Tarcísio wants to use money from the privatization of Sabesp to reduce tariffs immediately after the sale – 09/24/2023 – Panel

The Tarcísio de Freitas government (Republicanos-SP) intends to use a still undefined part of the resources from the privatization of Sabesp to generate an immediate reduction in consumers’ water tariffs immediately after the sale is completed.

The idea is analyzed in the first report produced by the International Finance Corporation (IFC), an arm of the World Bank hired by the government of São Paulo to model privatization, to which the Panel had access. The São Paulo government signed a R$45 million contract with the IFC to prepare the study.

This strategy by Tarcísio should become one of the flanks of opposition to the project that has been treated as the crown jewel of the mandate.

For the opposition, the immediate reduction in tariffs aims to generate a temporary and artificial sensation of privatization success, which cannot be sustained in the long term without exhausting the resources raised through the sale of state government shares.

“From an economic point of view, using money from the sale of assets for funding is a classic error. Only if the state was broke, which is not the case. This is being used as a decoy for the population. The government is waving the reduction of tariffs in an artificial way with a subsidy for a period of time that is not stated in the study, but which will certainly be limited. It does not say how much will be invested or how it will be invested”, says state deputy Antonio Donato (PT) , which has led opposition to the project.

Tarcísio management says, in turn, that private management will generate gains in efficiency and productivity at Sabesp in the medium and long term, and that the use of resources obtained in privatization to finance investments and increased efficiency will make tariff reductions viable. permanently.

In the first report (called “phase zero”) produced for the government of São Paulo, the IFC says that the tariff reduction would be possible through three levers: using resources from sales immediately, efficiency in capex [despesas de capital, ou seja, investimentos] and in opex [custos operacionais].

In its next stage (“phase one”), the study must define how much of the resources should be invested to immediately reduce the tariff, the cost-benefit in relation to investing these same amounts in other sectors and how to distribute the tariff reduction by society (for everyone or according to income).

“As much as private management is efficient with the investments and operational costs to be made, this alone would not guarantee a reduction in Sabesp’s current tariffs, especially given the robust investment plan for the coming years. Therefore, with the intention to lower the tariff immediately, GESP [governo do estado de São Paulo] could use part of the resources received in the transaction from the sale of part of its shares to immediately reduce tariffs”, says the text.

“In addition to the immediate tariff reduction, additional tariff reductions can be obtained through more efficient execution of capex and operational improvements in terms of costs”, he adds. “With private management, it is estimated that Sabesp will be able to deliver an expanded capex plan, bringing forward to 2029, with gains in capex and opex, thus avoiding increases in tariffs that would burden society with the increases made”, he concludes.

Donato states that the optimism with which Tarcísio has announced the privatization to mayors and parliamentarians contrasts with what is shown in the IFC study.

“There is no account in the study, there is no estimate of the sales value or the size of the discount on the tariff. It is phase zero of the study, it is true. But phase one of the study will only be ready in February, according to secretary Rafael Benini (Investment Partnerships) told Alesp. With what it has today, which doesn’t have any concreteness, the government has already told everyone that everything will be fine”, says the parliamentarian. The governor has said that he wants to complete the privatization by the end of 2024.

In relation to the capital, for example, Donato argues that the anticipation of the deadline for the universalization of water supply and sewage services to 2029, one of the main attractions of privatization for Tarcísio, is already foreseen in the current contract between São Paulo City Hall and Sabesp.

The Tarcísio management states, in a note, that “the privatization of Sabesp will allow for an increase in investments by another R$10 billion to bring treated water and collected and treated sewage to another million people.”

Full professor at Insper in the area of ​​Strategy and Public Management, Sandro Cabral emphasizes that transparency will have to guide the entire privatization process.

“Without knowing the rationale for the accounts, there is no way of knowing whether [a privatização] is a good or bad alternative. This process needs to be done in a very transparent way. Calculation memorials need to be open to the population so that we are not held hostage by ideological narratives on either side, such as less state is always better or the opposite”, he states.

“Sunlight is always the best disinfectant. Transparency is important in these calculations to show the population what is at stake, to show what assumptions are being adopted, so that if the scenarios do not materialize up front, we can be very clear about what was adopted in the base scenario”, says Cabral.

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