(Convenience Translation into English from the Original  Previously

Issued in Portuguese)

Companhia de Saneamento Básico

do Estado de São Paulo - SABESP

Financial Statements as at December 31, 2015 and 2014

(Convenience Translation into English from the Original Previously Issued in Portuguese)

INDEPENDENT AUDITOR’S REPORT

To the Shareholders, Board of Directors and Management of

Companhia de Saneamento Básico do Estado de São Paulo – SABESP

São Paulo - SP

We have audited the financial statements of Companhia de Saneamento Básico do Estado de São Paulo - SABESP (the “Company”), which comprise the balance sheet as of December 31, 2015, and the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), and for such internal control as Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and international standards on auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing selected procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Companhia de Saneamento Básico do Estado de São Paulo - SABESP as of December 31, 2015, and its financial performance and cash flows for the year then ended, in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

Other matters

Statements of value added

We have also audited the statements of value added (DVA) for the year ended December 31, 2015, prepared under the responsibility of the Company’s management, the presentation of which is required by the Brazilian Corporate Law for publicly-traded companies and as supplemental information for IFRS, which does not require the presentation of DVA. These statements were subject to the same auditing procedures described above and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole.

The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.

São Paulo, March 24, 2016

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

2015 Management Report

MORE PREPARED AND RESILIENT FOR FACING FUTURE ADVERSITY

The occurrence of what was considered the worst drought ever registered in the History of the São Paulo Metropolitan Region (SPMR) could have triggered a social convulsion. Fortunately, this did not take place thanks to the populations’ brilliant collaboration, duly convinced of the need to save water. Also because Sabesp carried out strategic measures correctly ensuring, at the onset of the crisis, and in record time, the execution of a vast amount of emergency construction works to increase water supply as well as the operational flexibility of production systems. 

Today, the SPMR is well prepared to face droughts of much greater proportion than those predicted in the water resource plans developed since the 1960s. Even if hydrological conditions as adverse as those undergone in the 2014-2015 biennium repeat themselves, water safety will be fully guaranteed when three other infrastructural constructions are completed: the first being the Ribeira River Basin (up to 6.4 m³/s); the second, the Paraíba do Sul River Basin (up to 8.5 m³/s); and the third, the Itapanhaú River Basin (up to 2.5 m³/s).

Reducing water losses is another fundamental task in the mission of guaranteeing supply safety. Throughout the past decade Sabesp has made an important effort in this direction. But we need to go further, however. The main initiative, already set into action in the Pegasus community, located in the municipality of Embu das Artes, consists of eliminating the “spaghetti” of tubes spread out through the alleys of settlements which despite being irregular are irreversibly established. However, the success of this initiative, which brought health and citenzenship to locations where people are otherwise deprived of public services, depends not only on Sabesp, but also on the City Government and Public Prossecution Office. The Catholic Church, which brought up the importance of sanitation as a theme in their Fraternity Campaign, is another important partner.  Their ecclesiastical base, which experiences the tough reality of these regions, is able to act as a facilitator in carrying out this work.

Prioritizing the infrastructural construction works that secures water safety inescapably implies in the postponing of other equally important investments that are less urgent. This scenario, however, does not exclude from our horizon the permanent search for the universalization of sewage collection and treatment in the operated regions. In 2015, the Company invested R$853.4 million in sanitary sewage works, including the construction of 226 thousand new sewage connections, totalizing   22.8 million people reached.

In the inland, we started up eight Sewage Treatment Plant (STP) and another 27 are under construction. In the SPMR, we reached in 2015 the mark of 4 thousand kms of pipelines in the sewage collection networks, branch collectors and interceptors within the Tietê Project (1992-2015). And on the Coastline cities, in 2015, R$172 million were invested with the Onda limpa program, the greatest sewage sanitation intervention in the Brazilian Coast.

Perfecting the efficiency in management and quality of the services provided implies an effective policy of valuing and training our employees, developing leadership and modernizing technology and internal processes.

Ethical, transparent and committed governance that regards accountability to society is another characteristic in permanent improvement based on a compliance program structured on practices referencing the main global requirements, including the Foreign Corrupt Practices Act (FCPA) and the law No. 12,846/2013 (Brazillian Anticorruption Act). In 2015, we also adhered to the Call to Action, a UN initiative in the scope of the Global Compact that incentivizes governments to establish anticorruption measures.

We are institutionally raising a flag for level A sanitation. There is no reason for us, as Brazilians, to be satisfied with a standard of civilization inferior to that which other countries have reached. In Sabesp, revenue comes only from the services offered in water and sewage. We cannot level the quality of services by the payment capacity of the poorest. We must economically protect this population by offering social tariffs. However, if we wish to improve the quality of our services, those with better conditions must pay more and demand more efficient services. Therefore companies must pursue profit because it is from profit that the necessary resources for investments and thus, improvements of the services offered to the population, will arise.

It is also necessary that society and its legal institutions understand that the objective of sanitation is to maximize social wellbeing with the resources available, prioritizing investments in water treatment and distribution, followed by sewage collection, and finally in sewage treatment. That is to say we must copy the developed countries which, in the stage we are now in, chose to put people’s health above any other consideration. 

It is thus not very wise to use the scarce financial resources of sanitation companies to pay the so-called “environmental compensations”, fines destined to punish companies for the pollution of rivers or the ocean during the period in which the sewage was collected but not yet treated. Such fines and penalties have the effect of subtracting resources that are extremely necessary to expand the services and improve their quality.

Backtracking to the experience in the biennium of 2014-2015, there is no doubt that today both Company and society are stronger, more conscious and resilient to face future adversity. A crisis is an opportunity for improvement which cannot be wasted.

Jerson Kelman, Sabesp’s CEO

AMONG THE WORLD’S LARGEST IN SERVED POPULATION

Founded in 1973 from the merger of different sanitation companies and under the guidelines of the National Sanitation Plan (Planasa), Companhia de Saneamento Básico do Estado de São Paulo (Sabesp) has as its mission “to provide sanitation services, contributing to improving quality of life and environment”. Also, it operates in accordance with sustainable development principles and with the environmental, social and economic policies of São Paulo State Government, its controlling shareholder.

As a publicly held mixed capital company headquartered in the municipality of São Paulo, the capital of São Paulo state, Brazil, the Company is governed by public and private Law standards and principles.

In accordance with the latest edition of the Pinsent Masons Water Yearbook (2012-2013), Sabesp is the largest sanitation company of the Americas and the fifth largest of the world in terms of population served.

In 2015, we disclosed a net revenue of approximately R$11.7 billion and a net income of R$536.3 billion. Assets totaled R$33.7 billion and market cap was R$12.9 billion on December 31, 2015. The Company supplies water to 28.6 million people (25.5 million directly and 3.1 million residents in the five municipalities served by the wholesale market) and collects the sewage generated by 22.8 million people. Sabesp’s services cover approximately 68% of the urban population of the state of São Paulo.

The Company’s structure is divided into five executive areas, in addition to the CEO, two of which are operational, divided into 17 business units throughout the State. The Company operates 235 water treatment plants and 539 sewage treatment plants, including 9 ocean outfalls. Water and sewage distribution networks are 71.7 kilometers and 48.8 kilometers long, respectively. The Company currently has 14,223 employees, whose total productivity was 1,074 connections per employee.

Currently the Company operates water and sewage services in 365 municipalities in the State of São Paulo, including the municipality of Santa Isabel, in which operations were initiated in January 2016. Besides that, it also partially serves the municipality of Mogi das Cruzes. In addition, the Company supplies wholesale water to five other municipalities located in the São Paulo metropolitan region (SPMR), four of which also used sewage treatment services.

In another three municipalities of the State of São Paulo, Sabesp is partner of Águas de Castilho S.A., Águas de Andradina S.A. and Saneaqua Mairinque S.A., which provide water and sewage services and, in the municipality of Mogi Mirim (SP). It is also a partner in SESAMM – Serviços de Saneamento de Mogi Mirim S.A., which is engaged in the modernization, implementation and management of the sewage treatment system. In 2015, SABESP contributed R$2.5 million in Águas de Andradina, which corresponds to its share in that investee.

Sabesp also produces, supplies and sells reused water obtained through the effluent treatment, which takes place directly in its own plants, as a partner in Aquapolo Ambiental, which supplies the Petrochemical Center of Capuava. In the segment of non-domestic sewage, the Company partners with Estre Ambiental, in the company Attend Ambiental.

In 2015, Sabesp also began working in the electric energy sector. For further information please consult the “Strategy and Vision of the Future” segment of this Report.

The control, oversight and regulation, including tariff regulation, of our operations are mostly carried out by the São Paulo State Sanitation and  Energy Regulatory Agency - Arsesp.

The Company’s shares – all common voting shares – are traded on the Novo Mercado listing segment of the São Paulo Securities, Commodities and Futures Exchange (BM&FBovespa) under the code SBSP3 and on the New York Stock Exchange (NYSE), as American Depositary Receipts (Level III ADR), under the code SBS. The Company is still part of the main BM&FBovespa indices.

On December 31, 2015, the Company had 4,185 shareholders registered on the BM&FBovespa and its capital stock was composed as follows:

INDICATORS

(1)          99% and above.

(7)          Calculated by dividing the Measured Volume Lost a year by the average amount of active water connections, divided by the number of days in the year. 

 CORPORATE GOVERNANCE

The ethical values that underpin Sabesp’s actions in its relationships with its stakeholders are set forth in its Code of Ethics, reformulated in 2014 with the objective of giving a better breakdown and clarifying the values and ethical conduct adopted by the Company, as well as to address issues brought up in new legislation and business practices, as for example, anticorruption laws and conflicts of interest. In order to comply with the dispositions of the Code and ensure ethical commitment of employees, the Committee of Ethical Conduct was created in 2005, acting preemptively to disseminate and update the Code, as well as correctively in cases of noncompliance and eventual infractions.  

                   Sabesp has tools, guidelines and internal areas which support the preservation of its ethical conduct: A Whistle-Blowing channel (which also receives anonymous complaints), the Business Procedure for Determination of Liability, Audit Superintendence, Ombudsman, Citizen Information Service (SIC) and Compliance.

In 2015 more than 210 thousand records were processed in the Company, amongst which were: requests for information, complaints, compliments, criticisms, suggestions and complaints.  Specifically regarding complaints, 108 were recorded, of which 58% were cleared and 42% are being analyzed. Out of the total, 13% relates to improper behavior, such as harassment, discrimination, persecution and unfair treatment. For the total amount of complaints considered justifiable, 20 direct or outsourced employees were punished, (3 warnings, 4 suspensions and 13 dismissals).

The Ombudsman is a qualified channel for relating to our clients, in order to deal with complaints, suggestions, criticisms and information, working through two fronts:

- As a final Instance of defense, and attending in a second instance those who,  for some reason, were not satisfied or attended to within the correct stipulated period during initial contact with Sabesp;

- Last instance of defense of the Company’s image, working together with consumer protection bodies and non-governmental organizations, as well as taking on complaints passed along from other public entities and ombudsman.

The content analysis of this information via reports allows the ombudsman to counsel Senior Management as well as other departments in the Company regarding the immediate adoption of measures to face emerging demands as well as implanting improvements in processes and service providing.

In 2015, after five years off the PROCON list, Sabesp showed up on the state ranking, in 43^rd place. The water crises along with the adoption of necessary confrontation measures, such as the Bonus and Contingency Tariff, resulted in 86 complaints recorded and ranked by the organism of consumer protection (PROCON). It is worth highlighting that, as always, each complaint was individually addressed to ensure the best solution for the parties involved.

In compliance with the principle of transparency in business and the Law of Access to Information (LAI) (Federal Law No. 12,527/2011 and State Decree No 58,052/2012), Sabesp made available the Citizen Information Service – SIC, that consists of a channel for citizens attendance that establishes the right of access to information from public administration.

The Company’s minimum information, required by said legislation, is available on www.sabesp.com.br, under the SIC link, in the top menu, and there is a channel for citizens to request other informaiton. In addition to the website, citizens can calso obtain information in person at Rua Costa Carvalho, 300.

Through SIC, the Company helps spread transparency and its goal is to migrate from a passive attitude that waits to be sought out to provide information to a more active attitude of identifying society’s needs even before being asked.

Throughout 2015, 610 requests for information were attended to, all registered online or by phone calls. Of this total, 93% were fully settled on initial request.

Combat of corruption     

In January 2014, Federal Law No. 12,846/2013, known as Anti-corruption Law, came into effect in Brazil introducing the concept of strict liability for private legal entities in the country, involved in corruption acts in the administrative and civil spheres. Besides complying with the Brazilian Anticorruption Law, due to having its ADRs traded in the New York Stock Market, Sabesp is also subject to the Foreign Corrupt Practices Act (FCPA), a similar law effective in the United States since 1977. In accordance with this law, companies may be held liable even if the corruption acts are practiced by commercial agents, representatives or other parties acting on their behalf, both in the United States and outside that country.

In this line, Sabesp, committed to conducting its business in a  legal ethical, transparent and professional manner, and respecting the people and the environment, included in its Code of Ethics provisions against corruption, extending it to its employees, suppliers, partners and third-party representatives, the obligation to understand, accept and execute these guidelines.

Sabesp’s compliance program is in line with the recommendations of the Organization for Economic Co-operation and Development (OCDE), the United Nations Office on Drugs and Crime (UNODC) and the World Bank. Because we are a mixed capital company, the program deals with two different scenarios, the passive and active corruption, and is structured based on Senior Management’s Commitment; Functional Structuring; Values, Conduct and Whistle-blowing  Channel; Relationships with Third-parties; Governance and Internal Controls; Risk Management; and Training and Communication.

In 2015, SABESP continued to develop and implement action plans guided by the analysis of corruption and corporate fraud risks, prioritizing the processes subject to greater vulnerability.

The Company also contracted consultancy services with the goal of carrying out a meticulous analysis of the adherence level of the Sabesp Compliance Program to the requirements expected by the controlling bodies, in order to facilitate the outlining of plans to improve the program.

Taking into account that the most effective tool against corruption is reached through the companies, governments and civil society organizations’ joint efforts, Sabesp is part of the Work Group of Anti-corruption Work from the UN’s Global Compact and the Anti-corruption and Compliance Commission of OAB/SP Pinheiros, and also collaborates with the actions developed by the São Paulo State Government.

We can also highlight Sabesp’s commitment to the Global Compact’s international initiative Call to Action, an appeal made by the private sector to the governments, incentivizing them to establish anti-corruption measures and assure good governance systems. This movement already has more than 260 companies and investors as responsible for the management of U$3.5 trillion in assets.

Governance Structure

The Company’s highest governing body is the Shareholders’ Meeting. It is incumbent upon the Shareholders’ Meeting, among others, to elect or remove members of the Board of Directors and the Fiscal Council, establish management’s compensation and approve dividends.

The Company’s Board of Directors is currently composed of ten members for a unified two-year term of office, four of whom independent, reelection being permitted in accordance with the BM&FBovespa’s Novo Mercado rules. One of the members was elected by minority shareholders. No executive officer is a member of the Board of Directors, except for the CEO, who cannot be the Chairman of the Board of Directors.

In 2015, there were major changes in the Company’s Management. In January, Benedito Pinto Ferreira Braga Junior, the new State Secretary of Sanitation and Water Resources, was elected Chairman of the Board of Directors. Subsequently, in February 2015, Board member Mauro Guilherme Jardim Arce resigned and was replaced by Jerson Kelman.

In April, at the Annual Shareholders’ Meeting, the shareholders elected Joaldir Reynaldo Machado as an alternate member of the Fiscal Council and resolved that Tomas Bruginski de Paula should act as a sitting member, replacing José Antônio Xavier. As representatives of the minority shareholders, Massao Fabio Oya (sitting member) and Maria Elvira Lopes Gimenez (alternate member) were elected.

At the Board of Executive Officers, in June, Edison Airoldi took on the position of Technology, Enterprises and Environmental Officer, replacing Edson Jose Pinzan.

For further information on the Company’s corporate governance structure and its operations, see the “Corporate Governance” section in the Investor Relations area, on www.sabesp.com.br/investidores. 

In 2015, the compensation of executive officers, fiscal council members and members of the Board of Directors, including benefits, amounted to approximately R$4.6 million. This amount comprises approximately R$521 thousand relating to the executive officers’ variable compensation; the variable compensation is not applicable to members of the Board of Directors and the Fiscal Council, pursuant to State Decree 58,265/12 ratified  by the Shareholders’ Meeting held in April 2013.

As required by Brazilian Corporate Law, the overall compensation paid to executive officers and members of the Board of Directors and the Fiscal Council is established by the Shareholders´ Meeting. At Sabesp, the policy relating to the compensation of Board members and executive officers is established in accordance with the guidelines of São Paulo government, mainly based on performance, always subject to approval by the Shareholders’ Meeting.

Risk Management

In the second half of 2015, Sabesp formalized the creation of the Risk Management and Quality Department, with the goal of progressing in corporate governance by defining a specific team to act on this issue. The procedure had already been adopted since 2010, based on a specific institutional Policy, which regulated internal practices and procedures. The risk management process currently  in effect follows the international standards and Brazilian technical rules, specifically the COSO-ERM - The Committee of Sponsoring Organizations of the Treadway Commission “Enterprise Risk Management - Integrated Framework” and the ABNT NBR ISO 31.000 - Risk Management - Principles and Guidelines, which covers the whole organization. The risks identified are periodically measured in terms of their impact and the likelihood of occurrence, and then evaluated in a detailed manner by the competent hierarchal levels, with the definition of the mitigating actions required in each situation. 

With risk management, the Company seeks to preserve and increase the organization’s value, promote more transparency, improve the governance standards and disseminate the culture of risk management among its managers and employees. The   Company’s risks are described in item 4.1 of the Reference Form.

In the normal course of its activities, Sabesp is party to civil, environmental, labor and tax lawsuits, among others. Several combined individual lawsuits account for a significant portion of the total value of these lawsuits. The financial statements include lawsuits classified as possible and probable losses and only those classified as a probable loss are provisioned for. The relevant lawsuits are described in Note 19 to the Company’s financial statements attached hereto.

Internal Controls

The internal controls are evaluated on a structured and systematic basis since 2005, based on the parameters established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013 and the Control Objectives for Information and Related Technology (COBIT).

Annually, the evaluation of internal controls is revaluated considering both eventual new risks associated to the preparation and disclosure of the financial statements and possible significant changes in computer processes and systems.

The controls, which are tested by the Company’s independent unit, cover the procedures about the accuracy of accounting records; the preparation of the financial statements in accordance with effective standards; and the proper authorization of the transactions related to acquisitions, use and disposal of the Company’s assets.

The review on the effectiveness of internal control environment in 2014, as prescribed by Section 404 of Sarbanes-Oxley Law, was completed in April 2015 and no material deficiencies were identified, similarly to previous years. The 2015 tests will be completed in April 2016.

External Audit

Sabesp complies with the principles of independence with respect to services provided by the external auditor, namely: an auditor cannot audit his or her own work; an auditor cannot function in the role of management, and an auditor cannot serve in an advocacy role for his or her client. Deloitte Touche Tohmatsu Auditores Independentes is the auditor for Sabesp since the review of the quarterly financial information as at September 30, 2012. In this period, it has audited financial statements, quarterly financial information, and financing projects.

In 2015, the fees paid for these services by the Company totaled R$1.7 million, of which 89.8% corresponds to the audit of the financial statements. Deloitte Touche Tohmatsu Auditores Independentes does not audit any of our investees. While providing audit services, the external auditors did not provide non-audit services to the Company.

STRATEGY AND VISION OF THE FUTURE

Due to the impacts caused by the changes in the macroeconomic scenario and the water crisis, at the end of 2015 the Company began the review of its strategic planning. In order to reach the vision of being a worldwide reference in sanitation service rendering in a sustainable, competitive and innovative way, with focus on the clients, the strategic guidelines were reformulated. Those are stated below:  water safety, excellence in service rendering, sustainability, integration, relationships, innovation and technology, appreciation of people and expansion of the sewage treatment.

As for future action, led by these guidelines, the main lines of action are contemplated below:

To guarantee water availability for its area of coverage, to advance in the implementation of sewage collection and treatment infrastructure that is technically and economically feasible  thus furthering universalization and securing quality in management of services as well as in the products offered. The Company’s goal is to maintain the universalization of the water supply coverage, all the while offering high quality and availability, enabling around 816 thousand new water connections until 2020. The Company also intends to increase sewage collection coverage to 95% until 2020, carrying through 1.2 million new connections during the period.

To promote economically and financially balanced growth of Sabesp while still maintaining environmental correctness and social fairness. To apply the principles of financial growth and business sustainability, defining goals and responsibilities. Economically valuing water by restructuring the model for tariff calculation is a goal to be pursued.

In 2015, we began offering services to the population residing in informal settlements and areas. This is another initiative that promotes social equality and should be expanded, and the participation of city government, social entities and civil society as well as the Public Prosecution Office are essential to obtain the authorizations necessary to regulate supply to these propeties.

Stimulate the creation, adoption and spreading of solutions focused on value creation. The Company seeks to improve its asset management, as well as continuously reducing water loss and operational costs by investing in research and technological development, automation, and the integration of planning and process optimization. In 2015, Sabesp invested R$ 14.7 million in research, development and innovation. In addition to guaranteeing water supply and sanitary sewage, the Company produces, supplies and sells reused water obtained from direct treatment in its own stations, and as a partner in Aquapolo Ambiental, which supplies the Petrochemical Center of Capuava. In the segment of non-domestic sewage, the Company together with Estre Ambiental created Attend Ambiental, which has been collecting and treating non-domestic sewage in the Sao Paulo Metropolitan Region since the end of 2014. 

Sabesp also provides advisory services on the rational use of water, planning and commercial, financial and operating management, currently operating in Panama, Honduras and Nicaragua, in a partnership with the Latin Consult in the first two countries.

In 2015, Sabesp also began working in the electric energy segment through Paulista Geradora de Energia S.A., a partnership with Tecniplan Engenharia and Servtec companies. The Company intends to generate 7.0  MWh of energy by employing two waterfalls in the Cantareira System. Operational startup is expected for the second half of 2017. 

With regard to improvement in management, the Company is working to implement a enterprise resourcing planning (ERP) system, aiming to replace the current management and commercial information systems. The initial implementation schedule estimated these systems would have been implemented as of 2014; however, due to the water crisis, the Company readjusted investments and postponed the initial schedule.

Strive to maintain and expand the operational base. The Company operates water and sewage services in 365 municipalities in the State of São Paulo, including the municipality of Santa Isabel, in which the operation began in January 2016. Besides that, it partially attends the municipality of Mogi das Cruzes. Between January 1, 2007, when the new Regulatory Framework was published (Law 11,445/07) and December 31, 2015, the Company signed contracts to offer services for another 30 years with 278 municipalities (including the city of São Paulo), 4 of them having been signed in 2015.

Currently, the Company has 53 municipalities in its operational base with whom contracts have expired and renewals are under negotiation.  Together they account for 12.9% of the Company’s total revenue and around 21.7% of its intangible assets. Until 2030, another 36 contracts will expire, these representing 7.8% of the Company’s total revenue and around 7.4% of its intangible assets. In each of these cases Sabesp will employ all the necessary efforts to once formalize contracts for another 30 years.

These actions are sustained by the stimulus to professional growth, increasing satisfaction and wellbeing and maintaining commitment and work productivity.

At the end, the process will result in the revision and detailing of objectives, indicators and targets for the next ten years.

Balance of Targets 

The SPMR’s production systems were conceived considering the water availability referenced to the average flows of the historical series of the last 84 years and the 1953/1954 two-year period was until then considered the most critical period in the São Paulo metropolitan region.

However, the situation experienced between the end of 2013 and most of the months of 2015, substantially reduced water availability in virtually all the water sources in the SPMR to well below the minimum levels established when they were conceived, reaching levels far below the minimum established when conceived. At the end of 2015, with the beginning of the rainy season in October, which extended till March 2016, the rainfall returned to the level expected for the period and reservoirs began to recover their volumes.

In order to deal with this situation, Sabesp has adopted a series of measures to offset the reduced inflow to the Cantareira system (the largest system in the SPMR and the water source most affected by the crisis) and consequently improved the use of the reserve available in the water sources of the SPMR’s other production systems.

Even with the works, which added around 6 m³/s to the Metropolitan Supply System, and with the drop in revenues due to reduced consumption, the reduction of pressure in the water supply network and the bonus program, the Company managed to maintain the level of execution of new water connections, executing 226.0 thousand new water connections and 226.1 thousand sewage connections. For more information on the initiatives and strategies adopted see chapter on The Legacy of the Water Crisis.

At the end of the year, the Index of Collected Sewage Treatment was 78%, the same level as 2013, reverting the slight withdrawal recorded by this indicator in 2014. This performance, which was below expectations, resulted from the realignment of investments and the prioritization of initiatives that would minimize the effects of the water crisis. Despite the increase in households connected to the collection network, which contributed to an increase in the indicator, the reduction in sewage volume generated in the areas covered by treatment, in light of the reduction of water consumption, had a strong negative impact on the index.

In 2015, the water micro-measurement loss index fell to 28.5%, reflecting the efforts of the Corporate Program for Reduction of Losses, which comprises actions for the network maintenance, asset renewal (replacement of networks, branches and water meters), but mainly by the intensification of the management of pressure in the network to mitigate the effects of the water crisis and the efforts to fight fraud.

 Achievements in 2015 and Targets for 2015-2020

(1) Targets being discussed in the strategy revision process taking place throughout 2016 

(2) 99% or more

Some indicators that adhere to the organizational strategy and which reflect social, economic and environmental performance, have been outlined in the Company’s Profit Sharing Program. See chapter “Working for Awareness, Citizenship and Social Participation”, in the item Compensation, Benefits and Career for more details.

The Legacy of the Water Crisis

The biennium of 2014-2015 was marked by the most severe drought ever recorded in the history of the São Paulo Metropolitan Region (SPMR). As a result, the inflow – the amount of water that reaches the reservoirs– suffered strong impact, above all in the Cantareira System, where it remained below the historical minimum level for the most part of the months between the beginning of 2014 and the end of 2015.

Only with the beginning of the rainy season (also known as the hydrological year), in October 2015, was the group of systems that supply the SPRM able to gradually recover its water stock. At the end of February 2016, the volume of water accumulated in the water sources of the SPMR reached 52.9% of total capacity, including technical reserves of the Cantareira and Alto Tietê Systems. The volume is 142% higher than in February 2015, when the total was 409 billion liters, or 22% of its capacity.

Confronting almost two years of this drought and gradually recovering the water sources since the last quarter of 2015 has been possible thanks to four different factors. The first, already mentioned above, was the commencement of the rainy season and consequently a higher inflow to water sources as of the beginning of the hydrological year. The second was the active participation of the vast majority of the population, who understood how critical this moment was and readjusted to a more aware and rational use of water.

The third was Sabesp’s strategic intervention, intensifying emergency actions which had begun in 2014 and executing important works that allowed for the transfer of treated water between production systems thus permitting it to flow to areas were previously attended to only by the Cantareira System, the most affected by the water crisis. The joint actions implemented in the 2014-2015 biennium increased the capacity of transferring flows between production systems by more than 10 m³/s¹ .

Lastly, also in the operational field, the pressure adjustment in the networks using Pressure Reducing Valves– PRVs, a technique adopted by Sabesp ever since the 90s and intensified during the water crisis, was responsible for a great water thrift because in addition to influencing the drop in water loss during periods of lower consumption (when pipes are more pressurized), the PRVs allow a greater segmentation and control of the supply in very populous and large regions like the Greater São Paulo.  Currently, PRVs cover 55% of the metropolitan distribution network.

These measures, characterized by the urgent demand for solutions, determined a period of strategic, technological and operational improvement for the Company.

The initiatives taken were innumerous and based above all on the guarantee that all regions in SPMR would receive an amount of water to be distributed to the population on a daily basis, despite the restrictions imposed by the dryness of the climate and the bodies responsible for the management of water resources.

The criticalness of the minimum levels reached in the main water sources established new safety standards for the supply of the SPMR. Currently, the group of works planned or under execution within the Integrated Metropolitan System (IMS) take into consideration a phenomenon with 0.004 chances. Something so improbable that, up until now, they did not incorporate the most catastrophic prognostics of important Brazilian meteorological institutions like Cemaden (National Center for Monitoring and Alert of Natural Disasters). 

The frontloading of the goals set forth in the Master Plan for  Water Use  in the Macro metropolis of São Paulo as well as the intense mobilization for the construction of complex projects in the short term, as was the case of the pumping of water from technical reserves and the Rio Grande (Billings) – Alto Tietê Interconnection, demonstrated the technical capacity and high level commitment of the Company’s professionals. 

The installation of sectored reservoirs, with huge capacity for storing treated water gained force as an option for offering greater safety and flexibility to the distribution system. In addition to expanding storage capacity and being strategically located - much closer to the regions served, some reservoirs are very well prepared to receive water coming from different production systems. This engineering developed to pump water from technical reservoirs is today a reference in the water sector. 

The technology employed in the ultra-filtering membranes that, when compared to the traditional system, occupy less space, demand less chemical products and allow for the water treatment a shorter period of time, altogether consolidated an alternative for improving efficiency in the treatment process.

Another practice perfected due to the emergency demand was the “pipe within pipe” technology, a method of injecting HDPE (High-Density Polyethylene) pipes into older structure piping. With a low investment cost and greater speed, it is possible to fully revitalize deactivated water pipelines and, as a result, better integrate the production systems.

On the institutional side, the water crisis brought together the important entities in the sector – operators, regulators, water resource managers, and at the same time gave rise to a public debate about the need to rethink consumption patterns and the value of water.

The great results given the high complexity of the moment have attracted international interest, mainly from regions suffering similar droughts, like, for example Australia and California (United States of America), which have sent delegations to get to know the initiatives adopted by Sabesp.

The pedagogy of the crisis also generated a greater social awareness about the finiteness of natural resources. As an example we have the vast participation of the residents in the metropolitan region – an average of 80% of the clients in 2015 – who adopted more rational consumption habits. Changes which generally end up becoming routine in the day to day lives of families.

Two years after the beginning of the most severe drought in the history of SPMR, this experience has shown us that facing the crisis becomes possible when there is social awareness, high investments in infrastructure, integrated initiatives, technological innovation and the technical capacity to be entrepreneurs. This is a very precious legacy which remains as a positive reference to the successful management of water resources in São Paulo and Brazil.

WATER SAFETY: MAKING THE FUTURE OF SUPPLY

      Despite the fact that the service of supplying water is universalized within Sabesp’s scope, it still demands permanent monitoring of the demographic and geographic growth of cities. For this task, in 2015, 226 thousand new connections were enabled, the third greatest undertaking in the last 15 years.

São Paulo Metropolitan Region

 Approximately 80% of Sabesp’s clients – around 20 million people– are concentrated in the São Paulo Metropolitan Region (SPMR). With 39 municipalities in an area of 8,051 km², it is one of the largest population aglomerations on the planet, comparable only to the great metropolis of Tokyo (26.4 million inhabitants), New York (18.9 million) and Mexico City (18.1 million). 

      The conjunction of characteristics like the dense urban concentration and location – at the head of the Alto Tietê Basin, define it, even in periods of regular climatic conditions, as a region of extremely low water availability, with a per capita supply lower even, than that of regions like the semi-arid northeast, where drought is a constant. 

This scenario, challenging in itself, has become dramatically more acute between the end of 2013 and September 2015, when the low rainfall, inflow and, consequently, the drop in the reserves of important water sources resulted in the most severe and longest water crisis in the history of the SPMR. 

In December, 2015, the SPMR’s reservoirs stored 703 billion liters of water, versus 301 billion in December 2014. The water production of 71.4 m³/s in February 2014, in the beginning of the crisis, dropped to 54.8 m³/s in December 2015. With the onset of the rainfall and consequent increase in inflow, in February 2016 the production of water returned to 57.4 m³/s.

The Cantareira System, the greatest system employed in supplying the SPMR, had its production reduced from 31.77 m³/s in February 2014 to 14.93 m³/s in December 2015. From the 8.8 million people who were attended to in February 2014, more than 3 million began receiving coverage from other systems especially the Guarapiranga and Alto Tietê Systems.

The Guarapiranga system presented a good level of stored water ever since the beginning of the water crisis, becoming the greatest producer and serving a population of 5.2 million. The Cantareira System only retrieved its position as largest producer in January 2016.

New sources and increased production capacity

In 2015 Sabesp continued working on the projects to expand the capacity of bulk water supply as well as water treatment and storage. With the installation of the second module of ultra-filtering membranes with  1 m³/s of capacity in July 2015, the Alto da Boa Vista (ABV) ETA, which belongs to the Guarapiranga System, had its treatment structure increased from 14 m³/s at the beginning of the crisis, in January 2014, to the current 16 m³/s. The membrane technology allows water treatment that would take at least two hours to be completed in 20 to 30 minutes. In addition, it is automated, requires the use of less chemical products and occupies less physical space.

Regarding the new bulk water input to the Integrated Metropolitan System (SIM), the increase in 2015 was of 1.5 m³/s. The main intervention started an assisted operation in June, capturing 1 m³/s of the Guaió River to the Alto Tietê System. In January 2015, the Alto Tietê System also benefitted from the input of another 500 L/s due to the increase of the water transfer from the Guaratuba spring, from which an average of 500 L/s is already withdrawn.

The implementation of the metallic sectorial reservoirs was a complementary action that guarantees a larger reserve of treated water and continuous supply to neighborhoods further away from the main pipelines. From the beginning of 2014 to February 2016, 22 reservoirs have been installed and are operating in the SPMR. The group represents a treated water storage capacity of 147 million liters.

Preventing water loss

The SPMR is served through splitting the distribution system into supply sectors. The sectorial division is fundamental to achieving more efficiency in water distribution by installing boosters to reach topographically higher regions and pressure reducing valves (PRVs) in lower regions, where the strength of the water can damage the network structure.

As the drought grew more severe, since October 2014, pressure reduction was intensified in the distribution networks which contributed to saving almost 50% of the water in 2015. These maneuvers were carried out in different sectors, during periods of time which were announced to the clients on relationship channels. As a result, the water measured loss index reached a level of 27.1% in December 2015 in the Greater São Paulo, and 28.5% in balance which includes the entire area of operation. For more details on the concept of loss related to micro measuring, please refer to note (6) of the Panel of Indicators in this report.

Reducing loss is a priority we have pursuited for more than two decades. In 2009 this objective was propelled forward with the establishment of the Corporative Program for Reduction of Water Loss, in a technical partnership with JICA (Japan International Cooperation Agency). With part of the funds already financed by BNDES (the National Development Bank) and JICA, the investment is estimated in R$5.5 billion between 2009 and 2020, when we expect to reach the index of 17.9% of real (physical) loss in the area operated by the company, a level similar to that reached  by the United Kingdom, and better than what countries like France and Italy have reached with indexes between 25% and 29%. At the end of 2015, the index of Sabesp´s real loss stood at 18.7%. It’s important to highlight that, with the improvement of the conditions of water sources in 2016, the water pressure in networks has its intensity increased to improve supply to the population. This adjustment should result in an increase in loss indicators in the future.

Since the commencement of the Corporate Program for Reduction of Water Loss, R$3.4 billion have been employed, of which R$525 million were employed in 2015 alone. The Program works by preventing real or physical loss, caused by leaks in the pipelines, and reducing apparent or nonphysical loss, i.e. water lost in “gatos” (water meter cheating) or fraud and imprecise measuring of water meters, which result in water not accounted for or billed by the Company. 

Additionally, in November 2015, Sabesp launched a Project to install water networks in informal areas of the Greater São Paulo. The pilot project envisages the reduction of water loss caused by leaks in badly installed hoses. The estimate is that by the end of the project up to 2.5 million m³/month will be saved.

The Project is operated by means of performance contracts, in which the company who wins the bid implements the networks, connections, meter boxes and water meters, but is only compensated for the volume of water which is no longer lost. 

It’s important to highlight that, since legislation prohibits activities in informal areas, the success of this work depends on partnerships with City Government and Public Prosecution Office to obtain the authorizations necessary to regulate supply in these properties.

Bonus and Contingency Tariff

In light of the water crisis, one of the first measures adopted to contain demand was the concession of an additional bonus in February 2014, which was then extended throughout 2015, when an expressive amount of the population adhered to it, with average participation of 80% of consumers. Regarding those who benefitted from the discount, the average increased from 49% in 2014, to 70% in 2015. Under a new formula of calculation, the benefit was extended to 2016.

In the 2015 balance, the water saved by residents contributed to 5.6 m³/s thrift from the reservoirs that supply the Metropolitan Region. The volume which was not extracted from the systems (approximately 200 billion liters in comparison to 2013) is enough to supply around 2 million people, equivalent to 40% of the capacity in the Alto Tietê System. To the part of the population that increased consumption, Sabesp applied a contingency tariff. In force since January 2015, the tariff affected an average of 19% of the SPMR consumers, around 8% of which were exempt from the payment of the fee due to the fact that they were within the minimum consumption layer – up to 10 m³/s per month. For more information about the application of the bonus and contingency tariff, please refer to chapter “Economic and Financial Management” in item “Revenue”.

Additionally, Sabesp has the mission of stimulating the conscientious use of water. Through the Water Guardian Project, with on-site initiatives, lectures, distribution of folders and brochures to schools, condominiums, businesses and households, the Company had the opportunity to clarify the importance of saving water. Between February and April 2015, the “Every drop Counts” campaign demonstrated the importance of continuing to save even when the works on infrastructural projects were completed, increasing water availability in the SPMR. In July, Sabesp launched the campaign “Every Attitude Counts”, in order to thank the population for their contribution to water saving as well as showing them the works Sabesp has completed to maintain water supply. In 2016, from February to March six million pamphlets were distributed alongside the water bills to inform the population about the rules of the contingency tariff.

Results

In December 2015, the IMS was producing a total of 54.7 cubic meters per second (m³/s) to be distributed in the SPMR, 23% less then in the initial period of the crisis, when it reached 71.4 m³/s (the maximum nominal capacity in the SPMR is 75.8 m³/s).

Of this total, management of pressure was responsible for the reduction of 8.6 m³/s or  51.4% of the amount saved; the bonus answered for 5.6 m³/s (33.5%) and the leveling  of volume conducted to municipalities which operate their own distribution networks, due to lower availability, represented a reduction of 2.5 m³/s (14.9%).

In relation to February 2015, a month in which production reached its lowest during the two years of drought– only 49.9 m³/s – December 2015 presented an increase of more than 9% in treated water availability in the SPMR. The increase reflects a tendency of improvement in the conditions of water sources and the beginning of the process of transition to more normal conditions.

Concession of the Cantareira System

The water intake from the Cantareira system is granted to Sabesp by the ANA and the DAEE. This grant in effect, once renewed in 2004 for another ten years, would expire in August 2014. However, due to the wather conditions in the area covered by the Cantareira System, it was extended till the end of October 2015 and, subsequently, until May 2017, with special rules specifically related to the adequate use of water needed to confront the water scarcity registered in the period.

The extraction of water from the basin has been authorized by monthly notices, taking into consideration the behavior of rainfall, inflow, reservoir levels and Sabesp’s request. With the onset of the rainy season (October/15 to March/16) and the return of rainfall to normal levels, ever since February 2016 the Company has been authorized to remove 23 m³/s, a flow much larger than the 14 m³/s authorized during more critical periods of the water crisis.

More Work on Its Way

In the short term, considered in the emergency stage with goals for 2016, the increase of the transfer from Taquacetuba to the Guarapiranga System by 1 m³/s (from 4 m³/s to 5 m³/s) was carried out. Also within this goal, the transfer of 4 m³/s from the Braço Rio Pequeno of Billings to the Braço Rio Grande is in its final stages, as a counterpart for the volume that has been directed from the Rio Grande to the Alto Tietê System since September 2015.

In the medium term perspective, estimated to be delivered in 2017, the Guarapiranga Basin should benefit from the reverse flow of 1 m³/s from Alto Juquiá (ribeirão Santa Rita) and another 2.5 m³/s from the Itapanhaú river (ribeirão Sertãozinho) to the Biritiba-Mirim reservoir (Alto Tietê System).

In addition to these interventions, the interconnection of the Jaguarí (Paraíba do Sul Basin) and Atibainha (Cantareira System) reservoirs was anticipated, initially expected for 2025 within the scope of the Master Plan for Water Use in the Macro Metropolis of São Paulo.  Initiated in February 2016, it will address 20 km of water pipelines (including 6.2 km of tunnels), a pumping station, as well as structure for intake and discharge, contributing 5.13 m³/s (maximum of 8.5 m³/s) to the Cantareira System.

Another important work is the São Lourenço Production System, which construction began in April 2014 and should be finished at the end of 2017. 83 km of pipelines should be installed (28 km of which already ready by January 2016) to transport 4.7 m³/s of water from intake at the França waterfall, in Ibiúna, till the  west zone of the SPMR. The project envisages the construction of a water treatment Plant (WTP) in Vargem Grande Paulista and reservoirs to store up to 110 million liters of water.

The increase that will result from the projects underway will allow a contribution of up to 15 m³/s of bulk water and 6 m³/s of treated water to the SPMR².

Metropolitan Water Program (PMA)

Implemented in the middle of the 90s, the PMA brought a water rotation (shifts of 36 hours with water for 24 hours without it) experienced by more than 5 million inhabitants of the south and east regions of Greater São Paulo. At the time, the capacity for pipelining, treatment and distribution of water was insufficient for a region so densely populated and with accentuated demographic growth.

Ever since 2000, the PMA increased production capacity by 8.1 m³/s, of which we highlight the 5 m³/s from the Alto do Tietê, through a public private partnership concluded in 2011, and 2 m³/s in the Guarapiranga System, concluded in 2015.

Progressing toward the goal of improving water safety in São Paulo Metropolitan Region, the Company plans to increase treated water production capacity by more than 7 m³/s until 2018. In 2015, the Company invested approximately R$378.1  million in the PMA. From 2016 to 2020, investments are expected to exceed R$1.2 billion, of which we highlight the interconnection between the Jaguari (Paraíba do Sul Basin) and Atibainha (PCJ Basin) reservoirs, besides investments in the São Lourenço PPP.

 Recovering urban water sources

Since 2009, Sabesp and São Paulo Municipal Government have been developing the Water Source Program, focused on recuperating the two main reservoirs in Greater São Paulo: Billings and Guarapiranga. The initiatives have funds from the federal government, the State of São Paulo, Sabesp, the municipality and the World Bank, making it possible to expand sewage collection infrastructure and improve precarious housing units and habitation complexes installed in sub basin regions of both water sources. In 2015, the amount invested totaled R$84.2 million.

The Pró-Billings is another program that is expanding the sanitary sewage system by installing branch collectors, pumping stations, networks and household connections which will transport the sewage of part oh the Billings Basin inhabitants to be treated in the ABC ETE. In 2015, around R$10.8 million were invested in the program. 

 A third initiative within the scope of the recuperation of the metropolitan water sources arose with the implementation of Our Guarapiranga (“Nossa Guarapiranga”) at the end of 2011. The Program works on the improvement of water quality of the reservoir through trash and macrophytes removal, along with water plants that obstruct the water catchment. Ever since its implementation, around 14.9 thousand m³ of trash were removed from the water source, of which 4.3 thousand m³ in 2015 alone.

Coast supply

After SPMR, the Baixada Santista Metropolitan Region (BSMR) is considered the second most complex area to supply, due to the large population contingency, which can double in high summer season due to the large number of tourists. It is also a season in which high temperature peaks are registered, and the subsequent increase of per capita consumption of water further overwhelms the supply.

In order to be able to meet the large demand, besides the 13 Water Treatment Plant (WTPs) and 45 reservation centers strategically located among the nine municipalities, the BSMR has the largest carved in rock reservoir in Latin America, the Tunnel Reservoir of Santa Teresa-Voturuá, with a capacity for 110 million liters of water. Besides this, it has an integrated system for catachment, treatment and distribution of water that, similarly to that in Greater São Paulo, enables the transfer of flows between regions with higher and lower demands, giving more flexibility and safety to supply.

With the start of operation, at the end of 2013, of the Mambu-Branco System in Itanhaém, and the Jurubatuba System, in Guarujá, both within the structural program Water along the Coast (Água no Litoral), the Integrated System of Water Supply of BSMR gained  a reinforcement of 3.6 m³/s, enough water to supply 1.1 million people.

In 2015, a total of R$68.3 million was invested in the Program, by means of supply actions that also include the northern coast.

Supply in the inland

The State’s inland experienced a normal scenario in 2015, in the municipalities that Sabesp operates. The return of rainfall to the levels of the years preceeding the crisis and the task force created in 2014 guaranteed wellbeing to the citizens served.

In 2015, the Company invested around R$75.9 million in water supply infrastructure works in the inland, with emphasis on the construction of three WTPs, including the Sapucaí-Mirim, in Franca. The construction should be concluded in February 2017, when its catchment capacity should increase by 800 L per second, guaranteeing the supply of the municipality and the region for at least two more decades.

 As part of the Corporate Program for Reduction of Water Loss, with integrated actions between the coast and the inland, in 2015 executive projects were carried out for the future sectorial division of the distribution networks and replacement of 690 km of networks in 36 municipalities. In the biennium 2014-2015, more than 130 thousand lines and 220 thousand water meters were replaced, besides 120 thousand repairs in connections and networks and the non-visible leak research in 44 thousand km of network.

Conscious and sustainable use of water

The actions focused on sustainability incorporate measures directed to the efficient and responsible use of water, amplifying the awareness message about the finiteness of water resources. The water crisis of 2014-2015 came to reinforce the importance of these initiatives. One of the highlights within the list of actions of the Rational Use of Water Program-PURA, which promotes structural changes in public buildings in order to reduce losses and reinforce the need for conscious consumption. The Program, which began in 1996, was implemented in more than 7 thousand buildings in the entire state. 

Adopted by the most advanced world systems, the reuse water technology is among the most efficient initiatives for sustainable water consumption.

One highlight is the Aquapolo Ambiental, a project implemented since the end of 2012 through a partnership between Sabesp and Odebrecht Ambiental. The largest project to produce industrial reuse water in South America and fifth largest in the world, Aquapolo is apt to treat the effluent generated at STP “ABC”. Approximately one million m³ of water per month are supplied to the large companies in the Capuava Petrochemical Complex, in the ABC Paulista region, and used to wash machinery and warehouses, cooling boilers, generate power, etc. We expect that Aquapolo reaches peak production of 1 m³/s in the coming years.

In addition to Aquapolo, Sabesp uses the effluent from STPs Barueri, Jesus Neto, Parque Novo Mundo and São Miguel to supply water for urban use, such as street, courtyard and monument cleaning, unclog sewage networks, wash down gardens, among others. In 2015, we produced 1.8 million m³ for these purposes in these four STPs.

Water Quality

Sabesp has 16 quality control laboratories, and 14 of them are ISO 17,025 certified by the National Institute of Meteorology, Quality and Technology (Inmetro). Placed in different regions of the State, they carry out an average of 62 thousand monthly analyses of the distribution network. The evaluations of the captured samples from their origin until the consumption points are done regularly and include basic parameters of control, such as turbidity, color, chlorine, coliform, and thermo tolerants. The results are forwarded to the Sanitation Vigilance of the supplied municipalities and are printed in consumers’ bills, pursuant to presidential decree no. 5,440/2005. Annually, the clients receive a statement on the analysis of water quality.  The water source that the client receives at his or her home, along with the quantity and results of samples are also available on Sabesp´s website.

SANITARY SEWAGE: HEALTH, DEVELOPMENT, AND ENVIRONMENTAL CONSERVATION

Robust investments and the ever expanding sanitation infrastructure reflect advances in the sanitation system and place the State of São Paulo among the best served in the country.

According to the report of the Sistema Nacional Sobre Saneamento (SNIS), issued by the Ministry of Cities in February 2016, Sabesp leads the ranking of investment in sanitation, which corresponds to 37% of the amount invested by state companies between 2011 and 2014. As to the consolidated investment made in the country, Sabesp is responsible for 26.5%.

At the end of 2015, the municipalities operated by Sabesp recorded coverage rates of 86% for sewage collection and 78% for sewage treatment. According to data from Atlas da Vulnerabilidade Social nos Municípios Brasileiros, issued by the Instituto de Pesquisa Econômica Aplicada (Ipea), São Paulo is the state with the lowest percentage of people living in inappropriate conditions of water supply and sanitary sewage.

Fundação Seade, which is another important entity, pointed out the increase of houses with appropriate sanitation services as one of the main reasons for the State of São Paulo to reach the lowest infant mortality rate ever registered, 11.4 deaths for each 1,000 children born alive in comparison with an average national rate of 14.4 deaths.

Although the years 2014-2015 have been a period of efforts and investments aimed at coping with the water crisis in the Metropolitan Region of São Paulo, a situation that affected the expansion of sewage collection, cleanup, and treatment in the operated area, the work done in 2015 produced relevant advances.

Metropolitan Region of São Paulo (SPMR)

The Tietê Project, the largest environmental sanitation program in Brazil, is in its third stage with the purpose to expand the sewage collection index from the current 84% to 87% and sewage treatment levels from 68% to 84% within the SPMR. In 1992, when it was implemented, only 70% of sewage was collected only 24% was treated.

Having begun in 2010, the third stage will require investments of around US$2 billion, with funds from Banco Interamericano de Desenvolvimento (BID), Banco Nacional de Desenvolvimento Econômico e Social (BNDES), and Caixa Econômica Federal.

Of the works planned, 47% have already been completed, 27% are being executed and the remaining is in bidding process. When completed, these works will benefit another 1.5 million people with sewage collection and 3 million city residents will have treated sewage.

Among the main works executed in 2015, we point out the branch collectors of São João do Barueri (Jandira and Itapevi), Ipiranga (São Paulo), Carapicuíba (Osasco-Carapicuíba), and others located in the municipality of Santo André, as well as the interceptor at the Tietê Ecological Park.

Sabesp has been structuring the fourth and last stage of the Project, which involves investments estimated at more than US$2 billion, and will include large, complex works in downtown São Paulo and the expansion of the system to the regularized, low-income suburbs. In 2015, total investment in the Tietê Project came to R$377.9 million.

The evolution of the sewage collection and treatment rates has also been pointed out in a study conducted by SOS Mata Atlântica as one of the factors contributing to the improved quality of rivers and streams in the state capital. Such improvements reflect the actions developed by the Córrego Limpo Program, which has been carried out since 2007 in collaboration with the City Government of São Paulo. The study analyzed the results of measurements made in 36 rivers and streams in the city of São Paulo between March 2014 and February 2015. The percentage of regular or good quality samples rose from 25% to 55.4%.

The program has already cleansed 148 streams in an area of approximately 200 km² in São Paulo, bringing benefits to 2.2 million people. Around 1,500 L/s of sewage have been removed from water bodies encompassed by the program. In 2015, R$3.8 million were invested in the Program.

With specific regard to non-domestic sewage, since late 2014, Sabesp has been acting as partner of Attend Ambiental, which provides effluent pre-treatment services before sending the polluting load to conventional treatment at the STPs. In 2015, the first year of full operation, the company processed 1.0 billion cubic meters of sewage, which were sent to be treated at the Barueri Sewage Treatment Plant.

Expansion in the inland

Among the most relevant initiatives carried out in 2015 in the inland of São Paulo is the delivery of eight STPs in seven municipalities, bringing benefits to around 160 thousand people. Another 26 stations are under construction in 24 municipalities.

In addition to the direct benefits to the population, the investments have brought improvements to important water bodies, such as the Lavapés River, which runs through the municipality of Botucatu and comes from the Jundiaí River, composing the Hydrographic Basin of Piracicaba, Capivari and Jundiaí. Both have been promoted from water quality rank number 4 to 3, in accordance with the criteria of the Conama (Conselho Nacional do Meio Ambiente) Resolution. Those rivers become a source option for public supply after the change in the rank.

The 2014 Qualidade das Águas Superficiais report, issued in May 2015 by Cetesb (Companhia Ambiental do Estado de São Paulo), also showed more improvement in the quality of water of the Paraíba do Sul river. The quality of this river was classified as good, keeping up with the improvement of its water. The samples analyzed were collected from 11 spots located in 9 municipalities, 6 of which served by Sabesp. In São José dos Campos, which has two measurement points, the Water Quality Rate (IQA), which was already considered good, rose from 57 and 58 to 62 and 63, respectively.

Onda Limpa

The largest environmental sanitation program in Brazil’s coast, the Onda Limpa started in 2007, comprising projects, management, sewage network, connection expansion works, branch collectors, pumping and treatment stations. In addition to own funds, the program has obtained financing from JICA (the Japanese development agency) and the Government Severance Indemnity Fund for Employees (FGTS).

Since its implementation, the program has expanded the sewage collection from 53% to 71%, in addition to the treatment of 100% of the collected sewage. In 2015, the Company invested R$172.4 million in the program. For the period between 2016 and 2020, the investments are estimated at approximately R$885.0 million.

At the Northern coast, the program has already established seven Sewage Treatment Stations (STPs), more than 400 km of collecting networks and 30 thousand household connections. In 2015, around R$7.0 million were invested.

Mandatory connection

The pollution of rivers, streams, beaches, and water tables also results from illegal sewage connections in the rain water galleries over the connection to the collecting network.

Supported by the Sanitation Federal Law (no. 11,445/2007), as of Frabruary 2016, Sabesp only makes new water connections for customers that also connects their houses to the sewer pipes. The lack of connection to the collecting network also results from financial inability. In those cases, Sabesp provides the “Se Liga na Rede” Program in collaboration with the State Government of São Paulo. Through the program, the costs of the connection for families with an income of up to three minimum salaries are subsidized – 80% by the State Government and 20% by Sabesp. In 2015, around  1 thousand connections were made.

Sludge disposal

Finding feasible and environmentally sustainable solutions for the final disposal of solid waste coming from sewage and water treatment systems is one of the main challenges of Sabesp.

In the Barueri STP, the largest treatment station in Latin America, planning is focused on seeking partnerships for the installation of sludge drying units, which aims to reduce waste sent to landfills. The 500 tons of sludge are reduced to 140 tons through drying and turn into pellets that are used as fuel source for the generation of thermal energy (biogas). The generated energy returns to the cycle and is used for sludge drying. An alternative to that is the generation of electric energy to be sold or used at the STP’s facilities.

For the inland and the coastal area, there are initiatives for the implementation of solar-thermal sludge drying systems, in some cases associated with the implementation of composting systems, which uses, for example, the remains of tree pruning and eucalyptus bark, and the application of that compost generated by agriculture. That process decreases the emission of greenhouse gases, the use of landfills and, as a consequence, the costs with waste disposal, besides being an environmentally sustainable alternative due to its beneficial use of sludge. One of those alternatives was the winner of the 8^th Ozires Silva Award of Environmental and Sustainable Entrepreneurship in 2014.

Research and innovation

The search for innovative solutions, such as the ones undertaken for the correct disposal of waste, is a result of significant investments in research and Sabesp’s strategic participation along with universities, research development entities, and leading companies in the application of technology to sanitation.

With an area exclusively aimed at technological development, R$32.6 million were invested in research and development in the last three years – R$14.7 million in 2015. One of the high points of the work is the Cooperation Agreement signed with FAPESP. The partnership envisages a non-refundable fund of R$50.0 million, 50% of which from Sabesp and 50% from FAPESP.

Started in 2009, the partnership has already yielded 17 projects, nine of them being completed. The other eight, on going, had their agreements signed in 2015. Among the projects being studied, a hot one is the use of sludge from WTP as landfill cover material and its feasibility for direct application to compacted soil landfills.

In 2015, another highlight was the signature of a R$60.0 million fund with Agência Brasileira de Inovação  (FINEP) for the implementation of the “Sanitation Technological Innovations Plan”. With implementation due in 30 months, the plan is composed of four projects aimed at optimizing sewage treatment: biofiltration units for the control of pumping stations odors; sludge dryer using solar radiation; plasma gasification system for solid waste of Sewage Treatment Plants and, finally, the production of reuse water for urban and industrial use.

FINANCIAL-ECONOMIC MANAGEMENT

If, on the operational aspect, the main goal in 2015 was to maintain water supply, on the financial and economic aspect, the great challenge was to ensure the conditions for that to happen, without prejudice to the advances made in the sewage collection and treatment rates.

Since 2014, Sabesp has been making successive adjustments to its expenses and investments budget and increasing its ongoing pursuit of efficiency in order to maintain its financial-economic sustainability, preserve credit access and thus keep the pace of investments, a crucial point to overcome the water crisis.

The economic situation made the Company revise investment priorization, since the amount of resources is limited and not enough to simultaneously meet with the two goals being aimed at: water supply and sanitation.

In 2015, the investment made totaled R$3.5 billion, in line with the rate recorded in previous years. However, with the investment in water being prioritized, the amount invested in this segment corresponded to approximately 62.7% of the total, while this portion corresponded to 40% of the total in the last three years.

The table below shows the investments made, broken down by segment and region:

Note: Commitments assumed with program contracts (R$177.4 million) are not included

For the period between 2016 and 2020, the Company plans to invest around R$12.5 billion still focusing on the expansion of water availability and security, as shown in the following chart³:

Revenue

Aiming to keep stimulating water saving, the Water Consumption Reduction Incentive Program⁴ was maintained during the year of 2015 and extended in December with the authorization of ARSESP, updating the baseline for the calculation of the bonus on consumption reading bills and, as of February 2016, considering the update of 0.78 to the consumption average recorded in the reference period between February 2013 and January 2014.

In order to reinforce the Program, the Contingency Tariff⁵ was also maintained throughout the year and extended up to the end of 2016 or until the water situation can be more predictable, preserving the conditions set initially. On March 24, 2016, the Board of Directors allowed the Company to plead with ARSESP to cancel the Water Consumption Reduction Incentive Program as of the consumption readings of May 1, 2016, by means of the Water and Sewage Bill Bonus Concession and also of the Contingency Tariff on the water bill. On the same date, the Company filed the plea with ARSESP, which was granted on March, 31.

In March, 2015, the Company filed with ARSESP a request for an extraordinary tariff revision due to the decrease of water volume caused by the water crisis and the increase of electric energy tariffs.

After analyzing the received contributions on Public Consultation, on May 4, 2015, ARSESP allowed a readjustment of 7.7875% to the current tariffs consisting of: (i) 2015 anual tariff readjustment of 7.1899%, calculated based on the 8.1285% IPCA variation from March 2014 to March 2015 minus the efficiency factor (X factor) of 0.9386%; and (ii) additional adjustment of 0.5575%, due to the postponed application of the Ordinary Tariff Revision allowed for May 2014 but only applied in December of the same year, when it was partially offset.

On the same date, ARSESP also established the rate of 6.9154% regarding the Extraordinary Tariff Revision, applicable on the authorized tariffs mentioned above. Both accumulated adjustments resulted in the rate of 15.24% and the new tariff values became effective on June 4, 2015.

Furthermore, it is worth mentioning that the transfer of legal charges²  envisaged for customers living in the municipality of São Paulo remains suspended, and there is no prediction for the regulation and supervision fee charged by Sabesp to be transferred to customers by Arsesp in order to provide services in the regulated municipalities.

Bills to be received from the Municipalities served by Wholesale

The municipalities of Guarulhos, Mauá, and Santo André are supplied with water from Sabesp’s wholesale. However, Guarulhos is currently defaulting, and Mauá and Santo André partially pay their monthly invoices. The unpaid values are charged in court and Sabesp has been successful in lawsuits.

Moreover, Mauá still owes to Sabesp the investments made by the Company which have not been compensated because the municipality resumed the services in 1995. Sabesp filed a lawsuit, which was upheld and sentenced the City Government and SAMA (Saneamento Básico do Município de Mauá) to pay the debts. The sentence became final and Sabesp managed to begin the execution. After that, the municipality filed a motion to set aside the judgment, which favored the Company. This motion also became final on December 17, 2015, with the judgment favoring SABESP.

Between mid 2015 and early 2016, Sabesp signed Protocols of Intentions with all three municipalities in order to prepare studies and evaluations addressing their business relations and existing debts.

Furthermore, the Company increased the collection of debts by registering the water and sewage services at the Debtors Record of São Paulo (CADIN Estadual).

GESP Agreement

In 2008, the Company, the State of São Paulo, and the Water and Electric Energy Supply Department – DAEE, with the intervention of the Water Resources and Sanitation Office, entered into the Third Amendment to the agreement signed in 2001, with the purpose of addressing the value of the debts related to the supplementary retirement and pension benefits provided by State Law no. 4819 of August 26, 1958, paid by the Company and not refunded by the State.

According to that document, the assets that compose the reservoirs of the Alto Tietê production systems were given as provisional payment of a portion of the debt. However, due to the non-final lawsuit, it was not possible to transfer those reservoirs.

Because of that impediment, the State, Sabesp, and DAEE signed a Term of Agreement in March 2015, for the payment of debt in installments, in compliance with Note 10 (a) vii of the Financial Statements.

Debts

A crucial element to maintain the Company’s investment level, debt management was particularly challenging in 2015 considering the deterioration of the country’s macroeconomic situation, especially regarding the highly volatile exchange rate, which created severe restrictions on credit availability in the capital market and increased the funding costs of companies.

In response to that situation, the Company took a number of economic measures, such as the revision of investment volume, the claim to the extraordinary tariff revision, the reduction of costs and expenses, etc., in order to maintain its financial health, enable appropriate debt management and execute the works necessary to cope with the water crisis.

At the end of 2015, the Company’s total debt was approximately R$13.1 billion, of which 50.4% was denomimnated in foreign currency.

The water crisis, with its direct impact on the Company’s results, and the effects of the exchange rate variation on total debt put some pressure on our covenants. In the specific case of the “Total Adjusted Debt/Adjusted EBITDA” covenant, the Company began to record quarterly numbers that were closer to the contractual limits of 3.65 times, implementing a special management of this covenant to avoid non-compliance.

In this sense, on September 30, 2015, the Company and the BID signed an agreement called “Letter Agreement”, related to the 1983AB AB Loan Contract, as per Note 16 (h) (i) of the Financial Statements.

The adjustment to the contract mentioned above enabled the covenant to be aligned with the other debt contracts in which it features, non-compliance with which being characterized by the failure to comply with the limit of 3.65 times in two quarterly periods  (consecutive or not, within 12 months).

Although Sabesp has to cope with the reflects of the exchange instability on its financial statements, the Company does not use hedge instruments, since most of the foreign-currency-denominated debt was contracted by oficial agencies of national and international governments and multilateral organizations at very reduced costs, extended due dates and diluted flow of armotizations.

The type of management adopted by Sabesp enabled the Company to record a robust financial and economic performance in the years preceeding to the water crisis. This reality was crucial to absorb the effects of the water crisis in 2014 and 2015 while still maintaining a solid financial and economic structure.

However, due to the impacts of the water crisis and the deterioration of Brazil’s macroeconomic conditions, the Company had its credit risk rating revised in 2015, as shown below:

Loans and Financing

In 2015, the Company amortized R$1,292.3 million of debt and obtained loans and financing of approximately R$795.7 million to make the investments planned for the 2016-2020 period.

·         Brazilian Development Bank (BNDES)

In June 2015, the Company entered into a financing agreement involving approximately R$747.4 million intended for the works for the connection of the Jaguari dam, located in the Paraíba do Sul basin, with Atibainha dam, which is part of the Cantareira system. This contracting was selected extraordinarily within the Selection Process of the Ministry of Cities. This financing is repayable within 240 months, with a 36-month grade period, and bears financial charges equivalente to TJLP (long-term interest rate) + 2.18% p.a.

With regard to 3^rd series of the 18^th issuance of debentures, of the 42 debentures estimated, BNDES subscribed and paid-in 13 debentures in December 2014 and another 14 in July 2015, totaling R$74.3 million. The remaining balance should be subscribed in 2016. Additional information on loans and financing is available in the Company’s Reference Form, on www.sabesp.com.br/investidores, menu Informações Financial and Operating Information/Reference Form and IAN.

·         Funding Agency of Studies and Projects – FINEP

In October 2015, a financing agreement of approximately R$48.3 million was signed with the purpose of funding part of the execution of the Innovation Strategic Plan. The total deadline is up to 121 months, with a grace period of up to 30 months and financial charges of TJLP + 1.5% p.a.

Capital Markets

      On June 24, 2015, the Company made the total redemption of the 16^th issue of debentures at the amount of R$500.0 million. Said debentures were to mature in November 2015 and there was no premium payment.

      In December 2015, the Company made the 20^th issuance of debentures in the total amount of R$500.0 million, in a single series, maturing in December 2019, pegged to the CDI rate plus an interest rate of 3.8% per year. The resulting proceeds intended for cash recovery and the refinancing of financial commitments maturing in the first quarter of 2016.

On March 30, 2016, the Company will make a partial amortization of the outstanding debentures of the 19^th issue at the nominal amount of R$300.0 million.

Additional information on debts with the capital markets is available in the Company’s Reference form, on www.sabesp.com.br/investidores, menu Financial and Operating Information/Reference Form and IAN.

Financial and Economic Performance

      In 2015, the Company posted a profit of R$536.3 million.

Profit historical chart

Net operating revenue totaled R$11.7 billion, 4.4% upon 2014.

Net operating revenue historical chart

The gross operating revenue related to water and sewage services moved up by R$41.4 million, or 0.5%, over 2014, mainly due to the tariff repositioning of 6.5% since December 2014, the tariff adjustment of 15.2% since June 2015, and the application of the contingency tariff resulting in R$499.7 million in 2015. Those factors were partially offset by the increased bonus concession in 2015 and the 6.8% decline in total billed volume.

Gross operating revenue historical chart

Water and sewage billed volume ⁽¹⁾ per use category – million of m³

 (1) Unaudited

Water and sewage billed volume ⁽¹⁾ per region – millions of m³

(1) unaudited

(2) Composed of the coast and inland regions

(3) Wholesale includes reused water and non-domestic sewage volumes

In 2015, the costs of products and services rendered, administrative, selling expenses, and construction costs decreased by 5.2% (R$482.7 million). If we exclude the effects of the construction cost, the decrease was 13.8%. Costs and expenses represented 75.3% of net revenue in 2015 from 82.9% in 2014. For additional information on the breakdown and changes in costs and expenses, see the earnings release available on the Company´s website www.sabesp.com.br/investidores, item Financial and Operational Information item in the top menu.

Adjusted EBITDA increased by 36.2% from R$2.9 billion in 2014 to R$4.0 billion in 2015, and the adjusted EBITDA margin reached 33.9% from 26.0% in 2014. If we exclude the effects of revenue and construction cost, the adjusted EBITDA margin is 46.6% in 2015 (34.4% in 2014).

Adjusted EBITDA and Adjusted EBITDA Margin Track Record

Reconciliation of Adjusted EBITDA⁷ (non-accounting measurements)

R$ million

Stock Market

The stock behavior in 2015 reflected investor’s expectations especially as to the recovery of reservoirs of the Metropolitan Region of São Paulo⁹ and the Company’s capacity to cope with water crisis and the deterioration of Brazilian macroeconomic indicators.

The emergency actions taken by Management, the rainfall levels above the ones recorded in 2014 most 2014, as well as the Company’s financial resilience resulted in the 11.3% appreciation of the shares, closing the year at R$18.93. In the same period, Ibovespa dropped by 13.3%.

The ADRs, on the other hand, in addition to the effects of the water crisis, were affected by the depreciation of Real by around 47.0%, closing the year with a drop of 26.9%, at US$4.60. The Dow Jones Index recorded a 2.2% decline in the period.

In view of such a performance, the Company’s market value presented a slight recovery, from R$11.6 billion in 2014 to R$12.9 billion in 2015. On December 31, 2015, the Company’s asset value was around R$20.1 per share.

Sabesp’s shares are traded in 100% of BM&FBovespa trading sessions and handled an annual financial volume of R$5.6 billion in 2015. In the U.S. market, the Company closed the year with 139.6 million outstanding ADRs. The annual financial volume traded at NYSE in 2015 was US$3.0 billion.

In 2015, Sabesp continued to be monitored by the market financial institutions.

Dividends

Under our bylaws, common shares are entitled to mandatory minimum dividends corresponding to 25% of profit for the year, obtained after the deductions required or permitted under the law, and can be paid as interest on shareholders’ equity.

In 2015, Sabesp paid R$252.3 million in dividends as interest on shareholders’ equity for FY 2014, corresponding to approximately R$0.3691 per common share and a dividend yield of 2.2%.

In 2015, the Board of Directors approved the proposal for the payment of interest on shareholders’ equity totaling R$149.9 million, or R$0.2193 per common share and a dividend yield of 2.2%, to be paid within up to 60 days after the Annual Shareholders’ Meeting where the 2015 accounts will be submitted for approval.

ENVIRONMENTAL SANITATION IN PURSUIT OF SUSTAINABILITY

Sabesp’s environmental management, ruled by the guidelines proposed in its Environmental Policy, is inherent to the rendering of sanitation services and the essence of its businesses. Focused on consolidating the environmental culture, the Company prioritizes the in-house and external dissemination of the knowledge and experiences related to the good environmental practices. These are actions included in the corporate environmental management programs, which rely on the involvement of employees, community and partnership with non-governmental organizations.

In 2015, R$18.4 million were invested and spent with environmental management, related to the development and implementation of corporate environmental management programs, as well as the Rational Water Use Program – Pura, among other initiatives.

Other investments and expenses related to environmental protection are included in the total amount of operating expenses and investments reported herein, given the direct relation of these activities with the Company’s purpose.

Environmental Management System and ISO 14001 Certification

In 2009, Sabesp established a program to gradually implement an Environmental Management System (SGA) at the sewage treatment stations (ETEs) and water treatment stations (ETAs).

The initiative reinforces the process of changing the culture under development at the Company, which inserted the environmental management to the corporate guidelines. Its objective is to improve operating management to minimize risks, accidents and generation of environmental liabilities, besides estimulating the development of preventive actions.

In 2014, a strategic alignment in the program was made with the purpose of speeding up the implementation of the EMS in every station until 2024. As a restul, Sabesp adopted a hybrid model in 2015, the ISO 14001 Certification being applied to the certified scope, which may be expanded in compliance with the internal planning of the Business Units. For the other stations, Sabesp began to use its own environmental management model (SGA-Sabesp), focusing on environmental aspects that are more relevant to the operation of ETAs and ETEs.

Until March 2015, Sabesp had 51 stations certified by 14001. Considering the new scenario presented, the scope of certifications was reduced and Sabesp obtained, in April 2015, recommendation for ISO 14001 re-certification of 35 stations. A new external audit cycle is expected for the first half of 2016.

The EMS has already been implemented in 95 stations and is under implementation in another 34, totaling 129 stations until 2016.

Climate changes and greenhouse gas emission management

The global climate changes have been leading states and nations to look for alternatives to mitigate their impact on climate by instituting policies and initiatives, and adhering to international agreements.

Climate conditions and extreme events interfere directly with sanitation. Thus, technical qualification, calculation of greenhouse gas emission, establishment of actions to mitigate those emissions and adaptation to current climate conditions are on the agenda of companies, forming a set of initiatives aimed to improve their environmental and operational performance.

The creation of annual inventories to measure the greenhouse gas emissions – GHG, the acts of raising awareness of climate issues and encouraging the adoption of more environmentally effective measures and practices to manage greenhouse gas emissions are being developed by the Company under the Greenhouse Gas Emission Management Corporate Program – GHG. The initiative is in line with the responbilities established in the guidelines and requirements of the State Policy on Climate Changes (PEMC).

In 2015, Sabesp completed the 2014 GHG corporate inventory, totaling 2,359,114.4 tCO2e. It is the 8^th issue of the inventory, in which we identified the same trend from previous inventories, sewage collection and treatment being the biggest sources of greenhouse gas emissions, corresponding to approximately 84% of the total. Electric energy contributes to 14% and the other activities correspond to 2%. Having been issued since 2007, the document follows the principles and requirements of NBR ISO 14.064:2007 Certification Part 1 and the GHG Protocol Brazilian Program.

An example of the efforts being made to reduce greenhouse gas emissions is the biogas processing project generated in ETEs for the use of vehicles, signed through an agreement with the Fraunhofer Institute, from Germany. The goal is to generate fuel through biomethane obtained from the sewage treatment process.

Still in line with that, Sabesp co-authored the “Guia Técnico de Aproveitamento Energético de Biogás em Estações de Tratamento De Esgoto” (Technical Guide to Biogas Energy Use in Sewage Tratment Stations). It is a reference material which resulted from the collaborative work done by Projeto Brasil-Alemanha de Aproveitamento Energético de Biogás no Brasil – Probiogás (Brazil-Germany Biogas Energy Use Project – Probiogás).

Another solution aiming to reduce those emissions was the use of piped natural gas to supply 12 generators of the gross water pumping station (EEAB) from the connection between Rio Grande and Alto Tietê systems, whose energy consumption is equivalent to that of 33 thousand houses.

In line with the optimization of energy consumption, pumps of the water pumping station of França Pinto were replaced, for instance, which boosted pumping capacity and also reducing electric energy consumption in the network.

As to the reduction of greenhouse gas emissions, Sabesp is searching for energy alternatives from cleaner and renewable sources, such as wind energy in the operation of water pumping stations. For that purpose, we implemented a pilot project at the Sapopemba Pumping Station in order to take measurements for the determination of local wind potential and, if possible, future installation of a vertical-axis wind turbine.

Another highlight is the technological optimization project of the Várzea Paulista ETE, which aims to reduce the plant’s operating costs with electric energy and chemical products by incorporating instrumentation and automation technologies.

Water resources management and water resources protection

Sabesp is involved and takes actions at several levels of the Water Resources National System, through the work of 158 of its employees, from different company units, under corporate coordination. At the Water Resources National System level, we have a seat in the Plenary Session of the National Water Resources Council and seats in three of this Council’s technical chambers; we are also represented in the Plenary Session and the technical chambers of the four federal committees with jurisdiction in the State of São Paulo. At the state level, the Company is represented in the seven technical chambers of the State Water Resources Council and we have a seat in the Plenary Session of the 21 state water basins committees and technical chambers, where we prioritize our contribution to the Planning, Sanitation and Water Use Billing chambers.

Also aimed at improving the management of water resources, Sabesp is monitoring the gradual implementation of the water use billing instrument. It is an important instrument whose goals set forth in the Water Resources National Policy are, among others, the awareness of rational use and the provision of part of the resources needed for the initiatives planned by the Water Basins Committee to recover and preserve water resources. Another point debated by the Company focuses on water bodies through which the basin establishes a pact for water quality goals associated with its main uses. These two management instruments are directly related to Sabesp’s business.

In 2015, the Company disbursed R$43.1 million, paid to the State and the Federal Government, for the use of river water from the Paraíba do Sul river, Piracicaba river, Capivari river, and Jundiaí river basins, the Sorocaba and Mid Tietê rivers, and the Santos coast region, Alto Tietê and Baixo Tietê rivers. The collection for the use of water from other water basins in the State of São Paulo will start in 2016.

In valuing the need to preserve water resources, the Company owns and maintains areas inside preservation units, which it inspects and monitors. The areas are also available to universities and NGOs for social and environmental studies. 

In addition to the reserves, since 1990, Sabesp has been maintaining two forest nurseries to produce seedlings of native species to conduct the riparian forest restoration and recovery projects nearby water sources supplying the São Paulo Metropolitan Region (SPMR). One of them is installed at Jaguari dam of the Cantareira system, in the municipality of Vargem, and another one installed at the Alto Cotia WTP, in the municipality of Cotia.

As regards the use permits and environmental licensing, all our plants are currently licensed under the Corporate Programs to Obtain and Maintain Water Resource Usage Right Permits and Environmental Licensing.

We have filed use permit requests for all water uses inserted within the scope of the program with the relevant managing agency, many of which have already been granted and other are under analysis at the Water and Electricity Department (DAEE) and the National Water Agency (ANA).  Another stage of the program is expected to serve new demands.

The Corporate Program associated with the licensing of ETEs and ETAs is in progress and the Sewage Pumping Stations Program (EEEs) is under analysis at Companhia  Ambiental do Estado de São Paulo – CETESB.

Sabesp Environmental Education Program – PEA

Environmental education is an important tool for effective sanitation initiatives. It fosters a connection between projects and people, involving several social sectors, encouraging critical thinking and enhancing the development of values and practices to change behaviors and execute the cultural reconstructions that are necessary to develop sustainable societies.

Sanitary and environmental education actions are supported by public policies in such a way that Sabesp took the theme as one of the key points for the execution of its activities, along with sanitation, water resources and environmental policies.

Currently, these actions seem to be more necessary in order to provide information to the population, clarify doubts and emphasize everyone’s collaboration to rationally use water and the sanitation equipment available. In view of those needs, Sabesp implemented the Environmental Education Program (PEA Sabesp), consisting of a set of actions and projects to change the culture of employees and the society and thereby seeking to build social values, knowledge, abilities, attitudes and skills aimed at environmental conservation, a commom good of society that is essential to gaining quality of life and promoting sustainability.

The activities developed at PEA-Sabesp are organized in line with the following goals: to increase the intrinsic value of water; to take care of the environment; to conserve water sources; to improve environmental quality; to value sanitation activities; to value water and encourage its conscious use; to provide guided qualification and produce guidance materials.

In 2015, 4,365 lectures were delivered in schools, communities and companies, catering to an audience of 492.1 thousand people. Besides, 1.5 thousand monitored visits to the facilities were carried out, receiving about 77.6 thousand visitors.

The concern with the environment and the conservation of natural resources constantly motivate actions developed by the Company, both with its employees and in partnership with its several stakeholders. Among the projects, some highlights are the planting of trees, restoration of riparian forests, release of fish, school competitions, water saving programs and other initiatives and events to celebrate the World Water Day and the Arbor Day.

In line with new teaching tools and methodologies, Sabesp organized the Virtual WTP project. The initiative, having the State Department of Education as one of its partners, is intended at promoting education and awareness by means of an online visit to Alto da Boa Vista WTP, broadcast live from water catchment at the dam until it arrives at the customer’s faucet. Jesus Netto STP can also be visited online through this tool.

Good environmental practices in administrative areas

The 3Rs Sabesp Program has been implemented at Sabesp’s units since 2008 and is based on a business procedure to standardize several initiatives that used to exist in the Company, defining goals and rules to restructure the selective collection of solid waste generated by administrative activities. Grounded in the “3Rs” concept (reduce, reuse, recycle) to manage waste, the corporate program envisages initiatives to reduce, reuse and recycle solid waste and materials.

In 2015, 268 tons of collected waste were sent to be recycled. For that purpose, the Program promotes awareness and qualification for its employees through training of a work group consisting of representatives of the Business Units so that they take responbility for the implementation, management and monitoring of waste management in their areas.

In compliance with the applicable Law, the Program also donates solid waste generated by administrative activities to legally established recycling cooperatives whenever possible. Moreover, it also encourages employees to adopt responsible consumption habits and reduce waste generation, both in the corporate environment and social life.

Sabesp also follows the concept of waste management in the disposal of its used water meters. Part of them is returned to manufacturers that disassemble them and reuse its parts to make new units. Another part is disassembled by Sabespt itself, which returns a portion of the waste to manufacturers and reuses the other portion to recover units.

Another initiative is to maintain, in 2015, the percentage of fleet renewal at 78.5% for light vehicles and 68% for heavy vehicles, the legal obligation to supply vehicles equipped with flex technology with etanol being in force.

PROMOTING AWARENESS, SOCIAL ENGAGEMENT AND CITIZENSHIP

Sabesp’s actions are based on the principles of legality, ethics, transparency, and respect to people and the environment, contributing to people’s social development.

      In 2015, in view of the low water availability situation, Sabesp invested in raising awareness of the finite nature of water resources among customers, communities, institutions, condominiums and children. A milestone in this action was the Water Guardian Project, which launched the “save it to have it” campaign, with tips and directions for customers to avoid wasting water.

Aware of the importance of volunteer work and its benefits to society, Sabesp, by means of the Business Volunteer Program, spurs good practices and takes more dignity to those involved, promoting citizenship, one of the values expressed in the Company’s Code of Ethics and Conduct.

Another important initiative taken by Sabesp was the Warm Clothing Campaign coordinated by FUSSESP – Solidarity Fund for Social and Cultural Development of the State of São Paulo. Through its network of volunteers, Sabesp held more than 140 events all over the state and raised over 2 million pieces of good clothing, which were distributed to 211 charities and catered to 43,000 families.

Satisfaction Survey

Sabesp has been carrying out a wide satisfaction survey with its customers for 10 years, using the same technology, which makes it possible to compare the results of Sabesp, the boards and the business units. Based on the calculated results, it is possible to improve its customer relations and services rendered.

In 2015, 5,850 interviews were conducted all over the State of São Paulo, which produced an average of 75% positive reviews in relation to water, sewage and services.

This is a good result if we consider the severe water crisis in the Brazilian Southeast, especially in the Metopolitan Region of São Paulo. This positive result in such a critical moment was only possible because of the dedication and efforts of Sabesp’s technical staff in meeting customers’ demands.

Volunteer adhesions and institutional programs

In 2015, Sabesp maintained the voluntary adhesions to global movements and pacts for citizenship, by renewing, for the 12th consecutive year, the certificate awarded by Fundação Abrinq (Abrinq Foundation), it continued to be a co-sponsor of Instituto Criança Cidadã - ICC (Child-Citizen Institute), in whose Advisory and Audit Committee it has representatives, and as a signatory of the Global Compact, a UN (United Nations) initiative that proposes aligning the company's activities to the principles of human rights, labor, environmental protection and fight against corporate corruption.

Sabesp also encourages the 8 Millennium Development Goals (MDGs), a worldwide movement sponsored by member states of the United Nations (UN), with emphasis on MDG 7 - Quality of Life and Respect for the Environment. As of 2016, the goal is to extend the work towards sustainability, so the nomenclature has been changed to 17 Sustainable Development Goals (SDGs). To this end, Sabesp will reinforce the alignment of its Social Responsibility Program with this guideline. With a network of about 1,100 volunteers, the focus will be directed to the promotion of social and environmental initiatives and projects with the community, to stimulate behavioral changes that contribute more broadly to the sustainable development of the population under their influence and, consequently, of the world.

Sabesp is also a partner of the Ethos Institute and has an agreement with Associação para Valorização de Pessoas com Deficiência (Avape) (Association for the Valuing of People with Disabilities) and with Associação Amigos Metroviários dos Excepcionais (AME) (Association of Subway Workers Friends of Persons with Disabilities), through which many disabled people work in our costumer service centers.

Among the institutional programs, the Clubinho Sabesp (Sabesp Club)(www.clubinhosabesp.com.br) stands out, which uses games and characters to encourage the awareness of children and youth from 6 to 13 years old regarding environmental issues. Another highlight is Programa Aprendiz (Apprentice Program), in partnership with SENAI (National Service of Industrial Learning) and CIEE (Business-School Integration Center), which contributes to the citizenship development and professional training of young people from 14 to 21 years old. The initiative has opened up opportunities for 2,878 young people, of whom 510 joined the company's workforce in 2015.

Local communities

The Community Participation Program was created to serve primarily low-income customers or groups. It aims at social, environmental and business results through social responsibility practices which respect the specificities of this public, including the prevention of loss, the community mobilization and awareness for environmental issues, cleaning task-forces in rivers and streams, the planting of trees and other.

Noteworthy are the meetings with the Communities, which periodically gather the community leaders for introducing Sabesp's initiatives and investments, assessment of the population expectations and alignment of the company's actions to the needs of society. The social integration that has already been developed for 18 years allows for a strong awareness and faster response to population in demand management actions that require behavioral change, besides improving the services provided for the Metropolitan Region of São Paulo.

In 2015, other projects also stood out:

 Projeto Guardião das Águas (The Water Guardian Project): Engaging people in the mission of multiplying positive attitudes for the conscious use of water and, consequently, promoting consumption reduction are the major challenges of this program, which counts with the engagement of the society, Sabesp's employees, apprentices and interns, suppliers, community leaders, customers and condominiums for reducing consumption and protecting water resources.

Programa Água: sabendo usar, não vai faltar (Water Program: using it well, we won't lack it): It brings together four important areas: the distribution of water tanks to low-income customers; the distribution of water saving kits; the extension of the bonus for other consumer groups; and the application of a contingency rate for those who consume beyond the average.

The distribution of water tanks is targeted to clients with a family income of up to three minimum wages, living in areas of social vulnerability, which constantly suffer from water shortages due to a low storage capacity in their homes. Ten thousand water tanks and 10 million water saving kits were distributed.

Mutual Cooperation in Capital Assets Areas: It consists of the assignment of areas that suffer or may suffer anthropogenic pressures from urbanization, with the aim of developing social and environmental projects and actions for the improvement of the surrounding community's quality of life.

Community Gardens: It aims to preserve the water in the springs, ground permeability, income generation, preservation of water pipelines and integration among stakeholders. People of the area covered by water pipelines interested in the project are prepared and receive support in the first year of the garden, with training, water connection, tools, seedlings and input donation. After this period, the beneficiaries maintain the area with the sale of vegetables grown without pesticides or industrial fertilizers. Currently, there are four projects that benefit 244 people from 61 families in an area of 19,800 m², where vegetables, tubers, fruits, spices and herbs for teas are produced. They also serve the neighboring residents and other consumers. Next steps: to expand the number and length of the garden areas.

SAT NGO Project: It is a large area of Sabesp transferred to various sporting and cultural projects and activities, attending the population of Taiaçupeba. The community participation in the public space occupying process in an orderly fashion contributes to the collective good.  The areas available for the projects showed significant improvement in the process of preservation and maintenance, in addition to reducing solid waste accumulation and invasions. The activities directly benefit 1,500 people.

Paiva Castro Dam Surveillance and Cleaning Integrated Operation: The main goal of this initiative is to collect deposited debris from the banks of the dam. It had the participation of the Franco da Rocha Fire Department, 5th Fire Brigade, Environmental Police, 26th Kennel of the Military Police, Cantareira State Park and Mairiporã Civil Defense. The operation also had the support of motorized vessels for the removal of improperly discarded objects along the dam. The event was attended by approximately 500 people, collecting about seven tons of waste.

'Minha Cidade tem Sabesp' Program (My City Has Sabesp): through a set of relationship initiatives with society, it provides lectures, educational workshops and guided visits to water and sewage treatment plants and to intake systems. These allow the visitors to know Sabesp, as well as to experience practices that put them in contact with the main issues of basic and environmental sanitation.

People management

The year of 2015 was presented as a challenge but also as an overcome period. Difficulties and uncertainties brought by the water crisis played an important role in the mobilization of the entire Company in the development of alternatives to reduce the risks and impacts on the provision of services to the population.

Without losing sight of the "Human Capital as Competitive Force" Guideline, Sabesp kept the practices that guaranteed the sanitation professionals' skills and expertise, ensuring the commitment of the various stakeholders in convergent efforts.

     Sabesp seeks to meet the major demands of employees, always respecting the limits of its financial capacity and legal and governmental guidelined. The Collective Bargaining for the period 2015/2016 with the main unions representing employees took place in May 2015 and resulted in the Collective Bargaining Agreement, with salary increase of 8.29%, which prevented striking movements. Of all employees, approximately 70% are spontaneous union members.

In 2015, Sabesp had a workforce of 14,223 employees, including 226 employees added to Serviços de Água e Esgotos do Município de Diadema (SANED). The majority of the employees are male, white and from the technical and operational categories, with 47.6 years of age on average. As for the average length of employment at the Company, the staff shows a prevalence of professionals with 16 to 20 years, followed by an increase on the number of employees with up to 5 years in the Company. It also has 859 interns and 510 apprentices.

In the period from 2011 to 2015, there was a reduction of 1,116 jobs, a result of 3,616 layoffs and 2,500 admissions.  Of the total dismissals, 57.2% refer to compliance with the TAC - the Conduct Adjustment Agreement with the Public Ministry, which provided for the gradual dismissal of retired employees still working.  Last year, the turnover rate was 3.8% and the percentage of dismissals was 5.4%.

Sabesp respects the right to differences and reserves job vacancies in the public selection process for disabled people. In 2015, 69 job positions were filled under these conditions, out of which 78% are physically, 14% hearing, and 7% visually impaired. We also maintained agreements with associations, through which 111 disabled people work in our service branches, activity to which they receive over 108 hours of previous training.

Sabesp does not work with outsourced professionals, hiring specialized companies to provide services according to specific demands. The number of service providers employed is estimated at 6,345. From 2011 to 2014, the number of service providers remained stable, with a significant reduction in 2015.

Recruitment and selection of employees, interns and apprentices is carried out only through a public selection process (concurso público). From the Public Tender No. 01/2013 held to fill 624 vacancies, only a few professionals were hired, to meet emergency demands. The hiring of the 575 remaining vacancies will take place until the end of May 2016.

Regarding internal changes, as a way to value, motivate and provide professional development opportunities to employees, there is an Internal Selection process to identify the professional best suited for the available position. The selection is extended to leadership positions, through the Succession and Career Program.

Also in order to meet the needs of the units, Sabesp has a Bank of Opportunities accessible to all employees, to receive expressions of interest for transfers and other professional opportunities inside the company.

Compensation, benefits and Career

Sabesp has adopted a Competency-based People Management model, which offers career prospects and compensation consistent with the market, aiming to attract, retain and develop professionals.