Privatization of Sabesp: Tarcísio will send PL urgently – 10/17/2023 – Market

The governor of São Paulo, Tarcísio de Freitas (Republicans), announced that he will send this Tuesday (17) the bill for the privatization of Sabesp to the Legislative Assembly of the State of São Paulo.

The proposal will be forwarded on an urgent basis, which guarantees faster processing in the House.

The text of the PL (bill) was presented this Tuesday morning to state deputies who form Tarcísio’s allied base, in a meeting at Palácio dos Bandeirantes. Details of the proposal will be released later in the day.

The submission of a common project instead of a PEC (Proposed Amendment to the Constitution) must be subject to judicial review by the opposition. Opposing deputies argue that the state Constitution provides that water and sewage services will be provided by a public sanitation company. In this logic, privatization would require changing the constitutional text, which does not happen via PL.

The privatization of Sabesp is considered the crown jewel of Tarcísio’s management. Currently, the São Paulo government owns 50.3% of the company. The remainder of the shares are traded on the São Paulo Stock Exchange and the New York Stock Exchange.

Palácio dos Bandeirantes expects to approve the privatization of Alesp by the end of this year, a schedule considered tight, but feasible.

Tarcísio has been working to prevent the 2024 election calendar from harming the discussion. The topic is considered sensitive for several municipalities, and possible changes in city halls would force the government to restart conversations.

Furthermore, Tarcísio today has an ally in São Paulo City Hall, Ricardo Nunes (MDB). The adhesion of the capital is decisive for the viability of the privatization project. This is because the majority of Sabesp’s revenue comes from São Paulo, the municipality that owns the most attractive contract.

In an interview with Sheet published this Monday (16), state deputy Emidio de Souza (PT), who coordinates the Parliamentary Front Against the Privatization of Sabesp, said that Tarcísio is rushing to privatize the sanitation company because he fears a possible victory by Guilherme Boulos for the capital’s City Hall .

Pre-candidate for PSOL, Boulos leads the Datafolha survey with 32% of voting intentions (compared to 24% for Nunes, second place), and opposes the privatization of Sabesp.

According to Emidio de Souza, a change in City Hall could bury the privatization plan.

Sabesp’s privatization model was presented by the government in July, after feasibility and modeling studies contracted with the IFC (International Finance Corporation).

The option chosen to continue the privatization was the follow-on model, in which there is an additional offer of shares and, consequently, the dilution of the state’s shareholding.

The government’s main argument for continuing with the project is that privatization will reduce tariffs for consumers. A SheetNatália Resende, Secretary of Environment, Infrastructure and Logistics for the state of São Paulo, said that the idea is to use the resources raised by the state from the sale of shares to fund the tariff reduction.

Furthermore, the government also plans to bring forward by four years (2029) the goal of universal access to water and sewage in the state of São Paulo, including over 1 million people who are currently in vulnerable areas and outside Sabesp’s service perimeter. .

However, people opposed to privatization say there is no guarantee of a fare reduction for the population. Using money from the sale of shares to make it cheaper, they say, would be a government subsidy, and only temporary.

Opponents also criticize the study commissioned from the IFC. A SheetEmidio de Souza said that the contract was made without a bidding process and has “strange” clauses, such as one that provides for payment of R$8 million to the agency if the document concludes for non-privatization, and R$45.6 million if concluded by privatization.

Privatization of Sabesp
Arguments in favor	Arguments against
Cheaper tariff for the consumer	Tariff would only be reduced through government subsidy and would be valid for a limited time
Advance in four years (2029) of the goals of universal sanitation in the state of SP	Public Sabesp is also able to bring forward universalization to 2029
Private companies are more efficient than public companies and can reduce costs	Sabesp is not inefficient or deficient, it generates billion-dollar profits and is an asset for the state of SP
Greater administrative flexibility than public companies, which need to follow bidding procedures and bureaucracy of the State-Owned Companies Law	IFC study was contracted without bidding and predicted a higher value if the institution concluded that privatization was more advantageous
More investments in modernization	The private company’s focus will be on profit, which could harm areas that are currently unprofitable
Inclusion of 1 million people from rural areas and traditional communities who are currently not within Sabesp’s service area	Recent privatizations in the sector have not improved the service and made prices more expensive for consumers