed to consider their specificities, in addition to a proposal for improvement of business practices in SABESP. Works are expected to be concluded by October 2005.
SABESP is subject to the federal law that, in case of water and sewage services provided under particular concession, allows tariffs to produce an annual return on assets as high as 12%. SABESP is subject to that performance limit, as most of its concessions were awarded in a period when that regulation was in force. However, that restriction does not apply to more recent concessions, renewal of existing concessions, or delivery of services to the City of São Paulo and other municipalities where it operates without any formal concessions. However, tariffs are below the limit of return on assets referred to above.
NOTE: For comparative purposes, we also informed the IPC/FIPE variation in the same period of tariff effectiveness, that is, June-May of each year.State Sanitation Board - CONESAN
The State Sanitation Board established by the State Law no. 7,750, of March 31, 1992, should approve proposals related to sanitation plans and prepare an annual report on environmental health issues faced by the Government of the State of São Paulo. The State Sanitation Board establishes protocols for implementation of investment programs approved by the State Sanitation System, and settles disputes arising from the implementation of the sanitation plan by the State Sanitation System.
The State Law no. 7,750/92 provides for the provision of basic sanitation services and establishes guidelines for public sanitation works planning in the State of São Paulo. The State of São Paulo's plan for public basic sanitation services should include institutional, technological, and administrative resources to ensure the creation of a healthy environment for the population of the State of São Paulo. This plan should also assist the development and organization of the basic sanitation sector.
According to the State Law no. 7,750/92, the sanitation policy of the State of São Paulo is implemented by the State Sanitation System. The National Sanitation Fund FESB (Fundo Estadual de Saneamento) collects and manages funds to support the programs approved under the sanitation plan.
INVOICED VOLUME, 2004
Water consumption is heavily correlated to temperature, and therefore shows a behavior that is dependant of the regional seasonality. As such, in summer months of high temperatures, there is a marked increase of water demands, and, consequently, sewage generation. In contrast, in cold months, there is a reduced water demand and sewage generation. Such variations in invoiced volumes have an influence on SABESPs average annual revenues.
PURA - Rational Water Use Program (Programa de Uso Racional da Água)
Water is increasingly scarce to meet human needs. This is due to both the population growth and changes in consumption and habit standards.
To tackle this problem, SABESP adopted in 1996 a policy for the rational use of water, which requires cultural changes leading to the population's awareness. This way, PURA is a program designed to fight waste, the main objective of which is ensuring water supply and the maintenance of the population's life quality, promoting consumption reduction and water resource conservation, and, consequently, minimizing the need of investments, as it often allows major works to be deferred.Main actions developed in 2004:
Water production process comprises the following processes: Water Resources Management, Treated Water Production, and Water Conveyance and Delivery.
Water Resources Management Process: operation and maintenance of hydraulic structures, design of plans, programs, and projects for water source inspection, recovery and preservation of water source assets; environmental recovery and functional rehabilitation of degraded areas; restoration of ciliary forests and preservation of forest areas; alternative planned reuse; risk management; trends of sanitary and environmental variables in hydrographic basins; technical opinions on water resource management; institutional articulation; and representation.
Treated Water Production Process: operation and maintenance of catchment structures, pumping stations, and raw water pipelines, water treatment plants WTPs; control of quantitative and qualitative performance of operational units; risk management plans; physical-chemical and microbiological diagnoses of process, in compliance with standards required by Decree 518, of 03/25/2004 of the Ministry of Health.
Water Conveyance and Delivery Process: operation and maintenance of pipelines, pumping stations, reservoirs, and control structures; optimization of facilities operation; macro measurement; loss reduction management; demand estimates; contingence and rationing plans.Description of the Company's activities
The Company delivers basic sanitation services generally comprising water collection, conveyance, treatment, and distribution; sewage collection and treatment; and water reuse.
The Company considers itself the largest water and sewage utility in the Americas, in light of its net revenues in 2001 and the fact of operating the water production and distribution, and sewage collection and treatment systems in the State of São Paulo, where the larges Brazilian city, São Paulo, is located.
According IBGE data for 2000, the State of São Paulo with 37.0 million inhabitants is the most populated and the most economically productive Brazilian State, occupying 3% of the Brazilian territory equivalent to a total surface area of approximately 248,000 km².
The city of São Paulo has approximately 10.4 million inhabitants according to IBGE, and more than 18.5 million inhabitants in São Paulo Metropolitan Region that comprises 39 municipalities with 46% of the total population of the State, and is considered the second largest metropolitan region in the Americas.
To better meet the consumers' needs, SABESP divided its operation area into São Paulo Metropolitan Region and Regional Systems.Water Production, Conveyance, and Distribution
As of December 31, 2003, SABESP had 5.9 million water connections distributed over 49,657 km, of which 2.3 million were in Inland and costal areas, comprising a 30,291-km network.
The following table shows the volume of water produced and invoiced by SABESP in the corresponding periods:
In 2004, the Company made an average monthly distribution of 20.9 million m³ of bulk water, and 119.25 million m³ of retail water, amounting to an annual total of 251.1 million m³ and 1,431.0 million m³, respectively.
The following table shows all the Company's water distribution lines and connections in 2001, 2002, 2003, and 2004.
Nearly all São Paulo Metropolitan Region - SPMR is supplied by SPMR Integrated Water System operated by SABESP. All other municipalities, namely Diadema, Guarulhos, Mauá, Mogi das Cruzes, Santo André, and São Caetano do Sul purchase bulk drinking water from SABESP reservoirs, and are responsible for its intramunicipal distribution to their municipal companies, autonomous companies, or departments.
To serve more than 18 million inhabitants from the water treatment plants (WTP) to the consumption points, produced drinking water is transported and stored by a complex, integrated system of pipelines and large reservoirs, comprising some 1,400 km of pipelines and 138 regional. Remote supervision and control of this system have been uninterruptedly made since 1980 by the Operation Control Center CCO, which monitors some three thousand operation variables, such as pressures, discharges, temperatures, reservoir levels, pump status, etc.
Retail water is distributed to 368 municipalities of São Paulo Metropolitan Region, Inland and coastal areas, resulting in a total sale R$ 2,015.2 million.
In 2003, the Company made 64,927 new water connections in its operation area, benefiting 7.02 million people. The table below shows the new water connections in the Metropolitan Region, Inland and coastal areas, and the number of inhabitants benefited:
The Company operates approximately 27,000 km of water distribution ducts and pipelines in São Paulo Metropolitan Region, 22,472 km in Inland areas, and 8,570 km in the coast. São Paulo Metropolitan Region has 195 water reservoirs, 1,459 of which in Inland areas, and 201 in the coast (RR, RN, RS).
Treated water is distributed by SABESP through pipeline networks with diameters ranging between 100 mm and 2,500 mm. More than 90% of the Company's water distribution pipelines are made of cast iron or polyvinyl chloride (PVC), while a small percentage is made of other materials, such as steel, PEAD (high-density polyethylene). Residential water supply branches are mostly made of high-density polyethylene (PEAD), being the oldest units - a small percentage - made of galvanized iron or PVC. Most large-diameter pipelines are made of steel or cast iron, a small percentage of which is made of concrete.
The whole water conveyance and distribution system is pressurized and relies on reservoirs for demand regulation in high consumption periods. Storage tanks and pumping stations regulate the water flow through the pipelines to maintain the adequate pressure and the uninterrupted water supply.
A program for installation of intelligent valves to regulate the pressure of water flowing through the distribution lines is underway, and is aimed to adjust automatically to variations of downstream consumption needs. At consumption peaks, water outflow in pipelines reaches its highest point, but as demand drops, pressure increases and the resulting stress in the distribution line may cause significant water losses through cracks, and increased pipeline ruptures. Such intelligent valves are provided with programmed probes that feed the valves with demand data, and enable the reduction or increase of water supply to pipeline whenever water consumes oscillates.
In São Paulo Metropolitan Region, water distribution is little corrosive for pipeline material. Its corrosion levels are relatively low as compared to the network age. However, flow capacity loss caused by incrustations in older cast iron pipelines is a Company's concern.
The Company considers appropriate the conservation conditions of water pipelines in São Paulo Metropolitan Region. Because of age and external factors (vehicle traffic and population growth), the conservation conditions of water pipelines in SPMR tend to deteriorate more than Inland and coastal areas. To fight the effects of that deterioration, the Company has maintained a continuous water pipeline maintenance programs.
In Inland and coastal areas, water derived from several sources is little corrosive for pipeline material. Structural deficiencies or leakages from internal pipeline corrosion have not been a Company's concern. Flow capacity loss is related to incrustations in older cast iron pipelines.
The Coast shows a low incidence of external corrosion of pipeline material. External factors end by contributing for ruptures caused by soil movements, which occur more frequently in small pipelines.
Pipelines requiring maintenance are cleaned and internally lined, as necessary. SABESP is normally informed by the population of pipeline bursting or ruptures, through a toll free number provided by the Company.
In 2001, SABESP average service levels related to water connections were 100% in the State. Regarding water connections for residential and commercial consumers, SABESP pays the installation cost of up to 15 m of pipe, between the distribution line and the connection point in the consumer's household. Any excess shall be born by the residential or commercial consumer, including the costs of purchase and installation of water meter, and workmanship. Industrial consumers, on the other hand, shall bear all connections costs..
São Paulo Metropolitan Region - Water Production and Conveyance
São Paulo Metropolitan Region is surrounded by a green belt that produce surface waters for several uses, including public and industrial supply, irrigation, power generation, and transport.
SABESP operates the integrated São Paulo Metropolitan Region system comprising 8 drinking water producing systems, namely Cantareira, Alto Tietê, Rio Claro, Rio Grande, Guarapiranga/Billings, Alto Cotia, Baixo Cotia, and Ribeirão da Estiva.
SABESP largest producing system is Cantareira, formed by the reversion of part of Jaguari, Jacareí, Cachoeira, and Atibainha river basins, which form Piracicaba river, in addition to Juqueri river in Alto Tietê basin, which has, through its Guaraú WTP, a production capacity of some 33 m³/sec, corresponding to almost 50% of water supply to the whole São Paulo Metropolitan Region.
The second largest producing system - Guarapiranga, is located on the opposite side, to the South, on the border of Serra do Mar, with a production capacity of 14.0 m³/sec. Rio Grande System
(branch of Billings dam) is located in that same area, with a production capacity of 4.8 m³/sec, in addition to the small Ribeirão Estiva System with a production capacity of 0.1 m³/sec.
To East, we can find the springs of Alto Tietê System, which has a production capacity of 10 m³/sec. The area of influence of Alto Tietê water producing system includes Rio Claro system, with a production capacity of 4.0 m³/sec.
To West, there is Cotia Producing System divided into Alto Cotia and Baixo Cotia. Alto Cotia plant has a production capacity of 1.2 m³/sec, while Baixo Cotia has a production capacity of 0.9 m³/sec.
From WTPs to the consumption points, water travels thousands of kilometers of pipelines, reservoirs, and distribution lines up to the households, consumes power and requires permanent services, such as engineering inspection, maintenance, quality monitoring, and measurement and loss control. In São Paulo Metropolitan Region, where it is active in 39 municipalities, the Company operates 24,055 km of pipelines and 195 reservoirs, in addition to 1,232.6 km of treated water pipelines.
The table below summarizes the characteristics of each of the major reservoirs and dams used by SABESP for water supply to São Paulo Metropolitan Region:
Overexploitation of water sources that had posed a problem for the Company in the last recent years, was finally solved, and now the treatment plant capacity is adjusted to meet the Company's production levels.
Over the last ten years, SABESP has increased its average production capacity from 57.4 m³/sec in 1994 to 68.2 m³/sec in 2004.
São Paulo Metropolitan Region faces the highest demand level in summer months, while this demand is significantly reduced in winter months. When demand is high, summer coincides with the rainy season; when demand is lower, winter corresponds to the dry season in São Paulo Metropolitan Region.
The indicator that estimates the regular water supply by the Integrated Water System of São Paulo Metropolitan Region (SPMR) is the Distribution Regularity Index DRI, which could be defined as the percentage of hours per day when the minimum values established for outflow pressure or level of regional distribution reservoirs were exceeded. In 2004, SABESP reached DRI as high as 98.3%, which was classified as optimum.Inland
In São Paulo Inland SABESP maintains 6 business units and 1 district unit, which currently operate in 293 municipalities and serve a population of approximately 5.4 million inhabitants, equivalent to 38.7% of the urban population in the region.
The table below shows the number of municipalities and SABESP coverage area in each of Inland Business Units:
Currently, the Company operates in 36 coastal municipalities through the Business Units of Baixada Santista, North Coast, and Vale do Ribeira.
The table below shows the number of municipalities and SABESP coverage area in each of coastal Business Units:
Known as universal solvent, water always retain some residues of material that it contacts. Even natural fresh water in rivers, lakes, and water tables contains residues of substances present in the environment, such as dissolves salts, suspended particles, and microorganisms. SABESP uses conventional treatment processes in their water treatment plants.
The Company treats all water passing through the treatment plants before it is delivered to the distribution network. The type of treatment adopted will depend on both the water source nature and raw water quality. Raw water collected from rivers requires a thorough treatment, while raw water from aquifers requires less treatment based on chlorine disinfection.
To ensure that water supplied to the population is potable, the Company searches good quality water sources, and uses high treatment technology to eliminate all pollutants and health-threatening agents.
SABESP owns 191 WTPs, 25 of which are located in São Paulo Metropolitan Region, 133 in the Inland region, and 33 in the coastal region.
The main seven producing systems in São Paulo Metropolitan Region historically account for 70% of all water distributed by SABESP.
In WTPs operated by the Company, raw water undergoes a series of processes, such as disinfection, coagulation, flocculation, decantation, filtration, pH correction, and fluoridation. Among such processes, water fluoridation stands out. It consists of adding fluorsilicic acid to water at the proportion of 0.7 part/million m³, prior to water distribution to consumers. This process is directly related to the population's buccal health by reducing the number of tooth decay to the half.
All treatment stages and the use of auxiliary chemicals serve to destroy microorganisms likely to cause diseases, remove impurities, control the appearance and the taste, and ensure the quality of water supplied by SABESP.
The Company supplies high-quality treated water to the population of São Paulo Metropolitan Region SPMR that meet the specified potability standards set out in Decree 518/2004 of the Ministry of Health, even though some water sources in that region have been facing a deterioration process mainly caused by soil occupation in their hydrographic basins, which violate the environment and water resource protection laws.
Deterioration may eventually lead to the occurrence of alga in dams and consequently make the collected water taste and smell. This made SABESP implant additional treatment processes, such as adsorption by powdered activated coal, and oxidation by potassium permanganate, with the objective of mitigating such problems and meeting the production costs.
Raw water quality is periodically monitored in predefined points in dams through sample collection, which are sent to the Company's laboratories for analysis. In addition to the conventional collection and analysis methods, SABESP is provided with electronic sensors in some of those dams for real-time monitoring of some water quality parameters, thus allowing a faster decision making with respect to the most adequate treatment of collected water, and actions in dams to ensure the production.
Some analyses require equipment with a certain sophistication level and specific methods, such as chromatography and spectrometry for organic compounds, and atomic absorption for heavy metals, which are analyzed in the Company's Central Laboratory.
Emphasis should be given to the automation system called "Net Control" used by the Company, which has provided efficient results in physical-chemical and bacteriological analysis of water, as reading and typing errors are minimized, and enable a sensible reduction of the time for correction of any problem in water treatment process.
Overall, there are 15 laboratories strategically distributed by the Company to meet a monthly demand of 130,000 analyses. The Company also relies upon the cooperation of some 200 trained, skilled professionals, including biologists, chemical engineers, and chemists. R laboratories hold ISO 9001-2000 certification, and 3 of them are accredited by Guide 17025.Guarapiranga Dam
Guarapiranga dam, located in São Paulo Metropolitan Region, is the second larger SABESP reservoir, and meets some 20% of the region's water needs. Guarapiranga dam is a lake that has been polluted by non-treated sewage from slums and irregular settlements located near the reservoir, which violate the water resource protection law. As a tropical lake subject to high summer temperatures, Guarapiranga dam is a natural environment for alga blooming. This problem is exacerbated by non-treated sewage disposal in the reservoir, which feed the algae.
As a result, SABESP can now and then face alga blooming problems that give the water bad taste and smell. To mitigate this problem, SABESP implemented additional treatment processes, such as adsorption by powdered activated coal and oxidation by potassium permanganate. All chemicals used on the treatment process are safe for human consumption, however alga problem causes significant additional costs because of the increased volumes of chemicals used in water treatment.
In the event that restrictions to water use are imposed in the future without the implementation of advanced treatment techniques (currently being designed), quality of waters from that reservoir may get worse, and the consumers may use limited volumes of that water or refuse to pay for it.Sewage Treatment and Effluent Discharges
Until December 2004, approximately 60% and 69% of all sewage collected by the Company in São Paulo Metropolitan Region and Department of Regional Systems, respectively, were treated in the Company's treatment plants. Non-treated excess sewage is directly discharged in river and in the Atlantic Ocean. Currently the Company operates 408 sewage treatment, and 8 ocean outfalls.
Sewage collection network comprises a series of systems dating from different times, mostly made of ceramic pipes and, more recently, PVC pipes. Pipelines with diameter of more than 0.5 m are mostly made of concrete. The sewage system is generally designed to operate by gravity, even though pumping stations are required for some parts of the sewage collection system to ensure the continuous sewage flow. When pumping stations prove necessary, cast iron is used.
The Company's sewage treatment basically consists of physical separation processes and natural biological processes to decompose the organic matter and reduce the content of components that are harmful to the environment. This treatment aims to meet the environmental standards for sewage discharge in watercourses, as established by article 18 of the State Decree no. 8,468/76 e by CONAMA Federal Resolution no. 20. On the other side, industries discharging their liquid effluents in the public sewerage system, treat those effluents, as necessary to meet the quality standards established by article 19 of the State Decree no. 8,468/76.
Sewage treatment in plants includes several phases, such as: primary treatment, which is the main process for separation of suspended solids occurring in non-treat sewage. Solid material (mud) sediments at the bottom of the tank, is removed, and then transported to the mud treatment process. Sewage remaining after this process is submitted to secondary treatment or directly discharged in water bodies.
The main secondary sewage treatment method used by SABESP is the activated mud process, where the natural action of bacteria is used to decompose the organic matter contained in sewage. Under the activated mud process, sewage obtained from the primary treatment passes through aeration tanks that are continually replenished by recirculating activated mud. Mixture in tanks is
agitated and aired to enable the microorganisms in the activated mud to degrade the organic matter contained in incoming sewage. Mixture of effluents and activated mud produced by this process moves to the final sedimentation stage.
The main sewage collection networks are not currently sufficient long to transport all collected sewage to the treatment plants. As a result, a part of sewage collected by SABESP is discharged untreated in receiving waters, thus causing high pollution levels in such water bodies. The investment program includes projects to increase the quantity of treated sewage.
In São Paulo Metropolitan Region and in large Inland cities served by the Company, the process adopted for secondary sewage treatment, is that of activated mud.
New sewerage connections are substantially similar to water connections. SABESP pays the cost of installation of the first fifteen meters of pipe between the sewerage network and the residential or commercial connection. Industrial customers are responsible for the cost of extension and connection to the sewerage network.São Paulo Metropolitan Region
SABESP finds that the conservation conditions of sewerage networks in São Paulo Metropolitan Region is overall adequate. Because of the increased volume of collected sewage, the population growth, and the commercial and industrial development, the conservation conditions of the sewerage networks in São Paulo Metropolitan Region is somewhat worse than those in Inland and coastal areas. Aiming to fight the deterioration effects, SABESP maintains a continuous program for maintenance of sewerage pipelines, which prevents ruptures from obstructions caused by the system overload.
SABESP treats some 61% of all sewage collected in São Paulo Metropolitan Region at its sewage treatment plants, the 5 largest of which (Main Sewerage System) have the capacity to treat some 18 m3/sec of sewage. The table below shows the current sewage treatment situation in São Paulo Metropolitan Region:
SABESP treats some 69% of sewage collected in the Department of Regional Systems in its 408 STPs.
In Inland region, sewage treatment includes most cases of varied forms of stabilization lagoons, such as: (i) serial optional; (ii) Australian (anaerobic followed by optional); and (iii) aired, in addition to specific cases of activated mud in the municipalities of Franca and São José dos Campos.
There, the structural conditions of sewerage network in general are considered good. Different from São Paulo Metropolitan Region, the Inland region in general has experienced no obstructions caused by sewerage overload.Coast
Along the coast, the structural conditions of sewerage network are also considered good. The Coast faces obstruction in its sewerage system mostly caused by sand infiltration occurred especially in rainy periods in summer months. Moreover, the number of sewerage connections in the coast is significantly lower than in other regions served by SABESP. Only 49% of all houses in the coast are currently connected to the sewerage system.
Notwithstanding the high treatment level, sewage collection in the coast is still unsatisfactory.
In the coast, most sewage treatment systems adopt the activated mud process; however, in the municipalities of Santos, Guarujá, Praia Grande, São Sebastião, and Ubatuba, a great portion of sewage is discharged through outfalls to the Atlantic Ocean. Additionally, SABESP is considering the implementation of sewage treatment system by conventional activated mud process and batelada (alternate aeration). In Vale do Ribeira region, treatment by stabilization lagoons is also used.Mud Production, Disposal or Utilization
Waste (mud) generated from sewage treatment processes contains approximately 65% water and 35% solids. The Company employs press-filter for iodine dehydration. Alternately, the Company uses a centrifugation process for mud dehydration, the performance of which is lower than that of press-filters. In 2004, the Company produced approximately 127,750 tons of wet mud base in São Paulo Metropolitan Region, which were later disposed in sanitary landfills.
Franca STP currently produces about 33 ton/day of biosolid. Biosolid from Franca STP was registered in the Ministry of Agriculture under the name of Sabesfértil, and is supplied to farmers in coffee plantations in the region. The use of mud as soil conditioner in banana and peach palm plantations, especially in the Coast has been considered.
In SPMR, studies of use of biosolids in forests are being developed jointly with Luiz de Queiroz College of Agronomy of São Paulo University.Water Reuse
Reuse means using the water again after an adequate treatment. Planned water reuse is part of a global program led by the United Nations Organization and World Health Organization.
SABESP produces reuse water in its STP in SPMR for non-drinking urban uses, such as street and yard wash, irrigation of green areas, clearance of sewerage pipes, and car wash.
The Company supply reuse water through a specific pipeline or truck. Currently SABESP supplies 20 l/sec of reuse water to Coats Corrente, by an exclusive pipeline
Using tank-trucks from SPMR STPs, SABESP supplies some 700 m³/month to the Municipality of São Caetano do Sul, 900 m3/month to Santo André, 20,000 m3/month to São Paulo, and 400 m3/month to each of Carapicuíba, Baruer, and Diadema.Rational Water Use Program
The Rational Water Use Program - PURA focuses on water demand, and intends to encourage the Rational Use by technological actions and customers' awareness, with the objective of facing water resource shortage. The main focus of the program is the hydrographic basins in critical water availability conditions.Services Offered by PURA:
We highlight below some activities developed from 2004 to this date:
Disk-SABESP 195 is a customer service hotline that provides the consumers with an easier and comfortable way to solve their problems associated with consumptions and bills, connection and other commercial requests, including copies of misplaced bills, thus avoiding personal visits to any of the Company's offices. An alternative is the Virtual Office, where a gateway in the Internet make the customers' contact with the Company easier, thus saving time at the request of services and information.
Water supply and sewage collection services are billed monthly on the basis of the water consumption.
Also, with the objective of improving the quality of its operational and commercial standards, the Company designated an External Commercial Service Technician (TACE), who issues bills and take several commercial notes, such as data update, check of potential frauds and irregularities in water meters, and operational notes, such as leakage detection. For the customer, TACE is a substantial gain as far as service is concerned, because a number of problems leading to complaints and requiring visits to the Company's offices have been eliminated.São Paulo Metropolitan Region
The Company distributes water through the Metropolitan Department to 37 São Paulo municipalities at its North, South, East, West, and Center Business Units. The table below shows the number of municipalities and SABESP coverage area in each of its Business Units in São Paulo Metropolitan Region.
In December 2004, the Company had some 6.4 million water connections serving 8.8 million economies around its operation area. Its water network extends over an extension of approximately 58,073 km, 27,029 km of which are located in São Paulo Metropolitan Region, and 31,043 km in inland and coastal regions.
Water supply coverage rate in São Paulo Metropolitan Region is 100%, meaning that 100% of urban households in the municipalities of São Paulo Metropolitan Region served by SABESP are connected to its distribution network.
In São Paulo Metropolitan Region, about 30% of the distribution network is constituted of over 40-year-old pipelines that bring some distribution problems. To fight effects of hydraulic pipeline deterioration, the Company maintains a continuous program for maintenance of water ducts and pipelines. Maintenance comprise the repair of leakages in lines and branches, change of pipelines in older sections where there is high incidence of leakages, and rehabilitation of sections affected by incrustations, by cleaning and lining the pipelines.
As to leakages, in 2004 the average repair time in São Paulo Metropolitan Region was 18 hours.
In 2004, the Metropolitan Vice-presidency of Distribution performed more than 95 thousand new water connections, implanted 264 km of new pipelines, and made more than 435 thousand water leakage repairs.
Loss Reduction Program
In 2004, SABESP revenue losses amount to 34.0% .
SABESP has implemented a number of measures in São Paulo Metropolitan Region to reduce both physical and non-physical losses. The Company has acquired pipes and parts that meet the current technical specifications and standards, and improved the training of its own and outsourced workforce engaged in leakage repairs, to avoid the recurrence of this type of work, and consequently recurrent water losses.
To reduce non-physical losses, the Company has taken measures to improve the measurement system by replacing, servicing, and adjusting the water meters, fighting frauds and illegal connections, and issuing the bills at the reading time, in addition to the information provided to customers by TACE (external commercial service technician).
SABESP has emphasized the operational improvement of water distribution networks and pipelines with the purpose of reducing real (leakages) and apparent (commercial) losses. With respect to the management of the loss reduction program in SPMR, the following achievements in 2004 should be highlighted:
Also with respect to leakage causes, the Company has made surveys to identify the critical leakage areas. At the same time, the use of new Technologies to detect non-visible leakages (those that do not come out to the street surface), including the use of sonar, have also contributed to identify leakages in the distribution network. Water loss reductions have helped the Company to meet the increasing demand, in particular in the city of São Paulo, and improve its results.Sewage Collection
In addition to water production, conveyance, and distribution the Company is responsible for sewage collection and treatment, as well as the discharge and final disposal of solid waste, effluents, and other residues from treatment.
On December 31, 2004, the Company had collected 82% and 73% of all sewage produced in the municipalities operated by SABESP in São Paulo Metropolitan Region and municipalities of the Department of Regional Systems, respectively, comprising approximately 4.7 million sewerage connections and 6.8 million economies listed in its operation area.
The Company is responsible for the operation and maintenance of approximately 36,435 km of sewerage network, approximately 17,586 km of which are located in São Paulo Metropolitan Region, and 18,849 km in inland and coastal areas.
The table below shows the development of the sewerage system:
In 2004, some 1,141.4 million m³ of sewage collected in the State of São Paulo were invoiced, of which approximately 770.7 million m³ in São Paulo Metropolitan Region, and 370.7 million m³ in inland and coastal areas.
The Company's sewerage system comprises networks that date from different times and are made of such materials as ceramic pipes, and more recently, PVC pipes. Sewerage pipelines with diameters larger than 0.5 meter are mostly made of concrete.
The Company's sewerage system is designed to operate by gravity, even though pumping stations are required in some parts of the system to ensure the continuous sewage flow. When such stations
are necessary, the system is constituted of cast iron pipes. Industrial sewage collected by the Company may be significantly different from residential effluents in terms of composition. Guidelines for disposal of industrial effluents in sewerage systems are established in article 19A of the State Decree no. 8,468, of September 8, 1976, as amended by the State Decree no. 15,425, of July 23, 1980. The basic assumption of such guidelines is that industrial effluents interfere with the biological process typically adopted in sewage treatment plants; as such, such effluents should be treated in such a way to allow the final effluents to meet specific parameters established by the guidelines above. The law requires the industries that produce industrial sewage to make the pretreatment of that sewage to allow certain parameters to met prior to sewage disposal in the Company's sewerage system. Even though CETESB, in its capacity of São Paulo environmental agency, to check and enforce such parameters, the Company analyzes the sewage produced by industrial customers on a periodic basis.São Paulo Metropolitan Region
Currently, SABESP operates 17,586 km of sewerage system in São Paulo Metropolitan Region, plus some 2.9 million connections, and serve 4.6 million registered economies, i.e., 82% of that region's population. In 2004, the Company billed 770.7 million m³ of sewage in São Paulo Metropolitan Region, equivalent to R$ 1,506,087,000.
In 2004, 84,000 new sewerage connections were made to benefit some 360,000 people, and the sewerage network was expanded by 78 km.
The Company considers that the current conservation conditions of the sewerage network in São Paulo Metropolitan Region are generally good. Because of the greater volumes of collected sewage, the population growth, and the commercial and industrial development, the conservation conditions of the sewerage network in São Paulo Metropolitan Region are likely to deteriorate quicker than in inland or coastal areas. To fight the deterioration effects, the Company maintains a program for continuous maintenance of sewerage networks to stop eventual ruptures and obstructions in the system.Inland and Coast
Current SABESP operates 18,849 km of sewerage networks in inland and coastal areas, and some 1.9 million registered sewerage connections benefiting 2.2 million registered economies, corresponding to 73% coverage of the region. In 2004, the Department of Regional Systems made 53,000 new sewerage connections to benefit some 175 thousand people, and expanded the sewerage system, in particular in the municipalities of Taubaté, Pindamonhangaba, São Vicente, Itanhaém, Praia Grande, Peruíbe, Mongaguá, Guarujá, Caraguatatuba, São Sebastião, Registro, Sete Barras, Juquitiba, São Lourenço da Serra, Barra do Turvo, Eldorado, Iporanga, Jacupiranga, Cajati, Itariri, Juquiá, Miracatu, Tapiraí, Cananéia, Iguape, Pariquera-Açú, Apiaí, Barra do Chapéu, Itaoca, Ribeira, Itapirapuã Paulista, Mococa, Serra Negra, Colômbia, Presidente Prudente, Presidente Epitácio, Campo Limpo Paulista, Várzea Paulista, Itatiba, Morungaba, Jarinu, Cabreuva, Itupeva, Hortolândia, Mombuca, Elias Fausto, Paulínia, Monte Mor, Alto Alegre (Jatobá São Martinho), Bento de Abreu, Brejo Alegre, Floreal, Monte Aprazível, Nova Luzitânia, Nhandeara (Ida Iolanda), Nipoã, Planalto, Piratininga, Monte Alto, Santa Ernestina, Candido Rodrigues, Fernando Prestes, Cajobi, Palmares Paulista, Jales, Dolcinópolis, Paranapuã, Populina, Turmalina (Fátima Paulista), Pontalinda, Mesópolis, Dirce Reis, Vitória Brasil, Aparecida DOeste, Palmeira DOeste,
Marinópolis, Auriflama, Sud Mennucci, Bandeirantes, Guzolândia, General Salgado, Urânia, Nova Canaã, Rubinéia, Santa Albertina, Santa Clara, Santana Ponte Pensa, Três Fronteiras (Socimbra), São Francisco, Santa Salete, Aspásia, Alvares Florênce, Cardoso, Estrêla D´Oeste, Fernandópolis, Indiaporã, Nova Granada, Ouroeste, Orindiuva, Riolândia, São João das Duas Pontes, Valentim Gentil, Boituva, Iperó, São Manuel, Pederneiras, Areiópolis, Águas de São Pedro, Charqueada, and Laranjal Paulista.
In 2004, the Department of Regional Systems earned a gross income of R$ 461,931,000, corresponding to the collection of 370.7 million m³ of sewage.
Unlike São Paulo Metropolitan Region, inland sewerage system in general experiences less obstructions caused by overload.
In the coast, the sewerage system experiences obstructions mostly caused by sand infiltration, especially in rainy periods in summer months. Moreover, the percentage of coverage of sewerage connection services in the coast, in particular in North Coast Business Unit, is lower than in other regions served by the Company.Major Markets and Consumers
In 2005-2009, sewerage connections was estimated to have increased by approximately 810,000 benefiting a population of 2.8 million people
Regarding the market potential for new concessions, SABESP has a good perspective of the possibility of negotiations with those municipalities of São Paulo Metropolitan Region where the Company sells bulk water (Diadema, Santo André, Mauá, São Caetano, Mogi das Cruzes, and Guarulhos), like the agreement signed with the municipality of São Bernardo do Campo in December 2003, effective in January 2004, which resulted from the settlement of accumulated debts of the municipality to SABESP.
Such municipalities account for a market of some 3.1 million people, and a potential revenue of some R$ 300 million/year.
In fact, renegotiating the existing agreements would mean maintaining the current market and the resulting increases from the populations' vegetative growth.
The Company delivers the services referred to above to varied types of consumers, which can be classified into four different categories: (i) residential; (ii) commercial (service providers, commercial centers, universities, and hospitals, as well as any other business classified as commerce by IBGE); (iii) industrial (manufacturing and processing activities, according to IBGE classification); and (iv) public (entities of the Executive, Legislative, and Judiciary Branches, autonomous public companies, and public foundations).
There is also another type of consumer that does not fit the categories above, namely the municipalities that buy bulk water and make the water distribution. In such cases, the Company does not enter into concession agreements for water distribution, as this service is carried out by the respective municipalities.
The tables below provide data on physical volumes of water supply and sewage collection for the given periods, by class of consumer:
Start of operation of sanitation services in the municipality of Itapira
On April 01, 2004, SABESP took over the basic sanitation services in the municipality of Itapira, by a concession granted for a period of 30 years from March 24, 2004, for the amount of R$ 14.034.000 estimated by the Economic-Financial Evaluation Report.Tariffs Charged
Because of its capacity of concessionary of public services, tariffs charged by SABESP for delivery if its services are considered as public prices, and therefore are not subject to the Federal Government's regulation.
Specifically with regard to the Company, the State Decree no. 41,446, of December 16, 1996 (the "State Decree no. 41,446") provided for the Regulation of the Water and Sewage Tariff System for services provided by the Company, such tariffs to be calculated on the basis of differences and peculiarities of such services, and the diversities of geographic areas or regions, in compliance with such criteria as class of use, fixed and variables costs, among others.
Tariffs are set on the basis of the following factors: (i) class of use; (ii) water meter capacity; (iii) consumption characteristics; (iv) consumed volume; (v) fixed and variable costs; (vi) seasonal variations; and (vii) social and economic conditions of residential consumers. Calculation of tariff/sewage bill, as established by the State Decree no. 41,446, considers the corresponding volume of water billed in the period or consumed from a particular system, as measured or estimated by SABESP.
Bulk water supply is also charged on the basis of tariffs established in accordance with the regulation of the Decree mentioned above. Aforementioned criteria are used to establish different tariff systems for each of the three regions, namely São Paulo Metropolitan Region, Inland, and the Coast.
Each tariff system includes cross-subsides under which certain customers subsidize the provision of water and sewerage services to other clients. At the consumption ranges, the Company uses the excess tariff charged to users of great volumes to compensate for lower tariffs paid by users of small volumes, which in terms of residential customers, are likely low-income customers. Regarding the classes of use, non-residential consumers subsidize the residential consumer. With respect to regions covered by SABESP, São Paulo Metropolitan Region subsidizes inland and coastal regions. In terms of products, water supply subsidizes sewerage.
The Company improved its tariff system in August 1997, by dividing the tariffs into two new categories: residential and non-residential. Residential tariff category is subdivided into (i) basic residential, (ii) popular, and (iii) slums. The latter two have been created to benefit low-income consumers, by charging reduced consumption tariffs. Non-residential tariff category includes (i) private companies (commercial and industrial), and governmental entities, (ii) non-profit entities that pay 50% of the current non-residential tariff; and (iii) registered up-to-date governmental entities that have entered into water loss reduction agreement with SABESP, and pay 75% of the current non-residential tariff.
Since August 29, 2003, IRT - Tariff Adjustment Index of SABESP has been calculated by a formula where basic sanitation costs and expenses are grouped into two portions (A & B) to reflect more appropriately its development. Portion A includes expenses related to power supply, treatment material, federal, state, and municipal taxes and duties including CPMF and COFINS/PASEP; and financial compensation charges from water resource exploration for public supply. Its update is determined by the annual variation of this group of expenses over the 12 months before the application of the adjustment. Portion B includes all other costs, and is updated by the application of IPCA - Comprehensive Consumer Price Index published by IBGE Brazilian Geography and Statistics Institute.
By applying the formula to calculate the IRT - Tariff Adjustment Index implemented in 2003, SABESP adjusted the water supply and sewage collection tariffs on August 29, 2004 by 6.78% applied linearly to all consumption classes and ranges.
In April 2004, studies for SABESP tariff restructuring started, which comprises the study of the Company's costs reflecting its economic efficiency and long-term self-financing, and including the payment capacity of low-income families. A Marketing Plan for customer and market segmentation will also be designed to consider their specificities, in addition to a proposal for improvement of business practices in SABESP. Works are expected to be concluded by October 2005.
Sewage tariffs charged in each region are based on the monthly water consumption. In São Paulo Metropolitan Region and in the Coast, sewage tariffs are equivalent to water tariffs. In the inland,
sewage tariffs are equivalent to 80% of water tariffs. Bulk water tariffs are uniform in SPMR municipalities.
Because of the unavailability of a regulatory agency for the basic sanitation sector, the Company, by way of precaution, has submitted reports to the Administrative Council for Economic Defense on a periodic basis, providing information on the plan of tariffs charged per consumer class, its composition and adjustment criteria. So far, the Company has never received any notification from that entity for possible violations of laws that protect the popular economy and competitiveness in Brazil.
SABESP tariff policy offers a more equitable form of charge that is adequate to the needs of underprivileged classes, to ensure the low-income population's access to basic sanitation services, thus contributing for public health and life quality. This practice strengthens SABESP social responsibility for services delivered to the population.Nonpayment and billing procedures
In 2004, revenue evasion in the Company, i.e. the ratio between overdue unpaid bills and total invoices was 11.5%, as compared to 11.07% in 2003, and 7.58% in 2002.
Revenue evasion is a different nonpayment measurement. Nonpayment indicates the volume of bills that remains unpaid on the first day following the respective due date. Revenue evasion means the total sales less the amounts received over a particular period, and is therefore a more accurate measurement of the performance of the Company collection.
The Company has taken a series of legal measures aimed to decrease the level of revenue evasion. However, the Company is not sure that it will be able to implement all necessary measures, or that such measures, once implemented, will ensure the total elimination of revenue evasions and nonpayment.
The first amendment signed on March 22, 2004, consolidates the State's debt to SABESP, and includes the water supply and sewage collection overdue bills up to February 2004, in the amount of R$ 581,779,000.
The State and SABESP will mutually give acquittance of their respective credits up to the limit of R$ 360,667,000. The outstanding balance of the State's consolidated debt in the amount of R$ 221,111,000 will be paid in 60 equal, successive monthly installments. The first 12 installments on the nominal amount of R$ 44,222,000 will be offset by part of interest on the equity capital related to corporate years before 2003.
Municipalities that purchase bulk water, of which Guarulhos, Santo André, Mauá, and Diadema are the most significant, represent another group of the Company's expressive debtors. As at 12/31/2003, the amount of overdue accounts receivable from those customers was as high as 506,300,000.
Billing of services delivered by SABESP is based on measurements and readings of water supplied and sewage collected. Services are measured and read in two ways: (i) reading and immediate issuance and delivery of bill; and (ii) reading and subsequent issuance and delivery of bill.
In São Paulo Metropolitan Region, the former method is adopted for all classes of users, except special customers whose bills are delivered at a later time. In inland and coastal areas, the latter method is adopted; however, the same process adopted in São Paulo Metropolitan Region is starting to be implemented in some inland and coastal municipalities.
To implant the process of immediate issuance of bills, the Company designed and implemented the program TACE Customer Service Technician, with the duty of both reading the consumption and delivering the respective bill, in addition to customer service duties.
The Company charges fine, delay interest, and monetary correction to overdue payments: the fine is 10%, delay interest is 1% p.a., and monetary correction is based on UFESP (State of São Paulo Fiscal Unit). No fine or delay interest is charged to governmental customers.
There is a maximum lapse of 10-12 days between the delivery of bills and their due date, while the interval between the readings of two consecutive consumptions is 28-31 days.
Claims of overdue, unpaid amounts is outsourced 45 days after the respective due date of bills. Claims starts by contacting the customers. If nonpayment shall remain for more than 60 days after the due date, the Company suspends water supply to the debtor; however it estimates that 25% of such customers subsequently make illegal connections. For accounting purposes, the Company regards as default when the bill of overdue for 30 days or more.
In São Paulo Metropolitan Region, SABESP uses laptops to monitor water meter readings. The system enables the reader to insert in the computer the measurement levels shown in the meters and automatically print the water or sewerage bill for the consumer. The laptop monitors the water consumption and the quantity of sewage in each measured site, and issue bills based on effective meter readings. The Company has outsourced this billing system to firms that employ and train their employees to read the meters, and supervises that training. SABESP is currently implementing a computer-aided reading of water meters in some inland municipalities where its services are provided.
Additionally, the Company entered into risk agreements for judicial proceedings, effective in March 2002.
SABESP has participated in International Sanitation Projects by providing technical consulting support through its experts or joint-ventures of national consulting firms.
The major activities carried out by the Company in that field include:
Based on Net Operating Income parameter, SABESP ranks first in its specific Basic Sanitation activity, and ranks sixth among the state-owned companies, as published in Gazeta Mercantil Annual 2004 Balance Sheet fiscal year of 2003 issue of August 2004.
SABESP also stands out for obtaining in 2003 the 10th highest EBITDA (profit before interest, taxes, depreciation, and amortizations) among non-financial joint-stock corporations.
Transparency Award granted by ANEFAC-FIPECAFI SERASA. SABESP is the only company selected among 10 finalists in seven years of existence of this Award.
In 2004, SABESP implanted approximately 264 km of water distribution lines and 154,000 new water connections in the 368 municipalities where it operates and serve 100% of the urban population. It expanded sewage collection services by implanting further 799 km of collecting network and 137,000 sewerage connections to reach the sewerage coverage level of 78%. Thereby, by the end of 2004, SABESP served directly a population of some 22.3 million inhabitants with water supply, and some 18.2 million inhabitants with sewage collection all over assisted municipalities.
The Company also reduced the service time for water and sewerage connections from an average of 31 and 55 days to an average of 5 and 15 days, respectively, over the last 6 years. In nearly all regions, it is already possible to schedule with the customer the most appropriate date for execution of requested services. In that period, the average time for leakage repair dropped from 40 to 18 hours, while removing obstructions from household network branches are now made in an average of 12 hours, as compared to an average of 32 hours in the past.
The technology adopted for sanitation activity assumes the condition of natural monopoly in the concession area, because of the need to distribute drinking water to the population from some treatment plants and reservoirs. For sewerage, in contrast, it is necessary to collect the sewage generated through the capillarity of individual facilities, and transport it to its final destination. Under such circumstances, practically there is no possibility of competition.
The existence of a regulatory agency to balance the monopolistic relationship between such service providers and their customers is, therefore, highly important.
Regarding the loss of current concessions, it should be noted that in most of cases there are concession agreements that grant SABESP the exclusive provision of such services, and provide for compensations in the event of termination of existing agreements.
Where SABESP operates without any concession agreements with the municipalities, the State of São Paulo assumes the role of Conceding Party, as such municipalities are part of metropolitan regions where the State historically has been involved in basic sanitation activities.
One of SABESP corporate strategies is directly focused on the topic: Maintaining Our Current Concessions and Obtaining New Concessions and Operations, with the objective of renewing all SABESP concessions at their expiry dates. A work group has been established to follow up the concession expiry dates as they occur. Additionally, SABESP is considering the possibility of obtaining new concessions for delivery of water and sewerage services in municipalities of the State of São Paulo where it does not operate, or only supplies bulk water, which account for a total population of approximately 15 million inhabitants.
13.01 RELEVANT PROPERTIES
History of the Major Shareholder, Audit and Board Members Participation between 04/30/2004 and 08/23/2005
SHAREHOLDING POSITION ON 08/23/2005
To meet the Company's investment needs provided in the Capital Budget under the Pluriannual Investment Plan, in the amount of R$ 3,870.7 million for the period of 2004-2007, the amount of R$ 438,941,096.57 was transferred from the Accumulated Profits account to Investment Reserve account.
Capital Budget 2004-2007 Pluriannual Plan Law no. 11,605, of December 24, 2003.
Law no. 11,605 established the Pluriannual Plan of the State Government for the 4-year period of 2004/2007 for the Basic Sanitation programs, focused on water and sewerage service universalization.
Financial budget values extracted from PPA-2004-2007 / LOA - Managerial Follow-up (in current R$ thousands)
Payment of interest on declared equity capital related to the fiscal year of 2005 is scheduled to start in 60 days after the date the 2006 General Ordinary Meeting is held.
This is the 8th Public Debentures Issue to be made by the Issuer.
Number of Debentures, Unit Face Value, Total Amount and Date of the Issue
The issue comprises 600,000 (six hundred thousand) debentures, in 2 (two) series with face value R$ 1,000.00 (one thousand Brazilian reais) ("Unit Face Value"), totaling R$ 600,000,000.00 (six hundred million Brazilian reais) ("Total Amount of the Issue").
For all legal purposes, the date of Issue of the Debentures is June 1, 2005 ("Date of Issue").Series Number
The Issue will be made in 2 (two) series, one of 300,000 (three hundred thousand) Debentures of the 1st Series (1st Series Debentures") and 300,000 (three hundred thousand) Debentures of the 2nd Series (2nd Series Debentures").Convertibility, Type and Form
The Debentures will be simple, nominative, book securities not convertible to the Company's shares.Placement
The Debentures will be publicly distributed, under firm warranty at the Maximum Remuneration Rates, with intermediation performed by financial member institutions from the securities distribution system through SDT, administered by ANDIMA and operationalized by CETIP.Additional Debentures Option
Pursuant to CVM Instruction no. 400/03 Article 14, paragraph 2, the Issuer may, at its sole discretion, increase the number of debentures in each Series to be issued under the terms of the Deed of Issue by up to 20% (twenty percent) of the amount of Debentures of each Series originally planned, i.e. by up to 60,000 (sixty thousand) Debentures of the 1st Series and up to 60,000 (sixty thousand) Debentures of the 2nd Series without needing to apply for a new registration with the CVM or alter the terms of the Issue.
The Debentures will be of the subordinated type.
Period and Date of Maturity
The tenor of the 1st Series Debentures will be 4 (four) years as of the Date of Issue and mature on June 1, 2009. The 2nd Series Debentures will have tenor of 6 (six) years as of the Date of Issue and mature on June 1, 2011.
After the corresponding maturity dates, the Issuer assumes an obligation to proceed to settle Debentures still circulating at Unit Face Value plus Remuneration calculated on a pro rata temporis basis, as of the last date of payment of said Remuneration.Distribution and Trading
The Debentures will be distributed in the primary market through SDT, administered by ANDIMA and operationalized by CETIP. The placement will be settled at CETIP and registered for trading in the secondary market (a) on SND, administered by ANDIMA and operationalized by CETIP, with custody and trades settled by CETIP, and (b) on BOVESPA FIX, where trades will be settled, and custody arranged by CBLC.Date and Form of Subscription and Payment
Pursuant to § 3 of the article 59 of the Law of Joint-Stock Companies, Debentures may be subscribed at any time during the period of public distribution, which will be up to 2 (two) business days as of the date of the publication of the Initial Announcement, with cash payment at the time of subscribing. Payment will be made in local currency.Price of Subscription
The Debentures will be subscribed and paid up at Unit Face Value plus Remuneration, calculated pro rata temporis as of the Date of Issue through the date of payment.Debentures Certificates
The Issuer will not issue Debentures certificates. For all legal purposes, ownership of the Debentures will be shown on the statement issued by Banco Bradesco S.A. as depository institution of the Debentures (the "Depository Institution"). Furthermore, SND will forward an "Assets Position Report accompanied by a statement in the name of the Debenture Holder, issued by the financial institution responsible for custody of these securities when deposited with SND. For Debentures deposited with CBLC, the latter will issue a custody statement in the name of the Debenture Holder.Remuneration of the 1st Series Debentures
As of the Date of Issue, the 1st Series Debentures will yield interests corresponding to the accumulated variation of the average daily Interbank Deposits rate "over extra group", calculated and announced by CETIP as the DI rate (locally "Taxa DI"), capitalized with a spread of 1.50% (one and fifty hundredths percent) per year, based on a 252 business-day year, on the Unit Face Value of the 1st Series Debentures, as of the Date of
Issue, and paid at the end of each Capitalization Period, as defined below, in accordance with the following formula ("Remuneration for the 1st Series").
The average daily rates accumulate exponentially using the pro rata temporis criterion until the date of cash payment of interest charges to cover the entire Capitalization Period.
Calculation of Remuneration for the 1st Series will be based on the following formula:
J = VNe x (InterestsFactor - 1)
The DI Rate should be used to the same number of decimal places, as announced by the responsible organization in its calculation, except when explicitly indicated otherwise.
If CETIP fails to announce the DI Rate on the maturity date of any financial obligations of the Issuer, the latest DI Rate announced will be applied, and no compensation shall be made between Issuer and Debenture Holders when the DI Rate that would have been applicable is subsequently announced. If the DI Rate is not announced for a period of over 10 (ten) consecutive days, the provisions of the following paragraphs will be applied to determine the new parameter for Remuneration for the 1st Series.
Absence of Announcement: In the case of extinction, absence of determination and/or announcement for more than 10 (ten) consecutive days after the expected dates of determination and/or announcement, or in the event of legal impossibility of applying the DI Rate to the Debentures, or judicial determination, the Trustee must, within 20 (twenty) days of the event, call a General Meeting of Debenture Holders and, in mutual agreement with the Issuer, decide the new parameter for Remuneration for the 1st Series to be proposed by the Issuer.
If the Issuer and Debenture Holders representing at least 2/3 (two thirds) of the Debentures in circulation fail to agree on the new Remuneration for the 1st Series, the Issuer must redeem all 1st Series Debentures in circulation within 30 (thirty) days of the date of holding the General Meeting of Debenture Holders to be paid
at Unit Face Value plus Remuneration due up to the date of actual redemption, calculated pro rata temporis as of the Date of Issue or the date of the last payment of Remuneration, whichever is applicable. In this case, to calculate the Remuneration applicable to the 1st Series Debentures to be redeemed, the latest officially announced DI Rate will be used with an Additional over the DI Rate.
Remuneration of 2nd Series Debentures
As of the Date of Issue, the 2nd Series Debentures of the present Issue will be entitled to remuneration including the updated Unit Face Value and remunerative interests ("Remuneration for the 2nd Series" and, when designated together with the Remuneration for the 1st Series, simply "Remuneration"), in the following manner:Update
The 2nd Series Debentures will have their Unit Face Value updated as of the Date of Issue in accordance with the variation in the IGP-M (General Index - Market Prices), as determined and announced by Fundação Getúlio Vargas, using the following formula:
For the purposes of the above definitions, anniversary dates are the dates corresponding to the first business day of each month, and "base date is the anniversary date of each month.
The IGP-M index number must be used to the same number of decimal places as the number announced by the organization responsible for calculating this index.
On the date of subscription of the Debentures, and solely for the purposes of determining the subscription price, if there is no announcement of the IGP-M for the month in which the Debenture subscription takes place, the number to be used for calculating the updated Unit Face Value of the Debentures shall be the latest IGP-M forecast made by ANDIMA and published in advance by Fundação Getúlio Vargas (FGV), available at "www.andima.com.br" or, in the absence of the latter, the latest officially announced IGP-M, and no financial compensation between the Issuer and Debenture Holders shall be due when the IGP-M that would have been applicable is subsequently announced.
The IGP-M will be applied annually or in the shortest period allowed under the legislation in force; in this case, there will be no need for an amendment to the Deed or any other formality.
If there is no IGP-M announcement on the maturity date of any financial obligations of the Issuer, the latest IGP-M announced will be used, calculated pro rata temporis, and no financial compensations between Issuer and Debenture Holders shall be due when the IGP-M that would have been applicable is subsequently announced. If there is no IGP-M number announced for a period of over 10 (ten) consecutive days, the determination stated in the following paragraphs will be used to set the new Remuneration parameter for the 2nd Series.
Absence of Announcement: In the event of extinction, absence of determination and/or announcement for more than 10 (ten) consecutive days after the expected date of determination and/or announcement, or in the event of legal impossibility of applying the IGP-M to the 2nd Series Debentures, or judicial determination, the Trustee must, within 20 (twenty) days of the event, call a General Meeting of Debenture Holders and, in mutual agreement with the Issuer, decide the new Remuneration parameter for the 2nd Series.
If there is no agreement on the new Remuneration for the 2nd Series between the Issuer and Debenture Holders representing at least 2/3 (two thirds) of the Debentures in circulation, the Issuer must redeem all the 2nd Series Debentures in circulation within 30 (thirty) days as of the date of holding the corresponding General Meeting of Debenture Holders at the balance of its Unit Face Value plus the Remuneration due up to the date of actual redemption, calculated pro rata temporis as of the Date of Issue or the date of the last payment of Remuneration for the 2nd Series, whichever is applicable. In this case, the calculation of the Remuneration applicable to the Debentures to be redeemed will be based on the latest IGP-M officially announced, plus remunerative interests, as follows.Remunerative Interests
The 2nd Series Debentures will be entitled to payment of remunerative interests, to be determined by applying a fixed rate of 10.75% (ten and seventy-five hundredths percent) per year on the updated Unit Face Value of the 2nd Series Debentures, calculated on the number of business days elapsed using a base year of 252 (two hundred and fifty-two) business days, as of the Date of Issue, and paid at the end of each Capitalization Period as defined below, calculated on a compounded capitalization pro rata temporis basis for the number of business days.
Interests will be calculated in accordance with the following formula:
For the purposes of calculating Remuneration for the Debentures, Capitalization Period is defined as:
For the 1st Series Debentures, the period of time beginning on the Date of Issue, inclusive, in the case of the first Capitalization Period, or in the immediately previous date of the maturity of Remuneration for the 1st Series, inclusive, in the case of the other Capitalization Periods, and ending on the next maturity date of Remuneration for the 1st Series, exclusive.
For the 2nd Series Debentures, the period of time beginning on the Date of Issue, inclusive, in the case of the first Capitalization Period, or in the maturity date of the immediately previous Remuneration, inclusive, in the case of the other Capitalization Periods, and ending on the next maturity date of the corresponding Remuneration, exclusive.
Each Capitalization Period succeeds the previous one without interruption.
There will be no amortization of the Unit Face Value, which will be paid in full on the corresponding maturity date of the Debentures.Payment of Remuneration
The amounts relating to Remuneration for the 1st Series must be paid every six months, on June 1st and December 1st each year.
The amounts relating to the Remuneration for the 2nd Series must be paid as follows: (i) Updating: together with the payment of the Unit Face Value of the 2nd Series Debentures, which must be on their maturity date, i.e. June 1st, 2011; and (ii) Remunerative Interests: annually, on June 1st each year.Optional Purchase
The Issuer may, at any time, acquire 1st Series and/or 2nd Series Debentures circulating in the market in accordance with the provisions of paragraph 2 article 55 of the Law of Joint-Stock Companies. The Debentures purchased may be canceled, remain in the Issuer's treasury or be returned to the market.Optional Premature Redemption
There will be no premature redemption of the Debentures.Renegotiating
There will be no renegotiation of the Debentures.
Late Payment Charges
If payment of any amount due to Debenture Holders is delayed, the amounts in arrears will be subject to a late penalty of 2% (two percent) of the amount overdue and late interest charges calculated as of the date of default to the date of actual payment at the rate of 1% (one percent) monthly on the amount due, irrespective of any warning, notification or judicial or extrajudicial appeal, as well as the expenses incurred for collection.Loss of Rights to Additional Amounts
Without prejudice to the above provisions, any Debenture Holder failing to show up to receive the amount corresponding to any of the financial obligations of the Issuer on the dates set forth herein, or in an official announcement published by the Issuer, shall lose their right to remuneration and/or late charges for the period relating to the delay but is nevertheless assured of the rights acquired until the corresponding maturity date.
Any of the events below are seen as cases of premature maturity of the 8th Issue and immediately subject to requirement of payment by the Issuer of the Unit Face Value of each Debenture plus Remuneration and charges calculated pro rata temporis as of the Date of Issue or the last Date of Payment of Remuneration, irrespective of any warning or notification to the Issuer:
The occurrence of any of the events indicated in sub items (a) to (d) above will lead to premature maturity of the Debentures, which will depend on the Trustee delivering notification of this to the Issuer pursuant to the sole paragraph of article 13 of CVM Instruction no. 28, of November 23, 1983.
On the occurrence of events indicated in sub items (e) to (m) above, the Trustee must, within 48 (forty eight) hours of the date on which it becomes aware of the occurrence of any of said events, call a General Meeting of Debenture Holders to decide on the declaration of premature maturity of the Debentures, in observance of the specific quorum stated below. The General Meeting of Debenture Holders stipulated in this item may also be called by the Issuer.
The General Meeting of Debenture Holders referred to in this item, if Debenture Holders representing at least 2/3 (two thirds) of the Debentures in circulation are present, may decide not to declare premature maturity of the Debentures.
In the event of (i) the General Meeting of Debenture Holders mentioned above failing to obtain a quorum or (ii) the exercise of the faculty stipulated above not being approved by the minimum quorum required for decisions, the Trustee must declare premature maturity of the Debentures in the terms indicated above.
General Meeting of Debenture Holders
The General Meeting of Debenture Holders is subject to the provisions of article 71 of the Law of Joint-Stock Companies.
Debentures held in treasury of the Issuer or owned by the Issuer's directors, board members or administrators, including its subsidiaries, related companies or those under common control and their relatives to the second degree, shall be excluded from the quorum required to make decisions.
A General Meeting of Debenture Holders may be called by the Trustee, the Issuer, by Debenture Holders representing at least 10% (ten percent) of the Debentures in circulation or by the CVM.
A General Meeting of Debenture Holders shall be instated on the first call if Debenture Holders representing at least half of the Debentures in circulation are present and, on the second call, any quorum is required.
In the deliberations of the General Meeting of Debenture Holders, each Debenture in circulation shall have one vote and powers of attorney shall be accepted, whether Debenture Holder or not. The General Meeting of Debenture Holders will take decisions when the Debenture Holders present represent at least the majority of the Debentures then in circulation, except for cases in which a specific quorum is determined under the terms of the Deed of Issue or the legislation in force.
Alterations affecting Remuneration for the maturity period of the Debentures and/or premature maturity events for the Debentures must be approved, either on the first call to General Meeting of Debenture Holders or on any subsequent call, by Debenture Holders representing 85% (eighty-five percent) of the Debentures in circulation.
Alterations of the quorums determined in the Deed of Issue must be approved, either on first call of the General Meeting of Debenture Holders or on any subsequent call by Debenture Holders representing 100% (one hundred percent) of Debentures in circulation.
The General Meeting of Debenture Holders, as described in the above item "Premature Maturity", may, if there are Debenture Holders representing at least 2/3 (two thirds) of the Debentures in circulation, decide not to declare premature maturity of the Debentures in the cases mentioned therein.
The Trustee, the Issuer, the CVM or Debenture Holders representing at least 10% (ten percent) of the Debentures of a given series in circulation may separately call a General Meeting of Debenture Holders to decide matters of interest specifically to the Debenture Holders of the corresponding series. In this case, the provisions relating to the installation quorum and decisions mentioned above will apply only to the Debenture Holders of this particular series.
Matters of specific interest of Debenture Holders of each of the series of the Issue may only be decided by Debenture Holders of the corresponding series.Extension of Periods
Periods of due dates for payment of any obligation by any of the parties, including Debenture Holders, in relation to the payment of the subscription price, will be considered to be extended until the 1st subsequent
business day, if maturity coincides with a holiday on which no commercial or banking business is conducted in the City of São Paulo, State of São Paulo, without any addition to the amounts to be paid, except in cases where payments must be made by CETIP or CBLC, in which case there will only be an extension when the payment date coincides with a national holiday, a Saturday or a Sunday.
Place of Payment
The payments to which the Debentures are entitled will be made using (i) the procedures adopted by CBLC for the Debentures registered with BOVESPA FIX; or (ii) the procedures adopted by CETIP for debentures registered with SND; or (iii) for holders of Debentures in the Issue that are not linked to these systems, through the Lead Bank for the Issue.Debenture Holders Immunity
If any Debenture Holder enjoys any type of tax immunity or exemption, they should contact the Depository Institution and the Issuer at least 10 (ten) business days before the date stipulated for receiving amounts relating to the Debentures to provide documentation supporting the tax immunity or exemption.Limit of the Issue
The Issue is governed by the limits stipulated in article 60 of the Law of Joint-Stock Companies, since the share capital of the Issuer, on March 31, 2005, was R$ 3,403,688,565.23 (three billion, four hundred and three million, six hundred and eighty-eight thousand, five hundred and sixty-five Brazilian reais and twenty-three cents) and the amount of the Issue, plus the amount corresponding to debentures of other issues made by the Issuer in circulation on March 31, 2005 was approximately R$ 2,258,478,000.00 (two billion, two hundred and fifty-eight million, four hundred and seventy-eight thousand Brazilian reais).Lead Bank and Depository Institution
The lead bank and depository institution for the Issue will be Banco Bradesco S.A. ("Lead bank" and "Depository Institution").Authorizations
The Issue was approved by a meeting of the Issuer's Board of Directors held on May 19, 2005, the minutes of which were registered with the Commercial Registry of the State of São Paulo (local acronym JUCESP) under no. 156.392/05 -7 on June 1st, 2005, and published in Diário Oficial do Estado de São Paulo (Official State Gazette) and in the newspaper Folha de S. Paulo on June 3, 2005.Publicity
Any actions and decisions taken arising from this Issue that may, in any way, involve the interests of Debenture Holders, including Announcement of the Beginning and end of public distribution of the Debentures, must be announced in the form of notifications in Diário Oficial do Estado de São Paulo (Official State Gazette) and in the newspaper Folha de S. Paulo.
The Issuer hired Standard & Poor's to compile a risk rating report for this Issue. The summary of this report is included in the Annex to this Supplement.
Standard & Poor's classified the Offer as "brA".
Places where the Debentures may be Purchased
Those interested in purchasing Debentures may contact the Intermediate Institutions at the addresses shown below:UNIBANCO - União de Bancos Brasileiros S.A.
Avenida Eusébio Matoso, n.º 891 18º andar
05423-901 São Paulo - SP
Att.: Mr. Rogério Assaf G. Freire
Telephone: (11) 3097-4230
Fax: (11) 3097-1830
Banco Santander Brasil S.A.
Rua Amador Bueno, no. 474 3rd floor, Block C
04752-005 São Paulo SP
Att.: Mr. Ricardo Leoni
Telephone: (11) 5538-6792
Fax: (11) 5538-8252
Banco ABN AMRO Real S.A.
Avenida Paulista, no. 1.374 14th floor
01310-916 São Paulo - SP
Att.: Mr. Ciro Giannini
Telephone: (11) 3174-6830
Fax: (11) 3174-6809
USE OF FUNDS
The funds raised by the Issue will be used to settle financial obligations of the Issuer maturing in 2005, and in particular to pay holders of debt notes (Eurobonus) issued by the Company with the following characteristics: (i) date of issue: July 28, 1997; (ii) date of maturity: July 28, 2005; (iii) principal: US$ 275.0 million, corresponding to approximately R$ 661.0 million on May 31, 2005; (iv) interests rate: 10% (ten percent) per year; and (v) periodicity of interest charges: half-yearly. If the funds are insufficient to pay off this debt due to varying exchange rates, the Issuer may have to use own funds. On the other hand, if the varying exchange rate leads to surplus funds, they will be used for payment of other debts maturing in 2005. Furthermore, the coordinating banks have provided a firm warranty for the placement in the total amount of the issue.
Since the funds to be raised will be used exclusively to settle previous financial commitments of the same nature, there are no expected effects on the total assets situation and earnings of the Issuer.
EXPANSION AND MODERNIZATION PROJECTS
Maintenance of the current water supply coverage rate of 100% in assisted municipalities, including those recently added, through the implementation of 810,000 connections in the period of 2005/2009 to benefit approximately 2.85 million inhabitants.
Metropolitan Water Program:
In terms of regularity of supply by the Metropolitan Conveyance System, as indicated by IRA -Conveyance Regularity Index, the average value of 98.3% was obtained in 2004, which is classified as 'excellent'.
To comply with the population vegetative growth, some 95,000 water connections were made, thus maintaining the rate of water supply coverage of 100% in SPMR.
Investment Program in Inland and Costal Areas:
inhabitants in several municipalities located in inland and coastal areas of the State, among which the following stand out: São José dos Campos, Santos, São Vicente, Bertioga, Guarujá, Registro, Cananéia, Iguape, Campo Limpo Paulista, Várzea Paulista, Itatiba, Cabreuva, Itupeva, Hortolândia, Mombuca, Elias Fausto, Paulínia, Monte Mor, Alto Alegre (Jatobá São Martinho), Fernandópolis, Indiaporã, Nova Granada, Riolândia, etc.
Water production increased by 50 l/sec in production systems constituted of deep driven wells that currently account for 77% of water sources, and 55% of assisted communities, by sinking new wells in the communities of Cachoeira Paulista-Embaú, Joanópolis, Lins, Mairiporã, Nhandeara -Ida Iolanda, Oriente, Pirapora do Bom Jesus, Quintana, Santa Maria da Serra, and rehabilitating existing wells in the municipalities of Capela do Alto, Elias Fausto, Emilianópolis, Gália, Itapetininga - Conceição, Mombuca, Presidente Bernardes, Quintana, Salto de Pirapora, Sarapuí-Cocais, São José dos Campos, Flórida Paulista, and General Salgado.Sewerage
To increase population coverage rate from 77% to 78% through the implantation of 810,000 new connections (including those under Tietê and Guarapiranga Projects) to benefit approximately 2.6 million inhabitants.
Tietê Project: in 2004, an amount of some R$ 215 million was applied to the construction of 14 km of interceptors, 42 km of trunk collectors, 448 km of sewage collection networks, and 52,000 new residential connections; by December, the
trunk collectors of Pirajussara Jusante, Antônio, Caxingui, Socorro-Marginal and the works of Grajaú Force Mains were concluded. Works of 247 km of sewage collection networks, residential connections (25,000 new connections), sewage
interceptors (11 km), and trunk collectors (25 km) are underway.
New Regional Management Model
SABESP is today the result of the Management Model implanted by the current administration, comprising a decentralized organizational structure managed by regionalized Business Units based on its physical-territorial planning - hydrographic basins - which have proved to be the most effective sanitation management unit, and allow the economic-financial feasibility at regional level. The Company has improved the current Regionalized Management Model by focusing on the excellence of the final customer service through the implementation of prioritized macro processes; quality management programs involving the whole productive chain; review of approved Institutional Policies and implementation of priority Institutional Policies; a organizational structure consistent with the model assumptions; and an evaluation system that would lead to a synergy between the Senior Management and Business Units, including permanent evaluation and corporate control.
To provide technical support to the process of improving the Management Model improvement process, and ensure that the Company's actions are effectively consistent with the Strategic Guidelines specified in its planning process, SABESP started in 2004 the implementation of a management tool based on Balanced ScoreCard BSC principles, which evaluates the Company's performance from four perspectives: (i) Finances; (ii) Customers; (iii) Internal Processes; and (iv) Learning and Growth.
That work also provides for the implantation of the Project Management Office PMO, which is a form of organization constituted of individuals, processes, and systems to support the teams at the management of action plans of the portfolio of activities (macro actions) planned under the Balanced ScoreCard BSC. To give priority to such initiatives, the Company is using the decision-making support method AHP Analytical Hierarchy Process, which evaluates the projects according to such criteria as Strategic Impact, Complexity, and Urgency.
All this work associated with Strategic Planning and Management Support Mechanisms has been implemented in such a way to take another important qualitative step toward the Company's management.
SABESP is the first public company to implant the Electronic Price Quotation System in the Internet, initially for purchase prices up to R$ 16,000, which gave it more agility and transparence in procurement of goods and reduction of costs by some 20%.
Several initiatives have been implemented for the optimization of Supply Systems, among which the following should be highlighted:
Business to Business (B2B) Quality Standard Award For the second consecutive time, SABESP joined major public and private companies to receive a award in the category of "Public Services -Public Concessionaire'. The event is an initiative of B2B Magazine, Câmara e-net, and E-Consulting, which evaluated all works presented. SABESP was a winner with the Electronic Procurement Management System SGL.Human Resources
In the Human Resources area, the Participation in the Results Program was resumed, as a way to provide the Company with an effective, competitive staff management, and strengthen the personnel's skills, abilities, development, and commitment.
The implementation of the Corporate University fostered the development of skills that are essential to overcome corporate challenges, where priority was given to remote education. Capacity Building and Development results proved expressive, and included a total of 60,453 participations in field and remote activities, at a total hour load of 52,260 hours/man/training.Management of People By Skills
The year of 2004 was characterized by the need to consolidate and enhance the Staff Management Model, which required consistent and accurate steps to prepare for the future.
In line with the most advanced market trends, SABESP has adopted since 2002 the Staff Management Model by Skills, which recognizes and adjusts the business objectives to staff
development. This year, the model structure was reviewed to support the implementation of proposed improvements that would lead to the integration and better follow-up of the Company's staff management process.
Participation of Municipalities/Regionalization
The Regional Management System constituted of an Assembly of Mayors that elects the Regional Management Committee for each Business Unit, has enabled an extensive participation of the Conceding Party.
This Regional Management System has also been established in all Regional Business Units in the Department of Regional Systems and São Paulo Metropolitan Region.
The expressive and increasing participation of municipalities translates a significant political support to the Company's Management Model.
The difference between the different regions in the Country regarding employment opportunities and the providing of urban services, under conditions that cause a strong vegetative increment in the population, have caused a continued migration toward the Southeast, particularly to São Paulo, where the internalization of economic growth has confirmed the expansion of the Sates urban network. The intense process of urbanization within the State of São Paulo has generated considerable population masses which have settled on the edge of the large urban centers. These regions, which are deficient in social equipment and in sanitary infrastructure, have rendered environmental problems keener, deriving from a particular pattern of special occupation characterized by non-regulated human settlements and by an intensive contamination of natural resources.
Through the use of specific legislation, CONAMA has since 1988 been defining which are the sanitation works that need environmental licensing, and which require the elaboration of environment-related studies, which in turn must be submitted to the analysis of the State Office for the Environment SMA, and to other agencies having jurisdiction over the matter so as to authorize the location, installation and the operation of sanitation projects.
Thus, in compliance with the new Environment Laws that are currently in effect, Sabesp has been aggregating environment-related aspects to the technical-economic ones so as to obtain better integrated treatment forms and a better approach regarding the environmental question faced by the Company.
The activities executed by the Company in the planning and the implementation of projects related to water supply, sewage impounding and treatment systems, as well as the dumping of effluents and the final disposal of residues are subject to a set of federal, state and local laws, decrees, as well as to the resolutions that have been enacted to protect the environment.
Within the State of São Paulo, control of environmental pollution, governed by State Law no. 997, dated May 31, 1976 is the responsibility of Cetesb, in the role of the agency that has been deputized by the Government of the State of São Paulo to perform this function.
The building and the operation of ETAs and of ETEs, as well as the dumping of effluents and the final disposal of residues derived from the treatment of sewers must comply with environmental standards that have been determined in the legislation currently in force, and to the environmental licensing provisions that have been defined, particularly State Decree no. 8,468/76 and Conamas Resolution 20/86, which has been revised during 2004 and published as Conamas Resolution 357 dated May 17, 2005, as well as State Decrees nos. 47,400-02/2002 and 47.397 -02/2002.
Moreover, irrespectively of the obligation to repair environmental damages that may be possibly caused, non compliance with environmental laws and regulations may result in the imposition of penal and administrative sanctions.
Pursuant Federal Law no. 9,605/98, physical individuals (among others while in the performance of their functions including the directors, administrators and managers of legal entities) may be punished by penalties restricting their rights and their freedom, and as far as legal entities are concerned, the penalties may vary from fines, rights restrictions and the rendering of services to the community. Administratively speaking, the sanctions may vary from warnings and fines until the total or partial abeyance of activities, which may also include the loss or the restriction of tax incentives and the canceling or the abeyance of lines of credit granted by official credit institutions, as well as the enjoinment against getting contracts from public institutions.
The building, installation, expansion and the functioning of sanitation works that make use of environmental resources, and which may be construed as being effectively or potentially polluting (especially the ETEs) depend on prior environmental licenses.
The process of environmental licensing is made up of three stages, during which the environmental agency issues the following licenses:
(i) A Prior License which encompasses the preliminary stages of the project and which list the basic requisites that must be complied with during the location, installation and operation phases, in compliance with the norms for the use and the occupation of the soil.
(ii) An Installation License which authorizes the start of the implementation, according to the specifications of the executive project that has been approved, and
(iii) An Operating License which authorizes the start of the licensed activity and the functioning of control equipment, according to the terms of the previous licenses mentioned above.
When the undertakings that have been subject to the environmental licensing process, as result of their size, nature and peculiarity, may cause significant impacts on the environment, the environmental licensing process will depend on the approval by appropriate authorities of environmental impact studies, developed by professionals from different specialties.
By law, the Company is obliged to pay Cetesb or the Office of the Environment a fee for the analysis of its requirements and technical opinions regarding the environmental licensing process for their undertakings, the amount of which varies according to their complexity. In order to obtain the environmental licenses issued by Cetesb, the Company must pay a fee of 0.5% of the total cost of the implementation for each undertaking at the time the Installation License is being requested, plus a 0.5% fee when the Operating License is requested.
Institutional Environmental Policy and Environment Control Measures to be Taken by the Company
The mission of the Company is to universalize public sanitation services within the State of São Paulo and to provide quality services and products to the local and international markets, guiding itself (among others) by the commitment with environmental salubrity in a competitive and self-sustaining fashion, together with social and environmental responsibility. To that effect, the projects of the Company purport to abide by the following directives: (i) the rational use of and the sustained development of hydric resources; (ii) the conservation, protection and rehabilitation of the environment; (iii) the technical, economic-financial, environmental and social viability; and (iv) compliance with environmental laws that are part of the Institutional Environmental Policy of the Company.
To that effect, ever since 1995 the Company has been maintaining organizational units within its structure that are responsible for the development of environmental studies, procedures, programs and environment-related actions intended for the protection, rehabilitation and conservation of hydric resources in compliance with the norms and standards established by current environmental laws.
In compliance with environment-related laws in effect, in October, 1998, the Company instituted a program purporting to progressively regularize the status of its undertakings that had still to accomplish the environmental licensing process or which had not yet reached adequate environmental standards.
The Company intends to accomplish an important role regarding the environmental sanitation of the municipalities where it operates, properly fulfilling its obligations before relevant state and local public organs. The Company is also aware that with the progressive implementation of sewer impounding and treatment systems, and the melioration of the existing ones, and in congruence with its investments plan, it will become active in the prevention of damages to the environment in the sense of gradually downsizing the events of pollution caused by the sewer generated by the population of the cities being served, within its role regarding environmental sanitation.
Therefore, in order to insure that the Companys actions are effectively aligned with the Strategic Guidelines defined in its planning process, Sabesp incepted in 2004 the implementation of a management tool based on the Balanced ScoreCard Principles (BSC) through which it evaluates the performance of the Organization from four different perspectives: (i) Financial; (ii) Client Related; (iii) Internal Processes; and (iv) Learning and Growth. Within this context, one of the strategic objectives was the preparedness directive to enable the Company to attain environment-related excellence, acting with social responsibility through a corporate environment management plan and a training program to manage the environment.
All this Strategic Planning work as well as the Tools Providing Management Support are being implemented so as to take one more important qualitative step toward the management of the Company.
The major environmental projects of the Company are listed to whit:Major Environmental Projects
The Tietê Project
The Tietê River flows across the São Paulo Metropolitan Region and it receives the major part of the sewers garnered throughout the region. In 1992, after a popular movement that garnered over one million signatures, and which got the communication media involved, the Government of the State of São Paulo created the Project to Clean Up the Tietê River, the object of which was to progressively downsize the polluting load brought by the sewers of the São Paulo Metropolitan Region and dumped into the hydrographic basin of the Tietê River, and the Company was given the challenge to end the pollution caused by the sewers within the São Paulo Metropolitan Region.
As function of the grandiosity of the task, the Tietê Project has been divided into stages, the first of which has already been concluded by the Company. In order to develop the first stage (1992-1998), the Tietê Project benefited from investments made IDB, the Inter-American Development Bank. The Company prioritized the investments that provide the greatest social returns by building 1,500 km of sewer collection networks and 250 thousand new connections with the objective to prevent the sewers from having any contact with the population, thus improving the health of the population of the São Paulo Metropolitan Region. Three new ETEs were built as well (São Miguel, Parque Novo Mundo e ABC) and the treatment capacity of the Barueri Station was expanded. As a result of all
this work, the sewer collection indexes went from 63% in 1992 to 80% in 1998. The treatment indexes went from 20% to 60% and the critical pollution stain on the waters of the Tietê, which had reached the Basing of the Mid-Tietê River in the Inland of the State of São Paulo receded over 100 km.
As an integral part of the first stage, the building of the Pinheiros outfall was concluded at the start of 2000, benefiting over 2.0 million people. With these works, 84 tons of sewer were blocked from being dumped into the Pinheiros River, being daily forwarded instead to the Barueri treatment station. A total of US$1.1 billion were invested in the works for the first stage, of which US$450 million were financed by the IDB, US$ 550 million were invested by the State of São Paulo and US$100 million were invested by Caixa Econômica Federal.
Sabesp is currently executing the second stage of the Tietê Project, which had its conclusion postponed from 2005 until 2007 as a result of the expansion of the scope of the program. The second stage involving funds in the amount of US$400 million initially envisaged the implementation of 1,200 km of sewer collectors, 140 km of interceptors and trunk-collectors, 290 thousand new home sewer connections and improvements in the treatment system, purporting to prevent in natura sewers from reaching the rivers and the brooks, thus optimizing the impounding and removal system so as to direct the effluents to the treatment stations, consequently promoting the use of its full installed capacity. Moreover, an industrial effluent control program has been envisaged through which 290 industries will be monitored by Cetesb. However, as result of the discounts obtained when the works were contracted, and due to the fluctuation of the US dollar, it was possible to expand the scope of the project by including a complementary construction works program which is currently undergoing bidding. The objective of the complementary works, valued at R$220 million is the same as that of the initial program.
The major areas for intervention during this 2nd. stage are located at the Billings Dam, at the Rio Pinheiros Basin and in the municipalities located West of the São Paulo Metropolitan Region. In 2007, with the conclusion of the civil works, indexes of 84% regarding collected sewers will have been reached for the SPMR (São Paulo Metropolitan Region), of which 70% will have been treated, taking into account the IBGE census for 2000. Until December 2004, some R$538 million had been invested in this program, which was incepted in 2001. This amount corresponds to US$ 186.2 million.
The civil construction works program that had been initially envisaged is having normal progress, complying with the envisaged schedule, whereby an advance of some 75% may be construed to have taken place.
Furthermore, continuity was given to environmental actions referring to:
- The Tietê River Water Quality Monitoring Program, as well as that of its major tributaries, with the objective to evaluate the results obtained for the works during the 2nd phase of the Tietê River Project regarding the quality of the rivers and the brooks located in the areas where interventions were taking place;
- Monitoring of the major sewer collectors;
- Environmental Education Program set up through covenants with Non Governmental Organizations.
Besides the aforementioned actions, an operational melioration program has also been included in the 2nd. Stage of the Tietê Project, with emphasis being placed on the 1st. stage of the implementation of the Geo-referenced Information System (GIS) at the SPMR, focused on commercial catering and service systems. This stage of the GIS has been practically concluded, and it was named SIGNUS. Some special studies have been envisaged as well, among which the ongoing Tariff Study should be mentioned.Guarapiranga Program
The basin around the Guarapiranga Dam is a home to over 750 thousand people, who are concentrated predominantly on urbanized low standard housing areas. Guarapiranga is the second major water source for the SPMR, having been accountable in 2004 for the average production of 13.62m 3/s of water reserved for public use.
The large population density at the Guarapiranga Basin region has been causing ever increasing problems to the water quality found at the reservoir. Through the Guarapiranga Program, which involved several state and municipal agencies, the Company labored to expand the water impounding system and the removal of the sewers that were polluting the water, besides developing projects and technological studies to improve the quality of the services provided for the SPMR. This program has been concluded, although the Guarapiranga water sources are still a source of concern and of studies within the context of the Environmental Sanitation Program of the Water Sources on the Upper Tietê.
Environmental Sanitation Program for the Water Sources at the Headwaters of the Tietê River
Success regarding the actions taken for the Guarapiranga Program, conjoined with the ever increasing need to face the problems related to the quality of the water around the water sources at the SPMR, including the need to improve the services provided the poorer populations, has boosted the interest to develop a new and a more encompassing environmental sanitation program round the water sources making up the Tietê Headwaters Basin. The Billings and Guarapiranga basins are the major areas of concentration for this new initiative.
The so-called Headwaters Program is still in its preparatory stage, being coordinated by the State Government through its Office for Energy, Hydric Resources and Sanitation, and it has the participation of several public organizations including Sabesp itself, such as the Office for the Environment (Secretaria do Meio Ambiente), the Urban and Habitation Development Company (Companhia de Desenvolvimento Habitacional e Urbano), and seven municipalities located within the SPMR, including the Municipality of São Paulo itself. It is expected that the program will be co-financed by the World Bank. The Program Consulting Letter, with a global budged of US$342.5 million, of which US$114 million correspond to Sabesps share, was forwarded to be examined by the Ministry of Planning during March, 2004, and it was further subject to changes and sent back to said Ministry in August of the same year. In case the Program is approved, its implementation is envisaged to take place between 2006 and 2011.
Environmental Rehabilitation Program for the Baixada Santista Metropolitan Region
This Program will be implemented through a partial financing granted by the Japan Bank for International Cooperation - JBIC, to the tune of Í21,320 million (R$ 571.5 million), including funds provided by the Company to the amount of Í17,901 million (R$ 479.9 million), totaling an investment of Í39,221 million (R$1,051.4 million), aiming to eliminate the pollution existing at the Baixada Santista Metropolitan Region and to insure the supply of good quality water in sufficient quantity ((Í1.00 = R$ 0.026808 according to the currency exchange rate in effect on February 26, 2004).
The signing of a loan agreement between Sabesp and JBIC occurred on August 06, 2004, and it came into effect on December 03, 2004. This loan agreement has a term of 25 years, and the period of grace before the loan needs to start being paid is of 7 years, with an amortization in 18 years and interest rates varying between 1.8 and 2.5% per year.
At this time (April, 2005) a Program Management agreement is being formalized, and approval of the bidding notice by JBIC is being awaited to start on the component parts of the Program.Rehabilitation of the Cantareira System
In order to build the Cantareira System, several interconnections using tunnels and channels were accomplished in 1967, connecting the several dams that supply this system. The works that were executed to build the Cantareira System required the removal of clay and of rocks, causing an impact over the environment that has become ever more serious as time goes by. Since 1996 the Company has been developing a rehabilitation project for the soil and to reseed the degraded areas surrounding some of the dams of the Cantareira System. Between January and July 2004 alone 28,515 borrowed seedlings were planted and replanted, and 167,291 planted seedlings have been maintained. During this period two more hydraulic terraces were built to contain erosion, besides the maintenance and the planting of grass on these terraces. Between planting and replanting, Sabesp has brought in a total of 445,400 seedlings.
The nurseries are essential elements for the rehabilitation of the environment and for the conservation of live resources aimed at sustainable development. Within this context, Sabesp is maintaining Forest Nurseries at Vargem and Morro Grande, where the garnering and the beneficiation of seeds is taking place and where tree props are made, generating a productive capacity of 40 thousand seedlings per month. All this investment purports to attain a natural balance around the areas surrounding the water sources so as to insure the quality of the water and the health of the population, besides enabling the Company to accomplish cooperation agreements such as the agreement celebrated between the Company and the International Consortium of the Hydrographic Basins for the Piracicaba, Capivari and Juniai Rivers for the donation of 200,000 tree seedlings. 45,000 seedlings of forest trees were produced in 2004, and some 250,000 seedlings underwent maintenance.Jaguarí Environmental Education Center CEAJ
Inaugurated in 2002, the Jaguari Environmental Education Center CEAJ encloses an amphitheatre big enough to accommodate 90 people, as well as other installations that are adequate for environmental education activities. During 2004, CEAJ received the visit of 1,500
Elementary and High School students from the municipalities around the area. Also in 2004 a Summer Course was held Environmental Health and Education, which had the participation of 500 professionals working at several regional segments and institutions.
Technical-Scientific Term of Cooperation Between Sabesp and PUC-Campinas
In 2004 the Company gave continuity to the set of activities deriving from the Technical Scientific Term of Cooperation celebrated between Sabesp and PUC-Campinas, purporting to carry out environmental studies related with the water fauna living at the Jaguari, Jacarei and Paiva Castro dams, located within the Cantareira System.PURA Rational Water Usage Program
Water is a vital element for both human beings and for the environment, being important both economically and culturally speaking. Water, however, is finite, and therefore, an unlimited consumption of this natural resource is not possible. Water is increasingly becoming scarce to cater to the needs of the large metropolises. This is due to their demographic growth and the change in consumption patterns.
In order to be able to control this situation, Sabesp has adopted an incentives policy regarding the rational usage of water which requires cultural changes to make the population aware of the problem. Thus, PURA is a program used to fight waste, and its paramount objective is to insure the supply of water and the maintenance of the life quality of the population, promoting the downsizing of consumption and the conservation of hydric resources, and consequently, by minimizing the need for new investments, since most of the times it allows the postponement of large scale civil works. In order to achieve this, PURA is acting on several fronts:
The implementation of the PURA Program was also concluded in 2004 at the State of São Paulo Legislative Units (Unidades da Assembléia Legislativa do Estado de São Paulo) (ALESP) and at the State Civil Service Medical Assistance Institute (Instituto de Assistência Médica ao Servidor Estadual) (IAMESPE).
The tasks for the implementation of the PURA Program at the Armys General Hospital (Hospital Geral do Exército) (HGE) in the district of Cambuci were also stared in March of 2004, and the internal sectorization stage, and the acquisition of instruments and tableware has also been concluded.
The Engineering Services Agreement for the implementation of the PURA program at PRODESPs headquarters, and at 5 POUPA TEMPO (Time Saving) Units (Santo Amaro, Sé, Itaquera, São Bernardo and Guarulhos) is at the bidding stage and regarding FEBEM (Tatuapé Unit) the agreement is at the signing phase.
Incentives Program to Reduce Water Consumption
During the dry period in 2004, Sabesp implemented the Incentive Program to Reduce Water Consumption within the São Paulo Metropolitan Region, which became known as the Water
Bonus program, giving a 20% discount on the water bill to people who would save water between March and September.
The population responded in a positive fashion to Sabesps appeals to reduce water consumption, and the result was that 50% of the water customers attained the reduction goals that had been established by Sabesp (20% below the average for the same period in 2003) and over 20% of the water customers reduced their consumption even if they failed to reach Sabesps goal. This response by practically 70% of the population enabled the savings of over 27 billion of liters of water during the period, and it contributed to minimize the risks of a crisis in water supply.Planned Water Reutilization
Reutilization occurs when water is used more than once, after having been adequately treated. Planned water reutilization is part of a global program recommended by the United Nations and by the World Health Organization. This program purports to attain three important elements which also coincide with Sabesps objectives: the protection of public health, the maintenance of the integrity of the ecosystems and the sustained usage of water.
Among the countless advantages behind water reutilization, one could mention the downsizing of the gross water volume obtained at the water source. Each liter of reused water represents one liter of drinking water destined to a more noble purpose: human consumption.
Water to be reused which is currently being produced and made available by the sewer treatment stations may be used to wash the streets and the yards, for general irrigation and to irrigate green areas, to unclutter the sewer grid and that used to drain away rain water, to settle down dust at construction sites and to prepare concrete.
The supply of reusable waters by Sabesp is already a reality: The project began with Coats, a company manufacturing Current Lines (Linhas Correntes) which uses the treated effluents generated by ETE Jesus Neto for the washing and the dyeing of its products. This water is transported over cast iron tubing 800 meters long, with diameters ranging from 150 to 200 millimeters. In May, 2001, the municipality of São Caetano do Sul started washing its streets after the street markets had closed down, and it waters its gardens using the water obtained from the ABC Sewer Treatment Station.
At the start of 2002, the municipalities of Barueri and Carapicuíba also started using reusable water. In July of 2002 an agreement was signed to supply up to 172 thousand liters of reusable water per day to several construction companies. This water is pumped from the ABC, Barueri and Parque Novo Mundo stations into water trucks provided by the companies. In August, 2002, the Reusable Water Reservation Center (Centro de Reservação de Água de Reuso) was inaugurated at the ABC sewer treatment station with the capacity to store 50 thousand liters.
As a result of what has been said, still in 2002, Sabesp reached a new diagnostic and the respective mapping of the utilization of reusable water, obtained through a network from industrial plants located in the SPMR. This study shows that there will be a demand for 673 liters per second in 2005 at the ABC and São Miguel water treatment stations (the most meaningful potential market), and of 878 liters per second in 2025. An investment of R$ 70 million will be needed to implement this program.
An agreement was signed in 2003 with the Municipality of São Paulo for the wholesale supply or reusable water, which was being produced at the ABC (188m3/day), Barueri (158 m3/day) and Parque Novo Mundo (263 m3/day) sewer treatment stations, thus going ahead with the expansion of the water reutilization program within SPMR.
In March of 2004 the municipality of Diadema started using reusable water when it signed an agreement for the supply of up to 100 m3/day of water.
Agreements with service providers were also signed in 2004 for the installation of Comgás pipes. This action was actuated by the company which states that this type of usage is an alternative that is correct from an environmental point of view.Inland
SABESP is active in 330 municipalities located in the Inland and on the sea coast of the State of São Paulo, and during 2004, it is expected that R$133 million will be invested by the Regional Systems Directorate (R), which until November of 2004 had already invested R$108 million. In regards to all these accomplishments we should stress the evolution of the following activities: In 2002, Sabesp got its Version 2000 ISO 9001 (Quality and the Environment Management System) Certificate for the entire municipality of Franca, which became the first Brazilian city to get such a certification for 100% of its basic sanitation system.
In 2003, Sabesp went ahead with the implementation of the Quality and Environment Management System within the context of the Regional Systems Directorate, which is in its final Version 2001 ISO 9001 certification stage, and which includes 21 cities, such as São José dos Campos, Santos, Lins, Registro, Caraguatatuba, Botucatu, Presidente Prudente, Itapetininga, Avaré, Itapeva, and São João da Boa Vista, among others. The following chemical analysis laboratories are part of the scope of said certification:
- Santos Business Unit Baixada Santista
Besides the above, the following sanitary control laboratories have been accredited by INMETRO for the ISO-17025 Laboratory Quality System:
- Franca - Pardo and Grande Business Units
In 2004, Sabesp went ahead with the implementation process for the Environment and Quality Management System within the context of Regional Systems Directorate which is at its final Version 2001 ISO 9001 certification stage, which includes an additional 72 cities:
On September, 17, 2004, ETE Limoeiro was inaugurated in the city of Presidente Prudente, having a nominal capacity to treat up to 529 liters per second of effluents. Coast:
Continuation of the Environmental Submarine Outfall Monitoring Program at Ilha Bela and Guarujá;
An agreement was signed with JBIC to execute the environmental pollution clean up project at the SBMR at Baixada Santista.
Management of the Environment and Social Responsibility
In 2004 the Company went ahead with its regular technical and administrative proceedings, aimed at the licensing of its undertakings from an environmental point of view, beginning with the elaboration of the appropriate environmental projects, studies and reports as instruments used for the planning of the Institutional Environmental Policy (Política Institucional Ambiental) to be followed by the Company.
Several activities have been developed to expand and to diversify the actions taken to protect public health from an environment and social responsibility points of view, improving the basic sanitation projects using the best planning and management techniques, taking into account the environmental aspects existing in all the stages of its undertakings.The Social Responsibility of the Company
The Strategic Planning Process defined the recognition as a company that is socially responsible as one of the Strategic Objectives for the Balanced ScoreCard (BSC), setting up indicators and social responsibility objectives for the Company. Thus, in the search of a unique reference point that could be used to guide Sabesps actions in this matter, a consensus was reached that this was the right point in time to go ahead with the implementation of a Corporate Social Responsibility Program which would focus in articulating the actions that are today being accomplished by the several directorates.
The Sabesp Social Responsibility strategic direction movement started with the setting up of Institutional Directives, Values and Principles of Collective Action, all of which was achieved in a participative fashion, involving directors, managers and the Social Responsibility Group encompassing the representatives of all the areas of the Company, seeking to convey the Sabesp way of doing business, standing on the social responsibility vision and on sustainability. The Sabesp Social Responsibility Institutional Directives are as follows:
1. To align and to integrate Social Responsibility Practices, supported by a vision of sustainability.
5. To integrate the company with the public to which it relates
The year of 2004 acted as the stepping off stage for countless social-environmental actions involving actors from the entire Sabesp universe. These actions derived from two vectors: the first oriented toward employees, their familiars and dependents and the second oriented to the benefit of the outside community living in the areas where Sabesp operates. Hundreds of professional people were mobilized from the most varied areas located around the 143 Social Responsibility Projects, of which 75% are outside community oriented and 25% are oriented toward the internal community, of which one could mention the following environment-related projects that formed the basis for the Social Evaluation of the Company in 2004:
- Sanitation cycle Clay Model
Technical Development Having Environment-Related Objectives
Technical Development is focused on the operational and environmental demands inherent to corporate strategies, seeking technical solutions, and aiming to downsize costs and to resolve both technical and environmental problems. The contribution toward the Loss Reduction Program is an example of this, achieved by using the macro measurements and by training the Technical Body involved in this activity in the São Paulo and in the Baixada Santista regions. Another example could be the expansion of the alternatives to dispose of treatment residues, by:
(i) using the mud from the ETEs in reforesting efforts, in the growing of maize, coffee, banana and pupunha palm tree;
Rationalization of the Use of Electric Power and its Costs Reduction
In 2004 Sabesp bought part of the electric power needed for its process on the Free Market, which propitiated a downsize in costs of R$10 million for the year. The actions deriving from its energy efficiency program and operational optimization resulted in additional savings of R$ 4 million. The Company celebrated a covenant with Eletropaulo worth R$ 3 million to implement energy-efficient projects in the SPMR. It ranked in the 1st. place among the 29 ongoing projects throughout Brazil regarding the Public Call Process for Conservation Projects and the Rational Use of Electric Power and Water in the Environment Sanitation Sector, carried out by the Ministries of the Cities and Mines and Energy, which resulted in a covenant celebrated with Eletrobrás/Procel-Sanear in the amount of R$ 1.3 million, of which R$700 were provided by Eletrobrás as goodwill fund.
Monitoring of the Quality of the Water at the Water Sources in the SPMR
Water sources and the hydric resources within the respective hydrographic basins of the productive systems that supply the SPMR are monitored, and 159 control points are being evaluated, including the control of the impounding of water originating in the large water sources. Focus is placed on the following major aspects:
- The evolution of the water quality as time goes by;
55,706 analyses were made in 2004, representing the totality of physical-chemical, organic, hydrologic and microbiologic parameters, by adding up the results from all the monitoring points being analyzed.Other Environment-Related Actions
Also included in the roster of environment-related actions accomplished during 2004, we could also emphasize:Within the São Paulo Metropolitan Region:
As recognition for the efficiency and the quality of the services rendered by Sabesp, several awards were granted to the Company, namely:
Through these examples, it may be seen that Sabesp ended 2004 by developing projects and promoting social and environmental far reaching actions, besides the several initiatives of environmental education implemented by its Business Units.
Such measures have served to consolidate an Environmental Program within the Company the object of which is to allow a gradual reduction of the demand on the environment, and to foment a sustained increment of the legal compliance levels within the Organization.
16.01 LEGAL PROCEEDINGS WORTH OVER 5% OF NET ASSETS OR NET PROFITS
THE BYLAWS OF SABESP
NAME, VENUE, PURPOSE, AND DURATION TERM OF THE COMPANY
ARTICLE 1 - COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO - SABESP, is a domestic corporation duly organized and existing pursuant to State Law No. 119, of June 29, 1973, shall be governed by these Bylaws and applicable legal provisions.
Sole paragraph The Company is a result of a merger between Companhia Metropolitana de Águas de São Paulo (COMASP) with Companhia de Saneamento Básico do Estado de São Paulo (SANESP).
ARTICLE 2 The nature of business of the Company is to plan, implement, perform and operate safe sanitation services in the State of São Paulo, including water catchment, delivery, treatment and distribution, including sewer (waste-water) collection, treatment and final disposal, to provide any such services and any direct or indirect benefits thereof, and providing any services in connection with the nature of its business, both in Brazil and in foreign countries; and hold interest in other entities of which the state government is a shareholder or a member, either directly or indirectly.
ARTICLE 3 The Company has its principal place of business and jurisdiction in the city of Sao Paulo, State of Sao Paulo, and it may open, keep and close down any branches, chapters, agencies or offices anywhere in the territory of the State of São Paulo, at the Board of Director's sole discretion.
ARTICLE 4 The Company shall exist in perpetuity.CHAPTER II
CAPITAL, SHARES AND SHAREHOLDERS ARTICLE 5
ARTICLE 5 Capital stock is Three billion, four hundred and three million, six hundred and eighty-eight thousand, five hundred and sixty-five Brazilian Reals and twenty-three cents (BRL 3,403,688,565.23), fully paid-up and subscribed, divided into twenty-eight billion, four hundred seventy-nine million, five hundred seventy-seven thousand, eight hundred twenty-seven (28,479,577,827) common, registered and book-entry shares, without par value.
Paragraph 1 - The capital stock shall be represented by common shares only. The shares are indivisible and each individual share shall have the right to one (1) vote in Shareholders' Meetings.
Paragraph 2 - The Company may charge, or cause the entity which is the depositary or custodian of the registered shares owned by a shareholder to charge from the shareholder the cost involved in transferring stock ownership, subject to the limits set out by the Brazilian Security Exchange Commission ("CVM").
ARTICLE 6 The State Government Secretariat of Finance shall at all times hold the absolute majority of the Company's common shares.
Paragraph 1 No founder shares shall be issued for any shareholders or others.
Paragraph 2 - Subject to the provisions of this Article, any natural persons or business entities, whether private or state-owned, may hold Company stock.
ARTICLE 7 - Subject to a resolution approved by the Board of Directors, and upon the approval of the Fiscal Council, the Company will issue shares of stock for the maximum amount of four billion and one hundred million of Brazilian Reals (BRL 4,100,000,000.00), represented by forty billion (40,000,000,000) common shares, notwithstanding any changes in the Company Bylaws and subject to the legal limitation of action provided herein.
Paragraph 1 - Subject to legal provisions and to the provisions of these Bylaws, the Board of Directors is in charge of making the resolutions in connection with the issue, placement, subscription in cash or credit and the pay-up of any shares of stock that are issued and will determine in writing:
a) the number of shares to be issued,
Paragraph 2 - The issue of stock to be paid-up in property shall have the prior approval in a Shareholders' Meeting.
Paragraph 3 - Any reports in the Company's capital stock shall include at all times both the subscribed and paid-up amounts.
ARTICLE 8 - Any stock that is acquired or subscribed in capital increase efforts shall be in compliance with the terms and conditions set forth by the Board of Directors, and any amounts in connection thereof may be paid over in installments.
Sole paragraph Any shareholders who fail to pay up stock under that terms and conditions established in the subscription letter shall be subject to delinquent interest of one per cent (1%) per month, plus restatement according to an index that is applicable to corporate stock and a penalty that is equivalent to ten per cent (10%) of the amount in arrears.
ARTICLE 9 In case of capital increase or the issue of convertible debentures and/ or the issue of subscription bonus upon private subscription, the shareholders shall be entitled to preemption rights to the extent of the number of shares owned by individual shareholders, subject to the provisions of Article 171 of Law 6,404/76. The preemption rights shall be exercised within the 30-day period after the publication of the minutes of the Shareholders' Meeting or of the publication of notices in the State Government Gazette.
Sole paragraph After the thirty-day period for exercising the preemption rights set out in the heading of this article has expired, the Office which is in charge of the issue will decide about the disposal of any remaining unsubscribed stock.
ARTICLE 10 - Subject to a resolution approved by the Board of Directors, and subject to the approval of the Fiscal Council, the Company may purchase stock issued by it for the purpose of canceling any such stock or for keeping it as treasury stock or alternatively for its resale or replacement in the stock market, subject to the standards issued by the Security Exchange Commission ("CVM") and any other applicable legal provisions.CHAPTER III
ARTICLE 11 The following are Companys management bodies:
I - The General Meeting;
ARTICLE 12 - The Shareholders Meetings shall take place on an annual basis, no later than four (4) months after the end of the fiscal year for the purposes that are set out in the applicable legislation and in these Bylaws, and, on a special basis, for any purpose as deemed necessary to discuss shareholders' issues, as called by the Board of Directors, the Executive Board, the Fiscal Council or the shareholders, according to the provisions of law.
Paragraph 1 The Shareholders Meeting shall be called by a notice, to be published no later than fifteen (15) days prior to the meeting date, on a first call, and no later than eight (8) days prior to the meeting date, on a second call.
Paragraph 2 All documents to be reviewed or discussed in Shareholders Meetings shall be made available to the shareholders at the São Paulo Stock Exchange ("BOVESPA") and at the Company's principal offices, from the date the first notice of the meeting is published as provided in the above paragraph.
Paragraph 3 - The Shareholders Meeting shall be chaired by the Board of Directors Chair or by his deputy, who will choose a secretary among the shareholders presents.
BOARD OF DIRECTORS
ARTICLE 13 The Board of Directors shall be composed of at the least five (5) and at the most ten (10) members, Companys shareholders, elected by the General Meeting, subject to the provision of article 239, caput of Law No. 6,404/76, and their fees and other benefits shall be defined whereby.
Paragraph 1 - Among the members of the Board of Directors elected at the Shareholders' Meeting there will be one (1) Chairman, one (1) Deputy Chairman, who will deputy the Chairman upon his absence or disability.
Paragraph 2 The name of one of the members of the Board of Directors shall be suggested by the Employee Representative Committee for review in the Shareholders Meeting.
Paragraph 3 - Any employee to be elected as an Employee Representative Committee Member shall have been a Company employee for a minimum of two (2) years.
Paragraph 4 A member of the Board of Directors may be elected by a separate vote in the Shareholders Meeting for the majority shareholders representing at least 15% of the total Company stock, except for the majority shareholder, subject to the provisions of paragraph 4, Article 141 of Law n° 6,404/76.
Paragraph 5 Notwithstanding the fact that the minority shareholders cannot reach the percentage referred to in paragraph 4 above, their representation in the Board of Directors is guaranteed pursuant to Article 239 of Law n° 6,404/76.
ARTICLE 14 The term of office for the members of the Board of Directors shall be one (1) year, re-election being permitted.
Paragraph 1 The members of the Board of Directors shall assume their offices upon the execution of their tenure in the Board of Directors Minutes and shall, at the inception and at the expiry of their terms of office, submit a statement of assets, as provided by the applicable laws.
Paragraph 2 - Upon the expiry of their term of office, Board of Directors members shall remain in office until their successors assume their respective offices.
Paragraph 3 In case of a vacancy in the Board of Directors, a Shareholders' Meeting shall be called to elect a replacement for the remaining term of office.
Paragraph 4 - The Chairman of the Board of Directors shall be replaced by the Deputy Chairman or, in the latter's absence, by another board member appointed by him.
Paragraph 5 In the case the office of the Chairman of the Board of Directors is vacant, the Deputy Chairman shall assume office, and the latter will remain in office until a new Chairman is elected in a Shareholders' Meeting.
ARTICLE 15 - The Board of Directors shall monthly meet, on an ordinary basis, and extraordinarily, whenever summoned by its Chairman or by deliberation of the majority of its members, or even, by request of the Executive Board.
Sole paragraph The Board of Directors meetings shall be only convened with the attendance of the majority of its Members, and resolutions shall be taken by majority of attendees, and the Chairman or his/her substitute, in case of a draw, shall be entitled to cast a second vote.
ARTICLE 16 - The Board of Directors shall be responsible for:
I setting up the guidelines of the Companys business;
II electing and removing Executive Board Members from the Company and setting their roles, subject to the provision in the Companys Bylaws;
III supervising the Executive Boards actions and inspecting Company's books and documents at any time; requesting information on any agreements that were executed or any agreements that are about to be executed and any other actions reviewing, at any time, the Companys books and papers, requesting information on agreements entered into or about to be entered into and any other acts;
IV calling a Shareholders' Meeting as it deems adequate or according to the provisions of Article 132 of Law n° 6,404, of December 15, 1976;
V - making comments on the administration report and the Executive Board's accounts, including any plans and financial budgets and the execution of works, whether yearly or multi-yearly;
VI - resolving on the issue of stock as provided in Article 7 of these Bylaws;
VII - authorizing the disposal of real property, as provided in the applicable law, including the
provision of collateral, lien on property and any third-party covenants;
VIII appointing or removing independent accountants;
IX - resolving on the issue of unsecured non-convertible debentures. As respects the other types of debentures, resolving on whether to issue debentures, on the terms and conditions for subscription and placement and the types of debentures to be issued; the time of issue, the conditions for the payment of interest, of profit payout and the debenture redemption premium, if any, upon expiry, including expiry, amortization and redemption conditions for any such debentures, as previously agreed in the Shareholders' Meeting;
X assigning to a Executive Board Member the investor relation function, whether or not in addition to any other executive functions; investor relations include provide information to investors, to the Security Exchange Commission and to the Stock Exchange in which the Company is listed, as provided in the applicable laws;
XI - taking resolutions, as recommended by the Executive Board, on external financing upon the issue of promissory notes as securities (as regulated by the Brazilian Currency Board as commercial papers).
ARTICLE 17 - The Company shall have an Audit Committee composed of three Board of Directors Members, who shall jointly comply with the requirements of independence, technical expertise, and availability of time.
Paragraph 1 - A Board of Directors Member shall be deemed as an independent party provided that:
a) he/she has no other professional, functional, or contractual relationship with the Company or subsidiary, controlled or affiliated companies, except for any interest in capital or in the capacity of public service users;
Paragraph 2 - In addition to complying with the provision in the foregoing paragraph, at least one of the Board of Directors Members to take part in the Audit Committee shall not:
a) have, or had in the last three years, any professional, functional or contractual relationship with the direct or indirect management of the State of São Paulo, except for any possible interest in the capital of controlled companies or in the
capacity of public service users;
Paragraph 3 - All Audit Committee members shall have sufficient technical expertise in accounting and financial issues, and at least one of them shall be knowledgeable in the accounting principles generally accepted in the United States (US-GAAP) and experienced in the review, preparation and assessment of financial statements, and have knowledge of internal controls and market information disclosure policies.
Paragraph 4 - The minimum time availability required for each Audit Committee member shall correspond to thirty (30) hours per month.
ARTICLE 18 - The Audit Committee members may be appointed concurrently to their election for the Board of Directors, or by means of a subsequent resolution by the Board of Directors itself.
Sole paragraph The Audit Committee members shall exercise their duties during the time of the respective term of office as Board of Directors Member or until resolution to the contrary of the General Meeting or of the Board of Directors itself.
ARTICLE 19 - The Audit Committee shall be responsible for:
a) assessing and recommending to the Board of Directors the hiring of an independent audit firm, as well as of the parameters to define the respective compensation and other conditions service provision;
Paragraph 1 The Audit Committee shall resolve on issues by the majority of its members, without prejudice to the right of the Members to individually request information and review the Companys books, documents and papers.
Paragraph 2 Reports prepared by the internal audit function and by the independent audit firm shall be always forwarded concurrently to the Executive Board and the Audit Committee members.
ARTICLE 20 - The Audit Committee shall prepare its Bylaws, and submit it to the Board of Directors approval.
Sole paragraph These Bylaws may extend the competencies of the Audit Committee, as it shall also resolve on the holding of regular meetings, the format of registration of its positions and resolutions, in addition to other issues deemed appropriate for the good development of work.
ARTICLE 21- The compensation for the Audit Committee members shall be different from the one to the other Board of Directors Members, in view of the greater dedication and responsibilities assumed.
ARTICLE 22 - The Audit Committee shall have its own annual budget approved by the General Meeting, by means of a proposal by the Board of Directors.
Sole paragraph - The Executive Board shall immediately provide the Audit Committee with the requested financial resources for the carrying out of the duties of the latter, up to the approved budget limit.
ARTICLE 23 - By means of a resolution of the Board of Directors, other committees may be created with specific operation areas, under coordination by a Board of Directors Member, and with the participation of people other than Board Members.
ARTICLE 24 The Audit Committee shall be established no longer than thirty (30) days after the General Meeting resolving on the 2005 financial statements is held.
Sole paragraph Whereas it is not established, the duties of the Audit Committee shall be jointly exercised by all members of the Board of Directors, with the temporary release of the requirements of independence, set forth in paragraph 1, and of expertise and time availability, set forth in paragraphs 3 and 4, all of Article 17, in addition to the withdrawal of the different compensation set forth in Article 21, all in connection with the Companys Bylaws.
ARTICLE 25 - The Company shall be managed by a Executive Board comprised of a maximum of eight (8) members, either shareholders or not, all resident and domiciled in Brazil and elected by the Board of Directors; the Executive Board shall be comprised of one CEO, a maximum of four (4) Vice-Presidents, a maximum of two (2) Officers and one (1) Representative Officer.
Paragraph 1 The Representative Officer shall be nominated to the Board of Directors by the Employee Representative Committee and shall hold office for the same period as the other Officers.
Paragraph 2 Any employee to be elected as a Representative Officer shall have been a Company employee for a minimum of two (2) years
Paragraph 3 The fees and other benefits for the members of the Executive Board shall be determined in a Shareholders' Meeting. The Representative Officer shall choose between his salary and the Officer's fees.
ARTICLE 26 The term of office for the members of the Executive Board shall be two (2) years, re-election being permitted.
Paragraph 1 - The members of the Executive Board shall assume their offices upon the execution of their tenure in the Board of Directors Minutes and shall, at the inception and at the expiry of their terms of office, submit a statement of assets, as provided by the applicable law.
Paragraph 2 - Upon the expiry of their term of office, the Executive Board members shall remain in office until their successors assume their respective offices.
Paragraph 3 - - In case of a vacancy in the Executive Board, the Board of Directors shall appoint a replacement and the expiry of his term of office will coincide with the other members of the Executive Board.
ARTICLE 27 - The Executive Board shall meet at least once a month, upon a call by the CEO or by the majority of its members.
Sole paragraph - The Executive Board resolutions will be taken by the majority of vote and the CEO or his replacement shall be in charge of the casting vote, in case of a tie. There shall be a minimum of four (4) Executive Board members for any resolutions to be valid and enforceable.
ARTICLE 28 The Executive Board shall have the powers to manage the Company business and shall perform any actions in connection with the nature of the Company's business, including but not limited to take loans, dispose of personal property, open, operate and close banking accounts; draw, endorse and accept foreign exchange bills and issue and endorse promissory notes; and, subject to the provisions of Article 16, Indent XI, as securities (regulated by the Brazilian Currency Board), issue and endorse checks and other drafts, waive rights and provide collateral and guarantees in operations in connection with the Company, subject to the applicable provisions provided herein.
Paragraph 1 - Any disposal of and liens to the Company's real property shall be subject to the prior consent of the Board of Directors or to a resolution in a Shareholders' Meeting, as applicable
Paragraph 2 - Any actions or documents resulting in financial liability to the Company or holding any third parties harmless or any liability in connection with the Company shall have the joint signatures of two Officers or of an Officer or by two true and lawful attorneys-in-fact of the Company.
ARTICLE 29 The Company, represented by its CEO jointly with one Officer or, in case of the absence or disability of the CEO, by two Officers, shall appoint true and lawful attorneys (ad-judicia or ad-negotia); the power of attorney documents shall state the powers being assigned and how to exercise any such powers; in the ad-negotia power of attorney documents a deadline shall be specified for a maximum of one year.
Paragraph 1 - As an exception, the Executive Board may authorize the appointment of one attorney-in-fact to represent the Company before governmental agencies.
Paragraph 2 Any attorneys-in-fact holding ad-judicia powers of attorney may act jointly or severally.
ARTICLE 30 - Without prejudice to the provisions of Article 21 herein, the Executive Board shall:
I - perform all corporate acts that are necessary to manage company operations;
ARTICLE 31 - The CEO shall be in charge of:
a) representing the Company, in and out of court;
ARTICLE 32 - The Executive Board shall be in charge of:
a) attending the Executive Board meetings;
b) performing the assignments as determined by the Board of Directors and the Executive Board;
c) executing any deeds and perform any acts that call for the joint signature of two Officers.
ARTICLE 33 - The Company shall have a Fiscal Council with such assignments as provided by law, comprised by three (3) to five (5) effective members and an equal number of deputies; resident and domiciled in the country, either shareholders or not, to be elected in the Shareholders' Meetings, subject to the provisions of Article 240 of Law n° 6,404/76, re-election being permitted.
ARTICLE 34 The overall compensation of the Fiscal Council Members shall be subject to a resolution in the Shareholders Meeting.
ARTICLE 35 In the case of a vacancy, absence or disability of any members, the respective deputies shall be called.
ARTICLE 36 -The Fiscal Council members shall be instated in their offices by means of signing the Instrument of Investiture in the Fiscal Council Minutes Book, and shall submit their property statement, at the beginning and end of their terms of office, pursuant to legislation in force.CHAPTER V
FISCAL YEAR, BALANCE SHEET AND DIVIDEND PAYOUT
ARTICLE 37 - The fiscal year shall begin on January 1 and shall end on December 31 each year, after which the following applicable financial statements shall be prepared:I - Balance sheet;
II - Statement of Changes in the Shareholders Equity;
III - Profit and loss statement;
IV - Statement of changes in financial position.
ARTICLE 38 The following provisions shall rule the net income ascertained in the balance sheet:
I From the net income for the year, retained losses and the provision for income tax shall be deducted before any dividend payout takes place;
II The net income so ascertained, if any, shall be allocated as follows:
a) 5% to set up legal reserves, limited to the amounts determined by law;
b) dividend payout to shareholders for an amount at least equivalent to 25% of the net income ascertained as provided by law and these Bylaws; and
c) the remaining balance shall be allocated as determined in the Shareholders' Meeting, as proposed by the Executive Board, with the prior approval of the Board of Directors and the Fiscal Council.
Paragraph 1 In case the minimum dividend payout ascertained is in excess of the portion of the realized net income for the year, the Management may propose that any such excess is allocated to unrealized profits, to be approved in the Shareholders' Meeting.
Paragraph 2 - The Executive Board, subject to approval by the Board of Directors and the Fiscal Council, may authorize the payment of interest as yield on equity capital to shareholders, as provided by law, which may be deducted from dividend payable and any such amounts shall be deemed as dividend payout for all legal purposes.
ARTICLE 39 - Any dividends due to shareholders shall be paid not later than sixty (60) days from the publication of the Minutes of the Shareholders Meeting approving it.
Sole paragraph - Any dividends approved shall not yield interest and any amounts that are not claimed within the three (3) year period from the date of the applicable Shareholders Meeting shall inure to the benefit of the Company.
ARTICLE 40 - The Company shall be liquidated under the circumstances provided by law and the procedures for the liquidation shall be established in a Shareholders Meeting, which shall appoint a receiver and elect the Fiscal Council for the liquidation period and set out the compensation for both.
ARTICLE 41 For all legal purposes, the provisions of the State Constitution enacted on October 5, 1989 and the state laws in connection with decentralized entities shall become an integral part of these Bylaws, as applicable.
ARTICLE 42 According to the provisions of law, the Company is the lawful successor to any rights and obligations of both Companhia Metropolitana de Água de São Paulo - COMASP and the Companhia Metropolitana de Saneamento de São Paulo - SANESP, which merger originated the Company, and shall be responsible and liable for the above cited companies and before any third parties, including governmental agencies and domestic and foreign entities for any financial obligations in connection with either.
Sole paragraph - The Company is subrogated for all the rights and obligations of Superintendência de Água e Esgotos da Capital ("SAEC") and Fomento Estadual de Saneamento Básico ("FESB"), pursuant to Articles 9 and 17 and their respective sole paragraphs, both of State Law n° 119, of June 29, 1973, which authorized its organization.
ARTICLE 43 The Employee Representative Committee shall have only Company Employees as members; its composition and assignments shall be determined according to special bylaws, subject to the approval of the Company Board of Directors.
ARTICLE 44 - As the sponsor of the Fundação SABESP de Seguridade Social ("SABESPREV"), duly organized by Ministry of Labor and Social Security Ordinance n° 3556, of 8/8/90, the Company shall sponsor SABESPREV, subject to the following conditions:
I The monthly contributions by the Sponsor shall not exceed 2.1% of the gross payroll (gross salaries, not including payroll charges), subject to the applicable social security laws.
II - In case the resources are not sufficient to pay the pensions due to beneficiaries, the Sponsor shall not increase its contribution, i.e., 2.1% of payroll and SABESPREV shall increase employee contribution or shall reduce the amount paid as pensions accordingly, subject to the applicable laws.
III SABESPREV shall build its assets with its own income or, in case the Company must transfer any securities or personal property or real property, make investments, bear any costs or expenses for or provide collateral to SABESPREV, it shall seek prior approval from the CODEC or from the Secretariat of Finance, and the amounts shall be offset by the contribution set out in indent I of this article, through monthly transfers.
IV In order to avoid the indirect distribution of resources above the applicable limit, any assignments of Company employees to SABESPREV or any service agreements to be executed among SABESPREV and the Company shall be subject to offset and to the prior approval of CODEC and of the Secretariat of Finance.
V Company Officers, in addition to their responsibilities and assignments as determined by law, shall also be liable for any noncompliance with the standards set out in these Bylaws in connection with SABESP sponsoring SABESPREV.
ARTICLE 45 Any changes in the Company ownership on valuable consideration, either through a single transaction or through a number of successive transactions, shall be performed under a suspensive or resolutive conditions the new owner shall provide no later than 90 days after the change of ownership date, a public offer to purchase stock from the remaining shareholders, in such a way as to ensure that they shall have an equal treatment as the seller.
ARTICLE 46 - The public offer referred to above shall also take place in the case of sale of stock and other securities' subscription rights, or of any other rights or title in connection with securities that are convertible to stock that may give rise to change of ownership in the company.
ARTICLE 47 Any shareholders who acquire the ownership of the company through a share purchase agreement performed with the majority shareholder, regardless of the number of shares purchased, shall:
I. make the public offer as provided in Article 37 herein; and
ARTICLE 48 In the stock purchase public offer to be made by the majority shareholder to cancel the company registry as a listed company, the minimum price of the offer shall be equivalent to the amount ascertained in an assessment report.
ARTICLE 49 - The assessment report referred to herein above shall be prepared by an expert firm with proven background and independent from the Company, its management and majority shareholders and the report shall also meet the requirements of paragraph 1, article 8 of Law n° 6,404/76 and include the liability provided in paragraph 6 of the same article of the Law.
Paragraph 1 The choice of the expert firm to ascertain the Company's worth shall be determined in a Shareholders Meeting upon the submission of a list of three firms by the Board of Directors and the resolution shall be made by absolute majority of vote representing the outstanding stock in the Shareholders Meeting in which the business is discussed; blank votes shall not be counted, excluding (1) the stock owned by the majority shareholder, his spouse, partner and dependents included in his annual income tax return, (2) any treasury stock; (3) any stock held by any subsidiary or associated companies of the Company and/or the majority shareholder; (4) any other companies who belong to the same group as the latter; (5) any special class preferred stock with the purpose to ensure differentiated political rights or that are non-transferable and/or owned by the privatizing agent.
Paragraph 2 Any costs or expenses in connection with the preparation of assessment reports shall be borne by the majority shareholder.
ARTICLE 50 Any contingencies in these Bylaws not covered by statutory laws shall be resolved in a Shareholders Meeting and shall be regulated according to the provisions of Law n° 6,404, of December 15, 1976.
ARTICLE 51 Any controversy or claims arising out of corporate governance practices provided in these Bylaws and in the relationship among the Company, its shareholders, managers, Fiscal Council members shall be submitted to arbitration, governed by Law nº 9,307/96, and within the rules of the Câmara de Arbitragem do Mercado of the Bolsa de Valores de São Paulo BOVESPA, except to the extent of rights that cannot be waived.
SABESP stock admitted to trading on BOVESPA. Starting April 24, 2002, SABESP shares have been listed for trading in BOVESPA's New Market segment for companies voluntarily implementing corporate governance rules involving higher disclosure standards than those legally required. In this context, SABESP, its controlling shareholders, board members and directors promise to submit all and any litigation or differences arising from New Market rules or any other share ownership issues to arbitration. Any litigation or difference will be settled by BOVESPA Arbitration Chamber under the latters rules.
After its adhesion to New Market standards in May 2002, SABESP began to trade part of its stock in its formal issue of level 3 American Depositary Shares (ADS) on the New Stock Exchange (NYSE).
SABESP's corporate governance practices are guided by its bylaws, its policy of disclosing relevant facts or acts, and its securities trading policy. The aim is to ensure market access to high-quality transparent information, and to protect the interests of shareholders, the controlling shareholder group, board members, executives, and other collaborators with access to relevant informationGeneral meeting
Under its bylaws, the General Meeting is the company's highest body with powers to decide all matters relating to its charter purpose, and take all measures deemed convenient for the defense and development of this purpose.Administrative Board
SABESP's board consists of at least five (5) and at most ten (10) members, who must be shareholders elected by the General Meeting, which may also remove them. The bylaws stipulate that employees may elect a Administrative Board member, who must have been with the company for at least two years. The Administrative Board does not currently have a member designated by the employees. Furthermore, under the Brazilian Law of Business Corporations, since SABESP is a mixed private-public ownership enterprise, at least one Administrative Board member must be designated by its minority shareholders.
SABESP Administrative Board members are elected by shareholders at the General Meeting for concurrent one (1) year mandates and may be elected for a second term.
Pursuant to the Law of Business Corporations, the Administrative Board members must be shareholders in the company and under SABESP bylaws must be resident in Brazil.Audit Committee
The Audit Committee functions as a standing body and consists of five (5) members and five (5) alternates. The Audit Committee is elected annually by shareholders at the Ordinary General Meeting.
20.01 DESCRIPTION OF AMENDED DATA
01.01 - IDENTIFICATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city São Paulo, Brazil.
Date: September 19, 2005
This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.