Privatization of Sabesp: see the arguments for and against – 11/01/2023 – Market

Sabesp celebrates 50 years since its founding this Wednesday (1st), amid an intense debate about whether or not to cede control of the company to the private sector. The sending of the Sabesp privatization bill, on the 17th, should only mark the beginning of the discussion on the pros and cons of the privatization of the largest sanitation company in the country.

Members of the São Paulo government, opposition politicians and experts had already been anticipating this dispute for months, given the centrality that the issue gained in the agenda of Tarcísio de Freitas (Republicans). The governor wants the privatization of Sabesp to be one of the main hallmarks of his management.

Aside from political and economic preferences, the topic is surrounded by specificities, some that unite left and right. So much so that there are state deputies from Tarcísio’s base who do not support the proposal. The formation of the Parliamentary Front Against the Privatization of Sabesp in Alesp, for example, —created at the beginning of the year and led by Emidio de Souza (PT)— had the support of two government parliamentarians.

A similar initiative in the São Paulo City Council, led by PSOL, was approved by councilors from parties such as PSD, PL, MDB, União Brasil, which make up Tarcísio’s base.

To give an overview of the debate, the Sheet brought together some of the main arguments of those in favor and against the privatization of Sabesp.

In favor

Cheaper tariff for the consumer

The government’s main argument is that the privatization of Sabesp will allow a reduction in the tariff paid by consumers, especially the most vulnerable. The bill sent talks about two mechanisms. The first is an injection of money into the company with resources obtained from the sale of shares. This would allow for a reduction in starting fares.

The second instrument aims at a more lasting cheaper price and consists of using the dividends that the company will pay to the government to keep the price low over the years.

Advancement of universalization goals

The privatization feasibility study, carried out by the IFC (International Finance Corporation), says that the capitalization will bring resources capable of bringing forward the universalization of sanitation in the state by four years (to 2029). This, according to the government, without increasing the tariff for the consumer.

Tarcísio also promises that privatization guarantees the depollution of water sources such as the Tietê and Pinheiros rivers.

Private company can be more efficient

With control of the company in the hands of investors, the tendency is for Sabesp to be more efficient and reduce costs, says the government.

In an interview with SheetAndré Salcedo, CEO of Sabesp, stated that privatization still tends to improve the quality of service, delivering more at a lower price.

Sabesp will have greater administrative flexibility

Public companies need to follow the bidding procedures and bureaucracies of the State Law, which ends up restricting the freedom to innovate, hire, pay and bring more sophisticated elements to the company’s management.

Salcedo mentions, for example, the entire accountability cycle, via the Court of Auditors, Bidding Law, which Sabesp needs to undergo today. When the company becomes private, it obtains more flexibility in management in a broad sense.

More investments in modernization

The privatization project will make changes to Sabesp’s investment plan, which currently foresees R$56 billion by 2033. The estimate is to add another R$10 billion to this package. In addition to universal access to water and sewage, the investment will make it possible to modernize treatment plants and install new plants.

Inclusion of 1 million people

Another government commitment to privatization is to expand Sabesp’s service base in the state, reaching an additional 10 million people who are currently in vulnerable regions — 1 million more people than the original plan envisages.

According to Natália Resende, Secretary of Environment, Infrastructure and Logistics for the state of São Paulo, these are people who live in rural areas, consolidated irregular areas and traditional communities that are currently not within Sabesp’s service perimeter.

Against

Rate will only be reduced through government subsidy

One of the opposition’s main arguments is that the IFC study does not conclude that privatization will lower tariffs. The document, in fact, would signal the possibility of the government paying for the cost, that is, subsidizing.

In an interview with SheetEmidio de Souza questioned the meaning of the state of São Paulo privatizing a company to pay for the tariff reduction of a private company.

Public Sabesp can also anticipate universalization

In the same interview, the deputy said that the premise of bringing forward the universalization of sanitation still stands. According to him, Sabesp was already planning to reduce this deadline from 2033 to 2030, and has all the conditions to do so in 2029, especially with the arrival of the PAC. “In practice, [a privatização] it will not anticipate in any way what is already designed by Sabesp”, he stated.

Sabesp is not inefficient or deficient

In 2022, Sabesp recorded net profit of R$3.12 billion. Currently, the company is the largest in Brazil, the fifth largest in the world and is valued at almost R$33 billion. The excellence of the technical staff and service provision is publicly recognized, including by Tarcísio.

According to Emidio, in the history of privatizations in Brazil, there is one condition that is fundamental: the company must be loss-making, with low efficiency or not provide quality service. Without meeting any of these criteria, he says, there is no plausible reason for São Paulo to give up an important asset.

IFC study is not impartial

Another point of criticism regarding the Sabesp privatization debate is in relation to the feasibility study carried out by the IFC, which supports the government’s arguments.

The study was contracted without a bidding process and predicted a higher value if the institution concluded that privatization was more advantageous: R$45 million. If the result were negative for the proposal, the American consultancy, linked to the World Bank, would receive a lower amount, of at least R$8.6 million.

The focus of the private company will only be on profit

Currently, Sabesp works with a cross-financing approach. Not all municipalities have a profitable sanitation operation. However, other cities are quite surplus. In other words, profitable regions finance unprofitable ones.

The fear of those against the privatization of Sabesp is that the focus on profit — which usually guides private management — will harm water and sewage services in areas that today mean “costs” for the company.

Recent privatizations in the sector have not improved the service

For opponents, privatizations tend to make prices more expensive for consumers without necessarily improving the service. With Sabesp it would be no different. As a recent report from the Sheetleading companies in private sanitation in the country today face questions about the tariffs charged in concessions for the provision of water and sewage services.