Sabesp Jumps on Plans to Reduce Water-Conservation Discounts

  • Company wants to continue giving incentives for saving water
  • New reference levels requested could make bonus harder to get

Brazilian water utility Sabesp rose the most since February 2014, pacing gains on the nation’s benchmark index after it signaled fewer discounts for consumers next year.

The company, formally known as Cia. Saneamento Basico do Estado de Sao Paulo, rose 7.1 percent to 19.31 reais as of 3:26 p.m. in Sao Paulo. The shares have gained 14 percent this year, compared with a 12 percent drop in the Ibovespa equity gauge.

Sabesp, which started offering discounts for using less water in 2014 amid the country’s worst drought in decades, requested to extend the program under terms that would make it harder for customers to get the reduced rates, according to a regulatory filing. The company will still benefit from extra fees it charges the biggest users to encourage conservation, according to Alexandre Montes, an equity analyst at Lopes Filho & Associados Consultores de Investimentos.

"Few people will be able to reach such a low level of water consumption, so the company will spend less on discounts," Montes said in a telephone interview from Rio de Janeiro. "Shares are going up as the company plans to keep punishing over consumption."

The request is for the updated policy to be effective from Feb. 1 through the end of 2016, or whenever the outlook becomes more predictable, the company said in the filling. 

Between January and October of this year, Sabesp imposed extra fees for excessive consumption totaling 398.2 million reais ($100 million), according to its website. The company gave a total of 769.8 million reais in discounts for people who saved water.

Sabesp’s adjusted net income will slide 70 percent this year to 268 million reais, according to the average of seven forecasts compiled by Bloomberg.

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