Cities will receive bonuses with Sabesp’s privatization – 04/05/2023 – Market

The governor of São Paulo, Tarcísio de Freitas (Republicans), said that Sabesp’s privatization will have a mechanism for municipalities to have a share in the company’s results, which should serve as an incentive for mayors to engage in privatization.

The governor hopes that the São Paulo sanitation company’s concession model will be a mix of the privatization of Eletrobras and the onerous assignment of Petrobras, in which the financial gains are shared with the cities, in a bonus division format.

“When I say that the model is similar to Eletrobras, it’s because of the way to operationalize it on the Stock Exchange, because of the government’s exit strategy”, said Tarcísio, at a Bradesco BBI event, this Wednesday (5).

According to the governor, Sabesp currently serves 375 municipalities, but the greatest value is in contracts with large cities. “We understand that it is necessary to have a participation of these municipalities in the company’s results. So that is what will be built in the modeling”, he said.

“When municipalities participate in the results, you provide an incentive for that mayor to adhere to privatization.”

The privatization of the sanitation company is considered the jewel in the crown of Tarcísio’s management, which foresees anticipating the universalization of the sanitation targets, foreseen in the sector’s framework, in four or five years.

According to the governor, the contract with the World Bank for structuring the project will be signed next week.

To an audience of investors, Tarcísio said he is optimistic that Sabesp’s privatization will happen in 2024.

According to him, the opposing arguments are “very bad”, and it is false that the sale of the company will increase the value of tariffs.

“The great value of Sabesp are the concession contracts with large municipalities. The early extension of these concession contracts for these municipalities generates ‘upside’ [valorização], and this ‘upside’ will be applied to the tariff reduction. Apart from the efficiency gain”, he said.

In addition, the governor said that the state of São Paulo will mitigate another risk perceived by some mayors, which is that certain municipalities will no longer be contemplated because they are not so profitable.

“I believe that we will be able to have a model that will harmonize the expectations of the municipalities, the allocation of the bonus, and the contractual ties to guarantee that the investment will reach where it needs to go, including in the less profitable places.”

During his speech, Tarcísio pondered that Sabesp’s cost per person is more than double that of the private sector, as well as the cost per call. “It has its shortcomings. A lot of people say to me, ‘well, but it’s making a profit’. Okay, it would give twice as much [de lucro] if it were already in the hands of the private initiative”, he argued.

The panel promoted by Bradesco BBI dealt with the expansion of infrastructure through privatizations. Alongside the governor of Paraná, Ratinho Jr. (PSD), and the governor of Rio Grande do Sul, Eduardo Leite (PSDB), Tarcísio said that São Paulo has a tradition of working with the private sector, with road parks and railway lines already under concession.

“We understand that private initiative brings efficiency,” he said. “It’s not privatizing for the sake of privatizing. It’s privatizing to bring more efficiency, to bring in more investment. What I always see is the volume of investment that we will be able to mobilize in a much shorter period.”

According to the governor, if all the foreseen privatization projects are successful, the state of São Paulo should attract around R$ 180 billion in investments.