Sabesp to Double Clients for Discounts to Avoid Rationing

Cia de Saneamento Basico do Estado de Sao Paulo, Brazil’s biggest water utility, will double to 17 million the number of clients who get a discount on their bills to cut consumption and avoid an increase in rationing.

A 30 percent discount will be extended to 30 cities that surround Sao Paulo, the first to participate in a plan announced last month amid a prolonged drought, the utility known as Sabesp said. The program to last through October requires home and business clients to reduce water use by at least 20 percent of their 12-month average.

“It depends on many factors, such as the rain, the temperature, the participation in the discount program and the use of the reservoirs but we believe that the probability of going through this period without rationing is pretty reasonable,” Rui Affonso, Sabesp’s investor relations director, said today on a conference call with analysts about quarterly results.

Sabesp said March 28 “drastic” measures may be taken if reservoir levels don’t recover from a drought dating to 2012. Water levels in the Cantareira basin that supplies almost half of the 20 million residents of metropolitan Sao Paulo fell this month to the lowest level since data began in 1982.

Sabesp’s profit rose 11 percent to 1.13 billion reais ($500 million) in the fourth quarter of 2013 from a year earlier, the company said in a regulatory filing. That beat Grupo BTG Pactual’s estimate of 957 million reais.

The shares advanced 2.5 percent to 21.10 reais at the close of trading in Sao Paulo, topping the benchmark Ibovespa index’s 1.3 percent gain.

Spending Cuts

About 37 percent of the 8.5 million residents in Sao Paulo who were in the pilot program to cut water consumption have received their discounts, Affonso said. The company didn’t estimate by how much its revenue in 2014 will be reduced because of the discounts.

“It’s too premature,” Affonso said.

To focus on water service investments this year, in case the company needs to build systems to collect water from other reservoirs and rivers, Sabesp cut its spending budget by 700 million reais to 2.642 billion reais, according to Affonso. Sabesp plans to extend sewage collection and treatment to 100 percent of the cities they serve by 2020.

Sewage Expansion

“We’re working to keep our cash position strong to overcome this time of water scarcity,” Affonso said. “And it doesn’t mean our goal to expand sewage collection services by 2020 has changed. There are six years to go, we can adjust spending over time to reach that goal.”

Currently, about 82 percent of cities served by Sabesp have sewage collection and 75 percent have treatment. Sabesp’s capital expenditures were 2.716 billion reais in 2013, according to its quarterly earnings report.

Before it's here, it's on the Bloomberg Terminal.