SUSTAINABILITY REPORT Sabesp – companhia de saneamento ambiental do estado de

ownership structure 50.3% São Paulo State Government, 24.9% NYSE, 24.8% Bovespa employees 15,019

Largest water and sewage company in the Americas ranking and fifth largest in the world in number of customers customers 27.7 million operation 363 cities, including São Paulo coverage indicators water: 100%, sewage collection: 83%, sewage treatment: 77% market value R$ 19.5 billion adjusted ebitda R$ 3.6 billion adjusted ebitda margin 33.5% annual investments R$ 2.5 billion annual profits R$ 1.9 billion dividend per share R$ 2,345 ticker symbol SBSP3 – BM&FBovespa; SBS (Level III ADR) – NYSE

cities served by sabesp [ map on the side TAB ]

1 Adamantina RB 92 Embaúba RT 183 Mariápolis RB 274 Ribeirão Branco RA 2 Adolfo RT 93 MS 184 Marinópolis RT 275 Ribeirão Corrente RG 3 Águas da Prata RG 94 Embu-Guaçu MS 185 Meridiano RT 276 Ribeirão do Sul RA 4 Águas de Santa Bárbara RA 95 Emilianópolis RB 186 Mesópolis RT 277 Ribeirão dos Índios RB 5 Águas de São Pedro RM 96 Espírito Santo do Pinhal RG 187 Miguelópolis RG 278 Ribeirão Grande RA 6 RM 97 Espírito Santo do Turvo RA 188 Mira Estrela RT 279 Ribeirão Pires MS 7 RA 98 Estrela d’Oeste RT 189 Miracatu RR 280 Rifaina RG 8 Alfredo Marcondes RB 99 Estrela do Norte RB 190 Mirante do RB 281 Rio Grande da Serra MS 9 Altair RG 100 Euclides da Cunha Paulista RB 191 Mococa RG 282 Riolândia RT 10 Alto Alegre RT 101 Fartura RA 192 * ML 283 Riversul RA 11 Alumínio RM 102 Fernando Prestes RT 193 Mombuca RJ 284 Rosana RB 12 Álvares Machado RB 103 Fernandópolis RT 194 Monções RT 285 Roseira RV 13 Álvaro de Carvalho RB 104 Fernão RA 195 Mongaguá RS 286 Rubiácea RT 14 Alvinlândia RA 105 ML 196 Monte Alto RT 287 Rubineia RT 15 RA 106 Flora Rica RB 197 Monte Aprazível RT 288 Sagres RB 16 RM 107 Floreal RT 198 Monte Mor RJ 289 Salesópolis ML 17 Anhumas RB 108 Flórida Paulista RB 199 Monteiro Lobato RV 290 Salmourão RB 18 Aparecida d’Oeste RT 109 Florínea RB 200 Morungaba RJ 291 Salto de Pirapora RM 19 Apiaí RR 110 RG 201 Narandiba RB 292 Sandovalina RB 20 Araçariguama RM 111 MN 202 Nazaré Paulista MN 293 Santa Albertina RT 21 Arandu RA 112 MN 203 Nhandeara RT 294 Santa Clara d’Oeste RT 22 Arapeí RV 113 Gabriel Monteiro RB 204 Nipoã RT 295 Santa Cruz da Esperança RG 23 Arco-Íris RB 114 Gália RA 205 Nova Campina RA 296 Santa Cruz do Rio Pardo RA 24 RM 115 Gastão Vidigal RT 206 Nova Canaã Paulista RT 297 Santa Ernestina RT 25 Areiópolis RM 116 General Salgado RT 207 RT 298 Santa Maria da Serra RM 26 Arujá ML 117 Guapiara RA 208 Nova Guataporanga RB 299 Santa Mercedes RB 27 Aspásia RT 118 Guarani D’Oeste RT 209 Nova Luzitânia RT 300 Santa Rosa do Viterbo RG 28 RB 119 Guararema RV 210 Novo Horizonte RT 301 Santa Salete RT 29 Auriflama RT 120 Guareí RA 211 Óleo RA 302 Santana da Ponte Pensa RT 30 Avaí RT 121 Guariba RG 212 Onda Verde RT 303 Santana de Parnaíba MO 31 Avaré RA 122 Guarujá RS 213 Oriente RB 304 Santo Anastácio RB 32 RT 123 Guzolândia RT 214 Orindiúva RT 305 Santo Antônio do Jardim RG 33 Bananal RV 124 Hortolândia RJ 215 MO 306 Santo Antônio do Pinhal RV 34 Barão de Antonina RA 125 Iacri RB 216 Oscar Bressane RB 307 Santo Expedito RB 35 Barra do Chapéu RR 126 RA 217 Oswaldo Cruz RB 308 Santópolis do Aguapeí RB 36 Barra do Turvo RR 127 Ibirá RT 218 Ouroeste RT 309 Santos RS 37 MO 128 Ibiúna RM 219 Palmares Paulista RT 310 São Bento do Sapucaí RV 38 Bastos RB 129 Icém RG 220 Palmeira d’Oeste RT 311 São Bernardo do Campo MS 39 Bento de Abreu RT 130 Igarapava RG 221 Paraguaçú Paulista RB 312 São Francisco RT 40 Bernardino de Campos RA 131 Igaratá RV 222 Paranapanema RA 313 São João da Boa Vista RG 41 Bertioga RS 132 Iguape RR 223 Paranapuã RT 314 São João das Duas Pontes RT 42 Biritiba-Mirim ML 133 Ilha Comprida RR 224 Parapuã RB 315 São José dos Campos RV 43 RM 134 Ilhabela RN 225 RM 316 São Lourenço da Serra RR 44 RM 135 Indiaporã RT 226 Pariquera-Açu RR 317 São Luís do Paraitinga RV 45 Boituva RM 136 Inúbia Paulista RB 227 Paulínia RJ 318 São Manuel RM 46 Bom Sucesso de Itararé RA 137 Iporanga RR 228 Paulistânia RA 319 São Miguel Arcanjo RA 47 Borá RB 138 Irapuã RT 229 Paulo de Faria RT 320 São Paulo MC 48 Boraceia RM 139 Itaberá RA 230 RM 321 São Roque RM 49 RM 140 Itaí RA 231 Pedra Bela MN 322 São Sebastião RN 50 Bragança Paulista MN 141 Itanhaém RS 232 Pedranópolis RT 323 São Vicente RS 51 Brejo Alegre RT 142 Itaóca RR 233 Pedregulho RG 324 Sarapuí RA 52 Buri RA 143 MS 234 Pedrinhas Paulista RB 325 Sarutaiá RA 53 Buritizal RG 144 RA 235 Pedro de Toledo RR 326 Sebastianópolis do Sul RT 54 Cabreúva RJ 145 Itapeva RA 236 Peruíbe RS 327 RG 55 Caçapava RV 146 MO 237 Piacatu RB 328 Serra Negra RG 56 Cachoeira Paulista RV 147 Itapirapuã Paulista RR 238 Piedade RM 329 Sete Barras RR 57 Caiabu RB 148 Itaporanga RA 239 Pilar do Sul RA 330 Silveiras RV 58 Caieiras MN 149 ML 240 RV 331 Socorro MN 59 Cajamar MN 150 Itararé RA 241 Pinhalzinho MN 332 Sud Mennucci RT 60 Cajati RR 151 Itariri RR 242 Piquerobi RB 333 ML 61 Cajuru RG 152 Itatiba RJ 243 Piracaia MN 334 Taboão da Serra MO 62 RA 153 RM 244 Piraju RA 335 Taciba RB 63 Campo Limpo Paulista RJ 154 Itirapuã RG 245 Pirapora do Bom Jesus MO 336 Taguaí RA 64 Campos do Jordão RV 155 Itobi RG 246 Pirapozinho RB 337 Tapiraí RR 65 Cananeia RR 156 Itupeva RJ 247 RT 338 Taquarituba RA 66 Canas RV 157 Jaborandi RG 248 Planalto RT 339 Taquarivaí RA 67 Cândido Rodrigues RT 158 Jacupiranga RR 249 Platina RB 340 Tarabaí RB 68 Capão Bonito RA 159 Jales RT 250 Poá ML 341 Tarumã RB 69 Capela do Alto RM 160 Jambeiro RV 251 Poloni RT 342 Tatuí RM 70 Caraguatatuba RN 161 MO 252 Pongaí RT 343 Taubaté RV 71 Carapicuíba MO 162 Jarinu RJ 253 Pontalinda RT 344 Teodoro Sampaio RB 72 Cardoso RT 163 Jeriquara RG 254 Pontes Gestal RT 345 Terra Roxa RG 73 Cássia dos Coqueiros RG 164 Joanópolis MN 255 Populina RT 346 Timburi RA 74 Catiguá RT 165 Juquiá RR 256 RM 347 RM 75 Cesário Lange RM 166 Juquitiba RR 257 Pracinha RB 348 Tremembé RV 76 Charqueada RM 167 Lagoinha RV 258 RS 349 Três Fronteiras RT 77 Colômbia RG 168 RM 259 Pratânia RM 350 Tupã RB 78 RM 169 Lavrinhas RV 260 RT 351 Turiuba RT 79 RT 170 Lins RT 261 Presidente Bernardes RB 352 Turmalina RT 80 Coronel Macedo RA 171 Lorena RV 262 Presidente Epitácio RB 353 Ubatuba RN 81 MO 172 Lourdes RT 263 Presidente Prudente RB 354 Ubirajara RA 82 Cruzália RB 173 Lucélia RB 264 Quadra RM 355 União Paulista RT 83 Cubatão RS 174 Lucianópolis RA 265 Quatá RB 356 Urânia RT 84 Dirce Reis RT 175 Luiziânia RB 266 Queiróz RB 357 Uru RT 85 Divinolândia RG 176 Lupércio RA 267 Queluz RV 358 Valentim Gentil RT 86 Dolcinópolis RT 177 Lutécia RB 268 Quintana RB 359 Vargem MN 87 Dourado RM 178 Macedônia RT 269 Redenção da Serra RV 360 Vargem Grande Paulista MO 88 RA 179 Magda RT 270 Regente Feijó RB 361 Várzea Paulista RJ 89 Echaporã RB 180 Mairiporã MN 271 Registro RR 362 Vitória Brasil RT 90 Eldorado RR 181 Marabá Paulista RB 272 Restinga RG 363 Zacarias RT 91 Elias Fausto RJ 182 Maracaí RB 273 Ribeira RR * partial and bulk water supply COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO SUSTAINABILITY REPORT Board of Directors Alberto Goldman, Alexander Bialer, Andrea Sandro Calabi Dilma Pena, Edson de Oliveira Giriboni, Heraldo Gilberto de Oliveira, Jerônimo Antunes, Reinaldo Guerreiro,

Sidney Estanislau Beraldo (until 12/13/2012), Walter Tesch

Executive Committee Dilma Pena, Chief Executive Officer

João Baptista Comparini, Technology, Projects and Environment Officer (until 02/21/2013)

João Paulo Tavares Papa, Technology, Projects and Environment Officer (since 03/21/2013) Luiz Paulo de Almeida Neto, Regional Systems Officer Manuelito Pereira Magalhães Junior, Corporate Management Officer Paulo Massato Yoshimoto, Metropolitan Officer Rui de Britto Álvares Affonso, Economic and Financial and Investor Relations Officer

2012 sustainability report

Coordination André Lacerda and Priscila Costa da Silva

edition André Lacerda and Vera Freire

Assistant Editor Paula Franco Mendes

Proofreading Adriano Stringhini, Paula Franco Mendes, Priscila Costa da Silva e Vera Freire

Writers Ana Lucia Fonseca Rodrigues Szajubok, Eliana Kazue Kitaraha, Mara Ramos, Priscila Costa da Silva, Silvana de Almeida Nogueira, Wady Roberto Bon

Work Group Ana Lucia Fonseca Rodrigues Szajubok , André Lacerda, Angela Beatriz Airoldi, Cristina Gonçalves Tabosa Alves, Edison Airoldi, Eliana Kazue Kitaraha, Elizabeth Ayres Gdikian, Eridane Batista Furlan, Mara Ramos, Paula Franco Mendes, Paula Marcia Sapia Furukawa, Priscila Costa da Silva, Roseli Chistoni, Silvana de Almeida Nogueira, Vera Freire, Wady Roberto Bon, Wanderley da Silva Paganini

Outside consultant Weingrill Informação e Comunicação Ltda.

photos Sabesp Team

Concept, Artwork and Graphic Design TAOcriativo.com.br

project management Marina Vergueiro Leme

executive production Thiago Cunha Meira

art direction André Salerno e Jorge Monge

design Kafeja Cavalcante e Marcelo Salvador

Cover photo Antonio Brasiliano (View of São Paulo, Guarapiranga Dam)

review Luciana Maria Sanches

www.sabesp.com.br/rs2012 You will find codes (QR codes) similar to this throughout the report, which provide access to the digital version of our publication. In order to obtain additional information and updates regarding Sabesp’s sustainability practices, download the smartphone app to read such codes, or access the link above. SUSTAINABILITY REPORT

reference in sanitation 6 message from the chairman of the board development driven by sustainability 7 message from the CEO fifth largest sanitation company of the world 8 Profile

THE SEARCH FOR EFFICIENCY IN THE NEW REGULATED ENVIRONMENT 14

Reliable Water Supply in an Environment of Water Shortage 18

EXPANSION OF THE SANITARY DRAINAGE SYSTEM AND RECLAIM OF WATER RESOURCES 24

MANAGEMENT WITHIN THE CURRENT CONTEXT OF THE SECTOR 34

CARING FOR THE ENVIRONMENT: PRESENT AND FUTURE 52

SHAPING THE CITIZENS OF THE FUTURE 58

ANNUAL BALANCE SHEET / 2012 76

Reporting Parameters and Process 78

Materiality Matrix 79

Location of GRI Indicators 80

Location of Global Pact Principles 82 State of São Paulo – Sabesp’s current operating base – concentrates 22% of the country’s residents. Its area accounts for reference 2.9% of Brazilian territory in sanitation message from the chairman of the board GRI 1.1

São Paulo steadily consolidates The recently-deployed Se Liga na by the National Water Agency (ANA). itself as a reference in basic sanitation Rede program is no less important Associated to the Department of for the rest of the country. The rea- than others, mainly due to its unques- Environment, the agency attributes con- son behind such statement is simple. tionable inclusive nature. In south São siderable improvements of the river’s According to governor Geraldo Alckmin, Paulo, Sabesp started to connect low- quality, including the reinstatement of this subject is a matter of public health -income family homes to the sewage fish populations, to the investments and, therefore, addressed as a top prio- system without any additional charge. effected by Sabesp within the region. rity by the government. In addition to These interventions will help preserve Such improvement also boosted tou- such approach, increased investments the Billings dam, one of our most impor- rism, economy and, most importantly, in construction and renovation works tant watersheds. the quality of life of the local population. by Sabesp will allow us to universalize Despite its recent release, the pro- This year, Sabesp celebrated its tenth sanitation in cities serviced by the com- gram has shown very high adhesion. year listed on BM&FBovespa’s Novo pany by the end of this decade. This result is attributed to the Se Liga Mercado tier and NYSE. We visited the Sabesp has ended yet another succes- Agents, residents of these communities New York Stock Exchange to celebrate sful year. Regarding water supply, the contracted by Sabesp. They present the one decade of efficient management company continued to expand supply project to stakeholders and describe the and outstanding results regarding share systems, which is extremely important advantages of sewer connection. These appreciation. In 2013, the company cele- due to its operations in areas with water benefits will be spread throughout the brates its 40th anniversary. Everything shortage. This year’s general customer State, covering 192,000 connections. indicates that this will be yet another satisfaction index reached 89%, as indi- Fast-paced works will universalize years of positive results, while São Paulo cated by the respective survey. sanitation in the São Paulo country- maintains course towards environmental The population’s growing demand side by 2014. Once again, I would like and social sustainability. regarding the preservation of our to emphasize the environmental gains watersheds and water sources is still expected for the near future. After imple- being addressed by structural projects, menting and operating all equipment, which will expand sewage collection nature will finally be able to recover the and treatment services, such as the streams and brooks. decontamination of the Tietê river This is already the case of the Paraíba basin or Onda Limpa, on the State’s do Sul river’s São Paulo length, whose Edson de Oliveira Giriboni Northern Coast. regeneration was once again recognized Chairman of the Board of Directors of Sabesp

6 development driven by sustainability GRI 1.1 MESSAGE FROM THE CEO

In 2012, tax incentives were the main we also operate in regions of water shor- the initiative and increase efficiency in element behind economic politics focu- tage, we searched for new watersheds the second quarter of 2013, as well as sed on promoting ’s development. in order to ensure reliable supply to 27.7 increasing loss reduction activities. Despite being highly-anticipated by million customers. We have fulfilled Regarding the sanitary drainage sys- the segment, the benefit did not cover our commitment to launch the bidding tem, in 2012, we reached the second sanitation, which would have allowed process to implement the São Lourenço highest mark since 1998 regarding new Sabesp to broaden its investments. The Production System. Upon completion, connections completed, in addition to constant strive to perfect and improve the system will integrate the São Paulo reaching the 77% collected sewage tre- our management practices allowed Metropolitan Region’s supply system, atment rate. We have delivered 23 new us to invest R$ 2.5 billion. Our profits which covers 20 million people. STPs and began building an additional totaled R$ 1.9 billion, a 56.3% increase Since we already siphon waters at 38, which has put us one step closer compared to the previous year. It is 80 kilometers to supply the major city, towards universalizing the countryside worth noting that we paid a total of R$ this year witnessed the implementation sanitation, expected for 2014. 654 million in PIS/Cofins. of one of our strategies to overcome All of our 2012 achievements further Our share market performance was sanitation impacts generated by cli- reinforce our commitment towards also extremely significant, increasing mate changes. We have inaugurated universalizing sanitation services in Sabesp’s market value by 67% and rea- the Aquapolo Ambiental, built to supply regular areas in which we operate by ching R$ 19.8 billion this year. Our sha- the Capuava Petrochemical Complex, the end of the decade, constantly based res recorded the third highest Ibovespa located in Mauá, ABC region. With this on environment preservation and sus- appreciation rate. In the U.S. market, project, Sabesp increased reclaimed tainability standards. the company’s ADRs rose 50.2%, while water production thirteen-fold. Dow Jones recorded a 7.3% high. We Loss reduction is also one of our core also had the privilege of celebrating our goals to overcome low water availability. tenth year listed on BM&FBovespa’s Our Corporate Water Losses Reduction Novo Mercado tier and on the New York Program obtained an unprecedented Stock Exchange (NYSE). funding of R$ 710 million, signed in Operational performance was also February 2012 with the Japanese gover- noteworthy. We performed over 212,000 nment. Although we still have not rea- new water connections, the highest ched the expected loss rate, this invest- Dilma Pena number since 2000. Considering that ment will allow us to further promote Sabesp’s Chief Executive Officer

7 profile GRI 2.1/2.2/2.4/2.5/2.6/2.7/2.8/4.8

www.sabesp.com.br/ fifth largest rs2012/bolsany sanitation company in the world Sabesp serves 27.7 million people

Sabesp was incorporated in 1973, productivity, measured in connections per We also provide consulting services on from the merger of several companies employee, grew 67% in the last ten years. rational use of water, commercial and and under the guidelines of the National The company operates in 363 cities of operational management in Panama and Sanitation Plan (Planasa). As a state- the State of São Paulo, 193 of which rely Honduras, as well as state water and -owned and mixed capital public com- on complete water and sewage servi- sewage concessionaires in Alagoas (Casal) pany headquartered in the city of São ce coverage. In addition, the company and Espírito Santo (Cesan), promoting Paulo, capital of the State of São Paulo, supplies bulk water to six other cities technology interchange within the sector. in Brazil, the company is controlled by located in the São Paulo Metropolitan Additionally, we are qualified to operate the São Paulo State Government and Region (RMSP), five of which also make in the urban cleansing and drainage, regulated by public and private law stan- use of sewage treatment services. solid waste handling and power markets, dards and principles. In three other cities of the State of among other services, providing pro- We are the largest sanitation company São Paulo, Sabesp provides water and ducts and assessing rights and bene- in the Americas and the fifth largest of sewage services through partnerships fits directly or indirectly arising from its the world in terms of population served, with the following companies: Águas de assets, operations and activities, both according to the 14th edition (2012-2013) Castilho S.A., Águas de Andradina S.A. in Brazil and abroad. of the Pinsent Masons Water Yearbook. and Saneaqua Mairinque S.A. In the Our mission is to "render sanitation We supply water to 27.7 million people city of Mogi Mirim (SP), also in part- service, contributing for a better life and (24.2 million directly and 3.5 million nership with Sesamm – Serviços de environmental quality." Our future vision served in bulk) and collect the sewage Saneamento de Mogi Mirim S.A., we prescribes “to be recognized by 2018 generated by 21 million people. These are responsible for the modernization, as the company that has universalized figures indicate that Sabesp’s services implementation and management of water and sewage services, within its cover approximately 67% of the urban the sewage treatment system. operating area, in a sustainable and population of the State of São Paulo. Through partnerships with other com- competitive manner, with excellence in GRI 2.3 Our structure is divided into five panies, Sabesp created the Aquapolo customer services.” divisions, in addition to the CEO, two of Ambiental, which began operations Our exclusively common shares are tra- which are operational, accommodating in 2012 to produce, supply and tra- ded on the São Paulo Mercantile, Futures 17 business units distributed throughout de reclaimed water for the Capuava and Stock Exchange (BM&FBovespa) the State. Sabesp operates 214 water Petrochemical Complex, and Attend under ticker symbol SBSP3 and as treatment plants and 493 sewage tre- Ambiental, whose purpose is to imple- American Depositary Receipts (Level III atment plants. Our water distribution ment and operate a non-domestic ADRs) on the New York Stock Exchange system extends for 67,600 kilometers and wastewater treatment and sludge con- (NYSE), under ticker symbol SBS In 2012, the sewage distribution system covers ditioning plant in RMSP, among other Sabesp celebrated its tenth year listed 45,800 kilometers. The company cur- activities - the plant is expected to begin on BM&FBovespa’s Novo Mercado tier rently has 15,019 employees, whose operations by September 2013. and NYSE.

8 67% of the urban population in the state of são paulo

We are qualified to operate in the urban cleansing and drainage, solid waste handling and power markets, providing products and assessing rights and benefits arising from its assets, operations and activities, both in Brazil and abroad panel of indicators 2008 / 2012 customer service operational financial environmental social

Customer Service

Water service rate

Trends to universal service (1) 99 %

Sewage collection service rate Resident population served by Sewage Collection 2012 83 2011 82 19,198 19,600 20,024 20,498 20,993 2010 81 2009 80 2008 79 % 2008 2009 2010 2011 2012 [ thou inhabit. ]

Collected sewage treatment rate

2012 77 Number of cities with 2011 76 universal service (2) 2010 75 2009 74 110 125 141 146 193 2008 72 % 2008 2009 2010 2011 2012 [ unit ]

Resident population served by water supply Positive customer satisfaction perception (3) 23,162 23,363 23,625 23,911 24,249 2012 89 2011 92 2010 89 2009 76 2008 2009 2010 2011 2012 [ thou. inhabit. ] 2008 80 %

10 operational

Water connections Water metering ratio (6) 6,945 7,118 7,295 7,481 7,679 2012 99.97 2011 99.97 2010 99.97 2008 2009 2010 2011 2012 [ thou. ] 2009 99.97 2008 99.98 %

Sewage connections 5,336 5,520 5,718 5,921 6,128 Produced water volume 2,853 2,845 2,952 2,992 3,059 2008 2009 2010 2011 2012 [ thou. ] [ millions 2008 2009 2010 2011 2012 of m3 ] water system extension (4) 62,528 63,732 65,379 66,389 67,647 Retail water micro metered volume 2008 2009 2010 2011 2012 [ KM ] 1,404 1,444 1,514 1,557 1,601 [ millions 3 sewage system extension (4) 2008 2009 2010 2011 2012 of m ] 41,312 42,896 44,279 45,073 45,778

2008 2009 2010 2011 2012 [ KM ] Bulk water volume billed 285 288 293 297 298 WTPs - Water Treatment Plants [ millions 2008 2009 2010 2011 2012 of m3 ] 206 208 213 212 214

2008 2009 2010 2011 2012 [ unit ] Retail water volume billed 1,596 1,630 1,699 1,747 1,796 Wells (5) [ millions 1,085 1,106 1,093 1,102 1,079 2008 2009 2010 2011 2012 of m3 ]

2008 2009 2010 2011 2012 [ unit ] Sewage volume billed

STPs - Sewage Treatment Plants 1,330 1,373 1,434 1,486 1,535 464 475 490 490 493 [ millions 2008 2009 2010 2011 2012 of m3 ]

2008 2009 2010 2011 2012 [ unit ]

NUMBER OF EMPLOYEES (7) Water losses 16,649 15,103 15,330 14,896 15,019 2012 25.7 2011 25.6 2010 26 2009 25.9 2008 2009 2010 2011 2012 [ inhabit. ] 2008 27.9 %

Water losses per connection OPERATING PRODUCTIVITY 434 400 403 395 393 738 837 849 900 919 [ liters per connection [ connections / 2008 2009 2010 2011 2012 a day ] 2008 2009 2010 2011 2012 employee ]

11 panel of indicators 2008 / 2012

Financial(8)

Indicators unit 2012 2011 2010 2009 2008

Gross revenue R$ million 11,409.3 10,544.9 9,786.6 9,085.2 8,296.4

Net revenue R$ million 10,754.4 9,941.6 9,231 8,579.5 7,809.3

Adjusted EBITDA (9) R$ million 3,605.2 3,213.3 3,222.5 2,727 2,865

Adjusted EBITDA Margin % of net revenue 33.5 32.3 34.9 31.8 36.7

Adjusted EBITDA Margin w/o construction costs and revenues % of net revenue 42.9 41.1 44.7 41.2 46.3

Operating income (10) R$ million 2,845.3 2,354.4 2,672.2 2,120.3 2,121.3

Operating margin (10) % of net revenue 26.5 23.7 28.9 24.7 27.2

Income (net profit/loss) R$ million 1,911.9 1,223.4 1,630.4 1,507.7 862.9

Net margin (11) % of net revenue 17.8 12.3 17.7 17.6 11

Net debt to Adjusted EBITDA multiple 1.98 2 1.95 2.12 2.18

Net debt to shareholders' equity % 61 61.1 64.8 68.6 85.1

Investment (12) R$ million 2,535.6 2,440.2 2,194 2,059 1,734 environmental

Indicators unit 2012 2011 2010 2009 2008

EN1 Materials used by weight or volume Kg / m³ / Un. 232,386,091 206,376,578 203,291,835 193,607,523 -

EN2 Percentage of recycle materials % 4.54 5.18 5.14 5.18 -

EN10 Percentage of water consumed in treatment in WTPs (13) % 2.3 2 1.7 - -

EN10 Percentage of water recov- % 96.8 91.4 91.9 - - ered to wash water filters/decanters in WTPs (13)

EN21 Volume of reclaimed water supplied (14) thou. m³ 1,645.8 1,572.2 1,636.8 1,358.5 1,315.6

EN21 Percentage of reclaimed water sold % 0.35 0.35 0.35 0.26 0.27 per sewage treated reclaimed in STPs (14)

EN21 Percentage of internally used reclaimed water % 0.66 0.66 0.64 0.58 0.51 sold per sewage treated volume reclaimed in STPs (14)

EN21 Percentage of reclaimed water supplied on installed capacity (14) % 34.74 34.74 36.17 30.02 29.07

EN3 Total electricity consumption Terajoules (TJ) 8,553 8,196 7,773 7,632 7,732

Electricity consumption/m3 of produced water kWh/m³ 0.65 0.64 0.61 0.63 0.65

Electricity consumption/m3 of treated sewage kWh/m³ 0.42 0.43 0.41 0.43 0.40

(15) EN16 Direct and indirect greenhouse gas emissions t CO2 e - - 1,873,729 1,804,307 1,796,703

EN30 Total environmental protection expenditures and investments R$ million 27,715 30,426 - - -

Recycled A4 paper per total of A4 paper used % 26.4 25.7 19.6 17.5 15.5

sheets per Volume of A4 paper used per employee 3,682 3,711 3,352 3,311 2,846 employee per year

Positive public perception of Sabesp’s environmental responsibility (3) % 65 78 81 71 66

Positive public perception of employee engagement in environmental issues % - - 51 51 44

Voluntarily planted seedlings units 30,034 126,633 726,255 547,750 125,573

Number of recyclables collected by Sabesp 3Rs t 372 286 101 130.9 77.4

EN6 Average consumption of fuel alcohol liters/vehicle 2,532 2,529 2,232 2,174 1,724 EN6 Alcohol consumption over total fuels (16) % 50.1 32 48 46 34 No. of STPs and WTPs with implemented units 65 65 65 26 4 Environmental Management System (SGA) No. of ISO 14001 certified STPs and WTPs units 50 50 50 4 4

12 social frequency ratio of accidents Positive public perception of w/ leave of absence (17) Sabesp’s social responsibility (3) 7.2 5.1 6.2 6.9 4.6 2012 64 2011 80 [ accidents per 2010 83 million worked 2008 2009 2010 2011 2012 hours] 2009 78 2008 71 %

Amount invested in internal social programs (18) 432 463 382 501 516 Positive public perception of employee engagement in social issues [ R$ 2012 - 2008 2009 2010 2011 2012 Million ] 2011 - 2010 49 2012 0.5 2009 47 2011 5.0 2008 41 % 2010 4.1 2009 5.4 % [ of net 2008 6.8 revenue ]

Complaints registered in Procon amount invested in external 95 98 49 91 93 social and environmental programs 51 62 54 57 56 2008 2009 2010 2011 2012 [ unit ]

[ R$ 2008 2009 2010 2011 2012 Million] Position in Procon ranking (19) 2012 0.5 43a 2011 0.6 2010 0.6 45a 2009 0.5 % [ of net 2008 0.8 revenue ] 2008 2009 2010 2011 2012 [ position ]

Notes: (1) 99% or thereafter. (2) Water service > 95%, sewage collection > 90%, and collected sewage treatment > 97%. Indicators may be adjusted due to projections established by Fundação Seade based on the 2010 Census. (3) Survey conducted in 2012 by Datamétrica Consultoria, Pesquisa e Telemarketing Ltda. (5,862 interviews in the entire operating base with a 1.3% margin of error and 95% confidence interval). (4) Includes watermains, sewage mains, interceptors and outfalls. (5) The volume produced in deep wells is equivalent to roughly 6% of total water supplied. (6) Connections with water meter / total connections. (7) Number of own employees. Does not include employees assigned to other entities. (8) Consolidated. (9) Earnings before interest, taxes, depreciation and amortization. (10) Does not include financial income and costs. (11) Adjustment in 2008 resulting from the reissue of financial statements, which affected operating margin and net margin. (12) Does not include financial obligations assumed under program contracts (R$ 253 million, R$ 18 million, R$ 63 million, R$ 139 million and R$ 155 million in 2008, 2009, 2010, 2011 and 2012, respectively). (13) Considers only STPs in the RMSP integrated system. Part of the water from plants is used to wash filters/decanters, constituting a drinking water "water footprint". Four of the system’s eight STPs recover washing water: Guaraú, Rodolfo José da Costa e Silva, Taiaçupeba and Rio Grande. (14) Referring to the ABC, Barueri, Jesus Netto, Parque Novo Mundo and São Miguel WTPs, which have facilities to reclaim water. Water supplied corresponds to the water sold and internally consumed in WTPs (e.g. pump sealing). Capacity is the facilities' nominal capacity. (15) The 2008 inventory was recalculated based on the 2009 (base year) and 2010 inventory methodology. Among the changes are the use of MCFs (methane conversion factors) specific to calculate the emissions of some WTPs, and the separation of neutral emissions (CO2 emissions of biofuels) in inventory calculation, which were not accounted in the latter’s results. (16) Owned and leased fleet light vehicles considered; alcohol and gasoline. (17) Excludes commuting accidents and occupational diseases. (18) Includes profit sharing. (19) When not reported, it means that we are no longer among the 50 most complained against companies in Procon’s ranking.

13 THE SEARCH FOR EFFICIENCY IN THE NEW REGULATED ENVIRONMENT

14 In addition to being essential to preserve life, water Concerned with issues related to water shor- tage, the company develops and implements is the basic element of many productive process. Thus, water loss control, rational use incentive and water reclaiming programs, in addition to encou- resource management has gained particular relevance over raging technological production in order to promote efficient service expansion, also the last few years, with the purpose of increasing the efficiency considering reasonable taxing and appro- priation of social gains. regarding the use of such scarce resource. Management is further improved in order to reach such efficiency. Electrical power is one of the most relevant resources, both for our business and our services' consumers. Experts believe that the global water supply Several inductive electrical power expense and demand dynamics may generate several reduction and efficient consumption initiatives development opportunities to companies have been developed under such purpose. involved in such chain of value, mainly due An example is the São Lourenço Production to factors such as the shortage of water, System (SPSL) for 20 hours of operation, pre- population growth, urbanization, industrial venting operation in higher power fee periods. development, food and power safety, and Despite such efforts, the current volume of social pressure. power consumed per cubic meter produced Despite being considered as opportunities, increased by 1.4% in 2012. Along with the Alto these factors may represent major challenges Tietê municipalities, the company is currently for the segment when analyzed under a finan- assessing producing power from solid waste cial perspective. The total investment required handling activities, which can be applied in to expand Brazilian water and sewage services its own productive processes and traded. is estimated at approximately R$ 262.7 billion Our services focus on covering specific by 2030, according to the Ministry of Cities. technical and operational requirements of Efficient management mitigates risks asso- each region. Sabesp is constantly searching ciated to shortage, reducing the demand and for specific solutions that meet all sanitary the need for investments. conditions required. Social responsibility is also an inherent element in all of Sabesp’s activities. Based on local characteristics, the company develops the communities FUTURE OUTLOOK in which it operates by engaging its tar- get audience, heavily contributing towards AND STRATEGY shaping citizens of the future. Preserving the environment is part of our Based on sustainable development princi- everyday routines, which is why we constantly ples and in line with the environmental and strive to enhance control over our operations socioeconomic policies of its controlling sha- in order to maintain sustainable growth. By reholder, while it executes its basic sanitation improving our management processes, we universalizing strategy within the State of mitigate impacts caused by our business. São Paulo, Sabesp also participates in major We believe that educational initiatives raise public programs designed to promote quality awareness regarding the need to preserve of life and preserve the environment. and protect nature.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 15 THE SEARCH FOR EFFICIENCY IN THE NEW REGULATED ENVIRONMENT

We reached the important goal of publishing GOAL BALANCE the international bidding tender for the Public- Private Partnership (PPP) to implement the We met five of the six performance goals São Lourenço Production System. The new set for 2012, which benchmarked the profit system will increase the water supply to RMSP sharing bonuses granted to our employees and ensure reliable supply. Another impor- through the Profit Sharing Plan (PPR). tant achievement was the Adjusted EBITDA Water supply remains in a level we might margin, which reached 33.5%, exceeding the consider as universal in our area of operation. estimated percentage. New water New connections of this service follow the The loss rate goal was not reached. Our rate connections: organic growth in the areas served by us and is currently 25.7%, and the established goal was our business, reaching the largest growth 25.2%. In 2013, however, with the investment of highest number since 2000 in 2012. R$ 710 million from Jica (Japan International since 2000 Sewage collection and treatment activities are Cooperation Agency), this rate is expected to still on track. In 2012, we reached the second improve. The company was also unable to highest mark since 1998 regarding new sewage maintain the customer satisfaction rate at connections completed, in addition to reaching 92%, even though such rate only dropped 3 the 77% collected sewage treatment rate. percentage points below initial estimates.

Attained 2012 and goals 2012-2020 (1)

Attained goals 2012-2020

2012 2012 2013 2014 2015 2016 2020

Water supply Trends to universal service (2)

Sewage collection (%) 83 83 84 85 86 87 95

Collected sewage treatment (%) 77 77 78 80 82 86 95

New water connections (thou) 212.8 175 175 176 177 172 644(3)

New sewage connections (thou) 240.7 217 217 242 246 243 928(3)

Water revenue loss (%) 25.7 25.2 25.2 23.4 22.7 21.9 19

(1) Profit Sharing Plan 2012 and 2013 Goals. (2) 99% or thereafter. (3) 2017/2020 accrued goal

16 2012 sustainability report Indicators

Goal Attained

(1) Adjusted EBITDA margin 32.4% 33.5%

Customer satisfaction rate 92% 89%

Number of new water connections 175 thou 212.8 thou

Number of new sewage connections 217 thou 240.7 thou

Water revenue loss rate 25.2% 25.7%

Collected sewage treatment rate 77% 77%

São Lourenço Production System publish bidding process published on 11/08/2012

(1) Earnings before interest, taxes, depreciation and amortization.

17 RELIABLE WATER SUPPLY IN AN ENVIRONMENT OF WATER SHORTAGE

18 Sabesp operates in the Brazilian region with highest RMSP, which encompasses around 20 million people, irrigated by the Alto Tietê hydrographic population density: the State of São Paulo. A total of 24.2 basin, water availability is approximately 200 cubic meters per inhabitant/year – one cubic million customers are directly served with treated water, meter corresponds to one thousand liters of water. The UN considers any level below which accounts for approximately 60% of the State’s urban 1,500 m3/inhabitant/year to be "critical". In addition, fast-paced urbanization and disor- population. We also provide water in bulk to six cities, ganized metropolitan occupation collaborated to reducing both the quality and quantity of covering 3.5 million residents. Ensuring reliable supply to water available in watersheds. This is not a rhetorical threat. Until the these people – who live in the Greater São Paulo countryside mid 1990s, several Great São Paulo areas were still included in the supply rotation or coast, under extremely diversified conditions – has been a system: 5 million people were affected. The situation was reversed with the Metropolitan constant challenge faced by the company. Water Program, implemented by the com- pany, which included reserve increase, new watermains and pumping stations. The rota- tion system was eliminated in 1998 and all In 2012, we maintained the expansion rate legalized RMSP areas are currently supplied. of water supply services. A total of 212,800 Nonetheless, the program’s investments, new connections were performed. This is estimated at R$ 2.7 billion, are still on track, the company’s highest number of connec- with the purpose of rendering greater safety tions since 2000, representing an increase and quality of the RMSP integrated system, of 2.4% compared to 2011. Such expansion leveraging water production and distribution allowed us to maintain universal water capacity and enhancing supply systems. supply within legalized areas of the cities in By 2012, a total of R$ 1.3 billion had been which we operate, adequately accompanying invested in the program, R$ 95.2 million organic growth. A total of 59% of such new this year alone. connections were made in the São Paulo Considering such efforts, water offer has Metropolitan Region (RMSP). Between 2013 been outgrowing water demand in the Great and 2020, our business plan encompasses São Paulo area in the last few decades: 1.3 million new connections. between 1990 and 2012, while the metropol- It is not a widely known fact that we deal itan population group grew by approximately with water shortage scenarios similar to arid 30%, water production increased by 41% (from regions in our main operating markets. In 49 m3/second to the current 70 m³/second).

Metropolitan Water 30% 41% Program: reliable supply increased metropolitan water production increase – 1990 to 2012 population from 49 m³/second to 70 m³/second

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 19 RELIABLE WATER SUPPLY IN AN ENVIRONMENT OF WATER SHORTAGE

We currently have 20 dams with untreated The SPSL was also designed to meet sus- water, 34,800 kilometers of watermains and tainability requirements, with greater power systems, and 405 reservoirs with total capacity savings and efficiency. The system will operate of 2 million m³, comprising eight major RMSP 20 hours a day, avoiding operations in high production systems. power fee periods. Also aiming at mitigating The scenario of shortness faced in important eventual environmental impacts, Sabesp also operating areas - RMSP accounts for approx- directed the implementation of the watermain imately 70% of our gross revenue, including between collection and the treatment plant construction revenues - forces us to double throughout side roads, detouring from private our efforts in four major fronts in order to natural protection reserves and native forests. ensure reliable water supply to our custom- In addition to the search for new water ers: collecting water in farther watersheds; resources, the RMSP water intake, reserve and increasing production capacity; investing in production system expansion works are still new water reclaiming technologies; raising on track. In 2012, we performed interventions population awareness regarding the need to in the Capital city (mainly improvements that reduce water consumption. benefited 120,000 people in the Jardim Ângela In November, 2012 we launched the bidding region); in Embu-Guaçu (implementation of process to implement the São Lourenço an WTP with capacity of 152 l/s); in Barueri, Production System (SPSL), which, upon com- Itapevi and Jandira (benefiting 300,000 people pletion, will increase RMSP water offer by with our new reservoir and the Baixo Cotia WTP 4.7 m³/s – which corresponds to 6% of current pumping station); Osasco and São Bernardo production. The water used at SPSL will do Campo. By 2014, we will increase the Alto be collected from the Cachoeira do França da Boa Vista and Guaraú WTPs' production dam, in the city of Ibiúna, transported 83 capacity by 5 m³/s, as well as add 446,000 m³ kilometers into treatment, reserve and dis- to the reserve volume and approximately 1,500 1.5 million people will tribution points – we already collect waters kilometers of networks to the RMSP water at a distance of 80 kilometers to supply the intake and distribution system. be benefited by the metropolis, in the Ribeirão do Carmo dam, Similarly to the Great São Paulo area, the São Lourenço system in Salesópolis. Baixada Santista Metropolitan Region also A Public-Private Partnership (PPP) will be faces significant water supply challenges. responsible for SPSL investments. The pri- Watersheds located in the Serra do Mar are vate partner will be responsible for effecting limited, hindering especially the supply to all necessary investments, estimated at R$ the floating population at the coast during 1.6 billion. The bidding process is currently the summer – when all nine municipalities ongoing; PPP agreements are expected to be house up to 3 million people, almost doubling signed by the second half of 2013 and the SPSL the number of fixed residents. is expected to begin operations by April 2018. In order to overcome this scenario, in 2012, Approximately 1.5 million people will be Sabesp implemented two major ventures built directly benefited by the new system, with- to ensure reliable water supply to the Baixada in the cities of Barueri, Carapicuíba, Cotia, Santista: in December, the new Jurubatuba Itapevi, Jandira and Vargem Grande Paulista, WTP, in Guarujá, and the Mambu-Branco all of which are located in the far west of the Production System, installed in Itanhaém, Great São Paulo area. However, since Sabesp’s initiated its operations, which also benefited RMSP water supply system is completely residents of Mongaguá, Peruíbe, Praia Grande integrated, such addition will indirectly cover and the continental area of São Vicente. These the entire population served by the company facilities have a combined capacity to treat in the metropolitan area. 3,600 liters of waters per second. These works

20 2012 sustainability report are part of the Água no Litoral [Water for the The Água É Vida program also encompasses Coast] program, which has already invested sewage drainage services for such commu- R$ 569.1 million of an estimated total of R$ nities through a simplified system (Individual 1.1 billion. In 2012, the program’s investments Sanitary Units - USIs), comprised of a grease totaled R$ 129.3 million. trap, septic tank, anaerobic filter and/or gut- Beyond the RMSP and Baixada Santista, in ter, which reduces necessary investments to 2012 we also eliminated critical water supply access services, as well as complying with issues in several countryside cities, such as all sanitary requirements. The municipalities Assis, Avaré, Botucatu, Buritizal, Itapetininga, shall be responsible for implementing the Itapeva, Jarinu, Mococa, Presidente Prudente USIs, covering 11 locations throughout 2013. and Restinga. In addition to structural projects, the company has adopted contingency plans that encompass improvements in operational systems, increased staff during high-demand periods, and communication initiatives to raise Reclaimed water awareness within the general population. Focused particularly in high social vulner- Expanding the existing operational structure ability regions, located in areas far from the and searching for new sources to increase main countryside cities, Sabesp implement- water supply, are necessary, but not sufficient ed the Água É Vida [Water is Life] program. to overcome the water shortage scenario cur- Launched in late 2011, based on the company’s rently faced by the company. Especially in light universal service policy, the program aims at of increasing risks associated to water supply, providing water supply and sanitary drainage such as exposure to longer drought periods. to 41 areas located in the Alto Paranapanema Thus, Sabesp has been attempting to develop and Vale do Ribeira regions. Early initiatives actions and technologies aimed at leveraging took place in 2012, mainly related to the the reuse of wastewater from sewage treat- drilling of wells that will supply water to 12 ment plants for industrial purposes, equipment communities by late 2013. cooling, and other non-drinking applications.

3,000

2,500 / month x 1,000 3

m 2,000

1,500

1,000

500 Reclaimed water volume supplied 0 2007 2008 2009 2010 2011 2012 2012 2013 2014 2015 2016

2012 with Aquapolo

estimated

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 21 RELIABLE WATER SUPPLY IN AN ENVIRONMENT OF WATER SHORTAGE

Similarly, one of the company’s main achievements in 2012 was the effective oper- Rational water use ation of the Aquapolo Ambiental, a part- nership between Sabesp with Foz do Brasil Solely investing in the better use of our water- (Grupo Odebrecht), comprising a Special sheds is not enough. It is also necessary to Purpose Entity (SPE). The Aquapolo will have work with our customers, raising awareness capacity to supply up to one thousand liters regarding the difficulties inherent to supplying per second to the Capuava Petrochemical quality water in sufficient volume in order to Complex, in the ABC region. (learn more at prevent lack of supply, promoting conscious con- sabesp.com.br/rs2012) sumption. Therefore, the promotion of rational With the Aquapolo, Sabesp increased water use is also part of our strategy, and it has reclaimed water production thirteen-fold. We already shown positive results: in the last ten are currently able to supply 395,000 m³/month to years, loss prevention reduced the Great São the ABC, Barueri, Parque Novo Mundo, São Paulo area’s consumption per capita by 11%. Miguel Paulista and Jesus Neto STPs. However, One of the main initiatives within such strategy we currently supply only 138,000 m3/month, is Pura (Rational Water Use Program), which mainly due to distribution logistics issues, ini- focuses on reducing water consumption in pub- tial stages of client prospecting activities, and lic buildings. Currently, 2,400 schools, health the need to perfect the productive process, care units, hospitals and even prison facilities, since the reclaimed water produced in our such as the Santana women’s penitentiary, in treatment plants can only be used for specific the north side of the Capital, are targeted for applications. It is important to note that, in education and equipment replacement activities. 2012, we began an assessment to implement With the resources saved by Pura, we were a reclaimed WTP at the Parque Novo Mundo able to maintain a sufficient volume of water STP, with the purpose of supplying reclaimed to supply a population of 26,000 people without water to textile factories. having to use new watersheds.

3 17.5 17.08 17

16.5 16.06 16 15.5 15.35 15.32 Evolution of water 15 14.92 15.09 14.65 consumption in 14.5 14.89 14.98 14.56 14.66 the São Paulo 14.30

Average daily consumption per capita / m per capita consumption daily Average 14 Metropolitan 13.5 Region 13 Source: Metropolitan 12.5 Division-Sabesp 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

22 2012 sustainability report 2,471 2,170 1,726

819 85 2,471 properties served by Pura 2008 2009 2010 2011 2012

EN 26 Another initiative favoring supply reliabil- 25.2%; however, this still has not been possible ity is the Water Losses Reduction Corporate due to several factors, namely: i) contractual Program. Launched in 2009, the program issues in loss prevention initiatives implement- received investments totaling R$ 328 million in ed in the Baixada Santista, which is currently 2012, and an additional R$ 4.5 billion is expect- being solved with new contracts; ii) difficulties ed between 2013 and the end of the decade, in replacing branches, especially in areas with with resources from Jica (Japan International high urban density; iii) reduced uncertainty in reduced revenue Cooperation Agency), Caixa Econômica Federal, macro-measured volumes, with the installation losses to 19% and BNDES, in addition to own resources. The of macro-meters in the Água Guaraú Treatment by the end program includes an unprecedented funding of Plant output in January 2012. R$ 710 million, signed in February 2012 with The indicator comprises actual losses (leaks) of the decade the Japanese government – global reference and apparent losses, consisting of illegal con- in loss control technologies. Jica’s investments nections and undermeasurement. The per- will cover the replacement of 840,000 branches, centage indicates that 392 liters/day are not 670 kilometers of water systems and 1.5 million measured by branch. water meters. The program will also search for The company’s long-term goal for the pro- currently invisible leaks throughout 155,000 gram was revised and, upon the beginning kilometers of water systems through a period of water system maintenance and business of two years – which corresponds to two-times services arising from the contract entered the extension of the water distribution system with Jica in 2012, we expect loss prevention currently operated by the company, since the actions to increase, incorporating best prac- most critical lengths will be analyzed more than tices in order to reach the highest level of once. Initiatives are scheduled to begin in the quality in services rendered. We expect to second half of 2013. reduce revenue losses to 19% by the end of Our revenue loss rate is currently 25.7%, this decade – in Brazil, the current rate is practically stabilized compared to 2011, when 35.9%. The company has already invested Learn more at it reached 25.6%. The 2012 goal was to reach R$ 1 billion in the program. sabesp.com.br/rs2012

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 23 EXPANSION OF THE SANITARY DRAINAGE SYSTEM AND RECLAIM OF WATER RESOURCES

24 Society’s demand for sanitary drainage services what we have already achieved, we plan to reach universal sewage collection and treat- is increasingly higher, as well as that related to ment services in the main countryside cities by late 2014. the recovery of rivers, brooks and other water A total of 193 cities are currently supplied with complete water, sewage collection and resources. Such demand has been particularly treatment services by the company within the State of São Paulo. Universal services have heightened in countries such as Brazil, where been implemented in an additional 47 cities throughout 2012. currently less than half of the population is The company currently focuses on increas- ing the number of sewage treatment plants benefited with sewage collection services, and only (STPs) throughout the state, eliminating in natura discharges occurring in cities oper- 38% of the generated sewage receives some kind ated by the company. In 2012, we concluded construction works of 23 new STPs, which of treatment. Extremely aware of its responsibility improved the life and water quality of rivers such as Alambari, Barreiro de Baixo, Guareí, towards improving the lives of the São Paulo State Jundiaí, Pardo, Pirapora, Ribeira do Iguape, Tietê and Verde. An additional 38 units are population and preserving the environment, Sabesp being built in inland São Paulo, expected to be concluded between this year and the next. has been operating in a structured manner, in The progress of initiatives to improve water quality conditions was recognized in order to universalize basic sanitation services reports published by the São Paulo State Environmental Company (Cetersb) and within its operating area by the end of the decade. National Water Agency (ANA), disclosed last year. In the Outlook of Water Resources in Brazil It is important to note that the expansion - 2012 Report, ANA states: "Among points of drainage systems only recently became a that presented increase IQA (Water Quality priority in Brazilian public sanitation policies. Indicator, particularly sensitive to contamina- This occurred initially because the operations tion due to sewage disposal), the most relevant of service providers and governments in were those located in São Paulo, one of the general was directed to solve water supply States that most invested in sanitation in the 193 cities difficulties, which was an issue deemed much past decade. Several rivers were recovered completely covered more pressing by the population. After such in the Tietê River Basin (, Jundiaí, issue was addressed and balanced, despite Jacaré-Guaçu, and Jacaré Pepira Rivers) with water, completely solved, attention turned to the and the Paraíba do Sul, Paranapanema and sewage collection need to collect and treat sewage, preventing Grande river basins." and treatment the wastewater generated by the population In the Surface Water Quality in the State of São services. Total of from contaminating water resources. Paulo document, related to 2011, the most recent In line with such needs, since the ear- version available, Cetesb states: “Several san- 47 cities received ly 1990s, Sabesp implemented a strategy itary drainage system improvement initiatives universal coverage defined and organized towards expanding became evident in the remaining load (organic) throughout 2012 sanitary drainage services in all 363 cities in evolution (that is, which will be discharged in which we operate. We have implemented a receiving water resources), recording a decrease long-term investment plan and, considering of approximately 15% between 2006 and 2011.”

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 25 EXPANSION OF THE SANITARY DRAINAGE SYSTEM AND RECLAIM OF WATER RESOURCES

1,500

1,450

1,400 Load (t. DBO/day) 1,350

1,300

reduction of the 1,250 remaining load in the 1,200 State of São Paulo – 1,150 2006 to 2011 1,100

Source: Surface Water 1,050 Quality in the State of São Paulo ­– 2011, Cetesb 1,000 2006 2007 2008 2009 2010 2011

The percentage represents a decrease of 200 reached in 2011. This increased the sewage tons/day discharged in rivers, brooks and other collection service rate in our operating area watersheds of the State’s region. to 83%: this service is currently available to 21 After the São Paulo countryside, our strategic million people. The collected sewage treatment planning establishes a universal sewage col- rate reached 77%, covering 15.4 million cus- lection and treatment goal in legalized areas tomers. Throughout all 363 cities where Sabesp within the São Paulo and Baixada Santista operates, we are responsible for operating and metropolitan regions and the Northern maintaining 493 sewage treatment plants, nine Coast to be met by the end of the decade, in submarine outfalls, and approximately 45,800 compliance with the company’s vision. After kilometers of sewage collection lines, trunk these priorities, the company will exclusively sewers, interceptors and outfalls. consider areas of the São Paulo capital city Between 2013 and 2020, our business plan that are currently irregularly and illegally encompasses 1.9 million new connections. occupied, under a service schedule extending For such, our sewage system expansion ini- through 2025. Such actions depend on addi- tiatives are organized around four structural tional initiatives from local public agencies, programs, namely: Tietê, Córrego Limpo e namely related to reurbanization and housing Vida Nova projects, in RMSP, and the Onda projects for families currently living in valleys, Limpa project, in the Baixada Santista and lowlands and riverbanks – estimates indicate North Coast. Sabesp’s investments between that approximately 20% of the São Paulo city’s 2013 and 2015 in broadening sewage col- territory presents some kind of irregularity. lection and treatment systems totals R$ 4.1 In 2012, we have kept a steady pace in sewage billion. Additionally, we are participating in collection service expansion activities. A total a São Paulo State Government program, of 240,700 new connections were performed launched in 2011, focused on subsidizing the in the year. This is the second highest mark connection of low-income family homes to since 1998 and only 2.3% below the results the public sewage system, mainly with state

26 2012 sustainability report Treasury resources: Se Liga na Rede program Before the Projeto Tietê, these areas were (enacted by Law no. 14.687/12 and governed by also affected by the pollution generated main- Decree 58.208/12 under the name Pró-Conexão ly by industries and residents of the Great Program and is being disseminated under the São Paulo area. This problem, however, has “Se Liga na Rede” concept, which will be the recently been eliminated. The pollution stain, name adopted in this report). which previously reached the Barra Bonita The Projeto Tietê remains the company’s dam lake, has receded approximately 160 main initiative towards expanding sanitary kilometers, until the outskirts of the city of drainage and improving watersheds, especially Salto, much closer to the RMSP. By the end of the Tietê River, within the Great São Paulo area. the third phase of the program, we estimate In 2012, we completed 21 years of initiatives, that metropolitan residents will be able to implemented upon a widespread mobiliza- clearly notice river improvements, especially tion of the metropolitan population, including the significant reduction of the unpleasant participation in civil society organizations and odor generated. communication channels. We are currently Sabesp invested­ R$ 698 million in the third implementing the third stage of works, des- program stage; R$ 328 million in 2012 alone. tined to leverage sewage collection coverage Among the Tietê Project’s main activities in RMSP, from 84% to 87%, and the collected concluded in 2012 is the implementation of sewage treatment rate from 70% to 84%. the Ipiranga trunk sewer, whose extension of Under such goal, a total of 564 program 15.5 kilometers increased the transportation projects throughout 25 cities are currently of sewage collected in the Ipiranga brook under execution or contracting stage: in 2012, basin (Ipiranga, Saúde, Bosque da Saúde, we began intervention activities in Cajamar, Água Funda, Vila Gumercindo and Chácara Cotia, Embu das Artes, Embu-Guaçu and Inglesa districts, among others), benefiting Rio Grande da Serra. Investments within this 270,000 residents in the Capital city. stage will reach US$ 2 billion, funded by the We also began implementing the Pinheiros Inter-American Development Bank (BID), interceptor, with an extension of 2.2 kilome- Caixa Econômica Federal and BNDES. Upon ters. This element completes the intercepting completion of the current works stage by 2016, and removal structure of sewage generated over 1.5 million people will receive collection in the Pinheiros riverbank area. An appro- services and 3 million new residents will be priate piping system will be implemented in benefited with sewage treatment services. both sides of the entire river, transporting Sabesp currently has Throughout these two decades, the Projeto wastes to the Barueri STP, at approximately five major sewage Tietê was primarily focused on expanding the 60 kilometers. We have also concluded the treatment installed treatment capacity within the Great compact Guatambu STP, with capacity for 32 plants in RMSP, São Paulo area, in order to efficiently service the l/s, in Itaquaquecetuba. integrated metropolitan system. We currently Also regarding the elimination of in natura capable of processing have five major sewage treatment plants (STPs) sewage disposal generated in areas served by up to 18,000 capable of processing up to 18,000 liters per Sabesp into RMSP watersheds, the company is liters per second second – which is four times greater than in currently structuring the fourth and final stage the early 1990s. Subsequently, we structured of the Tietê Project, expected to be implement- sewage disposal and collection system expan- ed between 2014 and 2018, with estimated sion projects. Since then, approximately 3,500 investments totaling US$ 2 billion. For such, kilometers of pipeline, including collection lines, the company has undertaken to receive open trunk sewers and interceptors, were installed. credit lines from the federal government, as The results of such actions are already well as international funding sources, similarly evident in some inland São Paulo cities. to the program’s previous stages.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 27 EXPANSION OF THE SANITARY DRAINAGE SYSTEM AND RECLAIM OF WATER RESOURCES

In the city of São Paulo, water resource urbanization. Sabesp will invest resources in recovering and drainage expansion activi- the implementation of an adequate infrastruc- ties were further supported by the Córrego ture to collect sewage, preventing wastes from Limpo [Clean Brook] program. This initiative being discharged in springs. The company was implemented in partnership with the invests R$ 355 million in the program, which city hall, involving operational and financial encompasses a total investment of R$ 1.3 resources to recover brooks, prevent illegal billion, with resources also arising from the sewage discharge in its waters, cleaning its Federal government, State Government, City banks and preventing them from being ille- Administration, State Housing Authority, and gally occupied, and relocating families to new the World Bank. R$ 37.3 million were invest- houses in more appropriate areas. ed in 2012, from the total of R$ 81.7 million The program exists since 2007 and reached already covered in this initiative. the mark of 116 brooks cleaned last December. In addition to the Vida Nova/Mananciais The third project phase’s goal was to clean project, the Guarapiranga dam protection 45 city brooks last year; 19 were cleaned by and preservation activities are further rein- December and 33 will be decontaminated forced by the Nossa Guarapiranga [Our by the first half of 2013, benefiting a total of Guarapiranga] program. Organized by Sabesp, 390,000 people. Program investments reached the program was implemented in 2012 and approximately R$ 710.3 million by 2012, R$ now relies on ten boats to collect residues 109.6 million of which were injected by Sabesp. retained in 11 barriers – screens located in www.sabesp.com.br/rs2012/ecobarreiras In January 2013, considering major changes the outputs of the main brooks connected to to the city’s administration, Sabesp and the the dam, retaining garbage carried by the São Paulo City Hall established an action waters – and a boat to transport the collected plan regarding the Córrego Limpo program’s waste to adequate landfills. activities. Under this context, the company The program’s initial target was to collect believes that it is possible to focus efforts 20 cubit meters of residues per day, thus and continue to efficiently decontaminate improving the environmental quality of one the Pinheiros river and Mandaqui, Tiquatira, of the main watersheds that supplies RMSP. Pirituba, Verde and Ipiranga brooks basins. However, the average volume collected The expansion of the Great São Paulo area was below the target, mainly due to severe urban pollution perimeter, which occurred droughts that hindered the teams' access to Nossa Guarapiranga in an accelerated and unorganized fashion, collection sites and reduced the amount of excessively advanced over areas that are residues carried in brooks. In 2012, we col- 4,400 extremely important for the company; spe- lected approximately 4,400 cubic meters of cubic meters cifically the Billings and Guarapiranga dam residues, which would have otherwise been watershed banks. Therefore, one of our struc- accumulated in the dam riverbed. We retrieved of residues retained tural programs aims at recovering the water an average of one garbage truck of residues R$ quality in some of these regions: the Vida per day. Investments totaled R$ 12.2 million. 12.2 million Nova/Mananciais program covers interven- In addition to the São Paulo Metropolitan invested tions in 43 slums and precarious allotments Region and countryside cities, our investment located in both sub-basins. By 2015, when the plan also targets providing universal drainage program is expected to be concluded, 58,000 services in Baixada Santista and North Coast families will have been benefited. by 2016, through the Onda Limpa [Clean Wave] The São Paulo City Hall is responsible for program. Initiated in 2007, interventions focus executing the Vida Nova/Mananciais project’s mainly on nine Baixada Santista cities, where

28 2012 sustainability report nine treatment stations were built, with capa- city to process 8,300 l/s of sewage. As obras 2012 100% já foram capazes de elevar o percentual de 71% atendimento com coleta de esgotos na região de 53% para 71% e o índice de esgotos tratados de 96% para 100%. In addition to improved health conditions, Sabesp’s activities funded by Jica and BNDES resources provide benefits for the bothing con- ditions of all 82 beaches of the region, pro- moting economic activities, tourism and job/ income generation in one of the fastest-growing regions of the country. A total of R$ 1.7 billion has already been invested in Onda Limpa, R$ 135.7 million in 2012 alone. Since 2011, when the collection and treat- ment system’s main works were concluded, the company has focused on increasing the aixada S antista aixada S antista aixada number of Baixada Santista households con- nected to the public sewage system. Out of a rate sewage collection B in sewage treated rate B in total of 123,000 connections expected, 79,000 have already been concluded; 15,800 in 2012. In 2013, Sabesp expects to begin linear sewage 53% 2007 96% works that will expand the collection system by over 250 kilometers, including a trunk sewer and 27 new pumping stations. However, this has shown to be a significant problem in seaside regions: since many of the properties are used for seasonal occupation, convincing its propri- etors of connecting them to the public sanitation system is a greater challenge – despite the fact Onda Limpa that some cities have public laws requiring such connection. In addition to operating in R$ 1.7 billion this front, Sabesp is currently developing the invested in Baixada Santista program’s second stage, expected to be imple- mented between 2015 and 2020, in order to R$ 135.7 million reach universal sanitation services throughout in 2012 all of Baixada Santista. The Onda Limpa program also encompasses actions in the North Coast, where the purpose is to raise sewage treatment and collection R$ 125.9 million rates to 85% by 2016 – previously 36% in 2008 invested in the North Coast and currently 50% – serving 600,000 people, including residents and tourists, especially R$ 24.3 million during the Summer. Total program investments in 2012

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 29 EXPANSION OF THE SANITARY DRAINAGE SYSTEM AND RECLAIM OF WATER RESOURCES

www.sabesp.com.br/rs2012/seliganarede

Se Liga na Rede are estimated at R$ 500 million by 2018. A The sewage collection expansion total of R$ 125.9 million has already been arising from the Se Liga na invested (R$ 24.3 million in 2012, includ- ing resources from Sabesp, BNDES, FGTS, Rede program will contribute to and Caixa. Last year, the sanitary drainage social inclusion, quality of life systems in the Rio do Ouro, Santa Marina, Jaraguá and Travessão districts, as improvement, recover of rivers, well as the Praia do Pinto and Ponta Azeda, brooks and water resources, in Ilhabela, were concluded. and preserving watersheds The North Coast has specific characteris- tics that hinder such service: its territorial occupation is widely sparse, scattered around dozens of kilometers of Atlantic coast, and settled in humid and sandy terrains. Such characteristics impose another challenge to the company, which is currently assess- ing the implementation of a Public-Private Partnership to complete the region’s san- itation structure by the end of the decade. 192,000 In order to expand water resource recovery households will be serviced and drainage systems, in addition to a mas- sive investment program, Sabesp has also within an eight-year period operated in two fronts with the population: increasing the number of households con- nected to the existing public sewage system, and raising citizens’ awareness regarding the so-called "diffused pollution" (i.e. people 80% littering the streets), which generates addi- 20% paid by the tional operating costs and poses enormous paid by government setbacks to sewage collection and treatment Sabesp services rendered by the company. In late 2011, the São Paulo State Government launched a program to overcome the prob- lem regarding households which, despite available public collection systems, are not connected to Sabesp’s drainage system. The Se Liga na Rede aims at serving 192,000 R$ households of families with income of up to 349.5 three minimum wages throughout an eight- million invested year period. Connection installation costs will be entirely covered by the government (80%) and Sabesp (20%). A total of R$ 349.5 million will be invested in the period. During its first year, the program per- formed approximately 700 connections,

30 2012 sustainability report below early estimates, covering important basin. When the Tietê River passes through areas to preserve our watersheds, such as the RMSP, it is still very close to its spring, the southern region of the Great São Paulo located at less than 60 kilometers, in the city area, next to the Billings dam. One of the of Salesópolis. This means that, at this point, reasons that help explain the 2012 result it still presents a very low flow, generating is the venture’s unprecedented nature: this an extremely low water volume compared to is the first time Sabesp operates directly the expressive urban clustering of the region. inside its customers’ homes. Initial experi- This factor severely hinders the dispersion of ences have been useful to adjust our teams' pollutants and the natural regeneration of approach, narrowing bonds with the com- river waters – according to Cetesb, the Alto munity served. Tietê basin receives 53% of the remaining organic load discharged in water resources of the State of São Paulo. Within this scenario, the Great São Paulo population’s carelessness and bad habits regarding the need to protect the environ- Diffused pollution: ment further prevent us from reaching better results. In this sense, awareness initiatives and social engagement campaigns have been paramount to change the culture and habits of citizens, engaging them Even if Sabesp employs its very best efforts, the in efforts to preserve our natural resources, company will not be able to solve the severe particularly our water resources. For this water recovery, watershed quality, and river, reason, in addition to sanitary drainage plant brook and water resource preservation issues and system expansion activities, Sabesp also by itself. The reason is simple: sanitation is conducts associated activities to protect its the basic condition for society to reach such most valuable resources: watersheds and achievement, but it is not enough by itself. water resources. A considerable portion of the responsibil- For example, we have developed initiatives ity befalls the public power, especially the to prevent the discharging of pollutants in citizens. We are all part of the solution to the sewage system, which affect the public overcome this challenge. drainage system and may contaminate the An important percentage of wastes that water, such as used kitchen oil – a single liter currently reach rivers, brooks and water of this product in the water system can com- resources stems from the so-called "diffuse promise the quality of 25,000 liters of water. In pollution". This covers everything from candy 2012, through the Prol (Kitchen Oil Recycling wrappers and cigarette butts inadvertently Program), organized in partnership with the littered in streets, the soot from cars and pet Cargill kitchen oil manufacturer, we were feces. Deficient urban drainage and garbage able to reuse 1,535 liters of oil collected in collection systems also further aggravate the company’s service units. This product can this scenario. be transformed into biofuel, soap or glass This issue is particularly troubling in the putty, for example. Due to the success of such Great São Paulo area for at least two reasons: partnership, we integrated an initiative from the volume of residues generates on a daily the São Paulo State Government in 2011, along basis by a population of 20 million people; and with Cargill, to double kitchen oil collection Learn more at the hydrographic conditions of the Alto Tietê points throughout the State by 2016. sabesp.com.br/rs2012

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 31

STPs delivered in 2012

Un. city operated communities receiving body flow (l/s) 1 RA ÁGUAS DE SANTA BÁRBARA Águas de Santa Bárbara Pardo River 44 2 RB ADAMANTINA Adamantina - West Basin Ribeirão do Rancho Brook 58 3 RG ALTAIR Distrito Suinana Macacos Brook 1.1 4 RM ANHEMBI Sede Tietê River 8.3 5 RV ARAPEÍ Sede Barreiro de Baixo River 8 6 RM BOITUVA Campos de Boituva Ribeirão Gerivá 50 7 RM CESÁRIO LANGE Torninos connected to an existing STP Onça Brook 3 8 RA DUARTINA Duartina Alambari River 45 9 RR ELDORADO Itapeúna Ribeira do Iguape River 3.5 10 RJ ELIAS FAUSTO Cardeal District Buru and Tietê Rivers 5 11 RA GUAREÍ Guareí Guareí River 20 12 RN ILHABELA STP Praia do Pinto (Ponta Azeda) Atlantic Ocean Tributary 10 13 RG ITOBI Itobi Verde River 15.6 14 RJ ITUPEVA Itupeva - STP Nica Preta Jundiaí River 87.3 15 RT MERIDIANO Santo Antonio do Viradouro District Ribeirão Santo Antonio 1 16 RG MOCOCA Igaraí District Francos Brook 1.7 17 RT NOVA GRANADA Mangaratu District Mangaratu Brook 1.8 18 RB PARAGUAÇU PAULISTA Conceição de Monte Alegre/Roseta Sapé Brook 5.5 19 RB PARAGUAÇU PAULISTA Sapezal Sapé Brook Tributary 1.2 20 RT PEDRANÓPOLIS Sede - STP Forte Brook 4.6 21 RR REGISTRO Sede - Duplication Ribeira do Iguape River 161 22 RT RUBINEIA Esmeralda District Taiaçu Brook 1 23 RM SALTO DE PIRAPORA SDP connected with existing STP Pirapora River 88

STPs under construction

Un. city operated communities receiving body flow (l/s) 24 RM ÁGUAS DE SÃO PEDRO Sede Ribeirão Araquá 34.6 25 RM ANHEMBI Piramboia Águas do Brejão and Águas Claras Brooks 8.3 26 RR APIAÍ Sede Ouro and Fundão Brooks, Ribeirões Água Limpa, Palmital and Ponte das Tábuas 76 27 RM ARAÇARIGUAMA Sede Ribeirão Araçariguama 61.7 28 RA BARÃO DE ANTONINA Sede Itararé River 7 29 RM BOITUVA Pau D'Alho Pau D'Alho Brook 71 30 RV CACHOEIRA PAULISTA Sede Paraíba do Sul River 138 31 RV CAMPOS DO JORDÃO Sede Capivari and Sapucaí-Guaçu Rivers 213.4 32 RM CAPELA DO ALTO Bairro do Porto Sapucaí River 5 33 RG CÁSSIA DOS COQUEIROS Sede Cubatão River 3.6 34 RM CESÁRIO LANGE Sede Aleluia River and Monte Alegre Brook 37 35 RG COLÔMBIA Laranjeiras District Grande Brook 0.7 36 RM DOURADO Sede Ribeirão Dourado 23 37 RT FERNANDO PRESTES Agulha District Ribeirão dos Porcos 3 38 RV GUARAREMA Parateí Parateí River 14.3 39 RM IBIÚNA Bairro Paruru Ribeirão Paruru 23.7 40 RR ITAOCA Sede Palmital River 4.6 41 RA ITARARÉ Sede Itararé River 138 42 RV LAVRINHAS Capela do Jacu Jacu Brook 2.8 43 RT MAGDA Sede Talhado Brook 6.2 44 RT MONTE APRAZÍVEL Balduino Seepage 1 45 RJ MONTE MOR São Clemente Capivari River and Água Comprida Brook 47 46 RA PAULISTÂNIA Sede São Jerônimo Brook 2.5 47 RT PEDRANÓPOLIS Santa Izabel do Marinheiro Forte Brook 0.8 48 RB PLATINA Sede Pari River 6 49 RV QUELUZ Sede Paraíba do Sul River 23 50 RA RIBEIRÃO GRANDE Sede Ribeirão Grande 13.5 51 RV SÃO BENTO DO SAPUCAÍ Sede Sapucaí-Mirim River 24.6 52 RT SÃO JOÃO DAS DUAS PONTES Vila Aparecida District Seepage 0.7 53 RV SÃO JOSÉ DOS CAMPOS Pararangaba Paraíba do Sul River 404 54 RV SÃO JOSÉ DOS CAMPOS STP Lavapés Paraíba do Sul River 1,168 55 RM SÃO ROQUE Sede Guaçu Brook, Aracaí, Carambei, Bandeirantes Rivers and Ribeirão do Marmeleiro 254.5 56 RN SÃO SEBASTIÃO Baleia and Sahy Sahy River 41 57 RN SÃO SEBASTIÃO Paúba Paúba River 30 58 RN SÃO SEBASTIÃO Una/Engenho Cubatão River 43.6 59 RA TIMBURI Sede Ribeirão do Retiro 1.3 60 RT URU Sede Uru Brook 2.5 61 RJ VÁRZEA PAULISTA Campo Limpo Paulista/Várzea Paulista Jundiaí River 560

33 MANAGEMENT WITHIN THE CURRENT CONTEXT OF THE SECTOR

34 The strategic goal of maintaining and expanding Sabesp currently renders water and sewage services to 363 cities. Between January 1, the operated city base, ensuring continuous and progressive 2007 and December 31, 2012, we renewed service agreements with 258 cities for 30 improvement of the business and communities additional years (including São Paulo), 33 of which were signed in 2012. served, drove the company to anticipate institutional On December 31, 2012, these 258 cities accounted for approximately 70% of the com- legal changes that would later emerge in the sector. pany’s total revenue, including construction revenues, and 63.5% of intangible assets. However, the company continues to operate in the 67 remaining cities where agreement Since 2005, Sabesp has been negotiating terms expired, currently negotiating the basic with the State Government to continue ren- terms for its permanence. dering water supply and sanitary drainage Between January 1, 2013 to 2032, agree- services to operated cities based on pio- ments with 38 cities will expire. They joint- neering contractual arrangements, which ly account for 9.4% of the company’s total encompass the regulation and enforcement revenue, including construction revenues, of services by an external entity and cover and approximately 6% of intangible assets. the adoption of service goals and quality, In these cases, Sabesp will also employ its established in municipal plans based on pub- best efforts to renew agreements for at least lic hearings and consultation. The initiative another 30 years. narrowed the relationship with customer In metropolitan regions, which focused cities and broadened access and transpar- on the legal debate regarding the propri- ency of information regarding the services, etorship of sanitation services, pending leveraging social engagement and control Supreme Federal Court (STF) deliberation, over the company’s performance and con- Sabesp and the cities within such region tractual compliance. adopted a specific contractual model, which Subsequently, the edition of the new regu- allows them to exert public functions of latory basic sanitation landmark – Federal common interest. Law no. 11.445/07 –, which introduced several innovations regarding contracting, provision, regulation and enforcement of basic sanita- tion services, revealed such corporate strate- between 2007 and 2012: gy, which enhances the company’s operations within an environment regulated by several renewed contracts with control and supervision agencies and entities. 258 cities, These entities and agencies that regulate the equivalent to the company’s activities since 2007 include the São Paulo State Sanitation and Power Regulatory Agency (Arsesp), created by Law LCE 1.025/2007, with deliberative indepen- dence, administrative, budget and financial autonomy to standardize and oversee ser- 70% vices. The new regulatory landmark also allowed operated cities to create regulatory agencies that can eventually intervene with the company, affecting our activities. of the revenue

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 35 MANAGEMENT WITHIN THE CURRENT CONTEXT OF THE SECTOR

The model supersedes the current STF regulating: i) water and sewage service pro- ruling, which attributes planning, regulation vision conditions; ii) violations and penal- and oversight duties regarding basic metro- ties; iii) sanction procedure; iv) handling of politan sanitation services to an entity to be information and documents submitted by created by the State and municipal govern- Sabesp to the agency; v) compensation for ments involved. The term to adjust applicable punctual lack of supply, currently suspend- laws to such ruling is up to 2 years. ed, to enhance the technical debate; and vi) Sabesp also expanded its municipality base tariff revision and restructuring. by acquiring minority shareholding interest Also responsible for Sabesp’s tariff regu- in special purpose entities established with lation, based on applicable guidelines and private partners to provide water and/or laws of the sector, Arsesp rehearsed its first sewage services in Andradina, Castilho, initiative to revise the company’s tariffs in Mairinque and Mogi Mirim. No investments 2009. However, due to the complexity of such were effected in such companies, as indi- subject, an extensive process of reviewing cated in Explanatory Note 2.1 of the 2012 calculation methodology and criteria regard- financial statements. ing the company’s fees was initiated, detailed Initial construction works in Mogi Mirim, in this report’s "Tariff revision" section. where we are responsible for modernizing, The implementation processes of such implementing, and managing the local sew- standards began in 2009 in a gradual and age treatment system, began in June 2012. progressive manner, extending towards 2012 Including an STP with processing capacity and expected to persist over the next few of 150 l/s, works leveraged the city’s treated years, with results and impacts especially sewage rate from 0% to 70%. In Mairinque, in the business and operational areas, with water supply rose from 88% to 97% since the possibility of involving legal disputes. 2010 and sewage collection increased from However, the extension of such impacts still 66% to 71%. cannot be estimated. From 2007 to 2012, Arsesp’s oversight of water supply and sanitary drainage services in cities did not impose relevant penalties and sanctions. Arsesp Regardless, new normative requirements for the basic sanitation sector, despite Regulatory already being considered and mostly imple- mented in the company, still impose major Standards challenges, considering the territorial and cultural diversity and scope, social pur- The new regulatory landmark of the sector poses, multiple and complex interfaces and technical standardization from Arsep arising from Sabesp’s activities, as well as should contribute to continuously improving the rigorous controls and supervision to our activities, enhancing control over its which the company is submitted. Sabesp is activities and ensuring compliance with all still unable to estimate all the impacts of goals and other contractual duties estab- Law no. 11.445/07 and regulatory standards lished with operated cities. over the company’s businesses, since there Since 2008, Arsesp has been publish- are still some uncertainties surrounding ing deliberations regarding the company, its implementation.

36 2012 sustainability report

However, such rates vary significantly among Economic different Brazilian regions; in the Southeast, where Sabesp operates, these figures are con- and financial sidered substantially high when compared to other regions: water coverage of virtually 100% sustainability and 67% of sewage collection in urban areas. The Ministry of Cities estimates that approximately Under the financial aspect, an extremely rel- R$ 55.9 billion will be required to expand and evant challenge for the sector is to ensure replace sanitary drainage and water supply in sufficient resources to render universal ser- urban areas of the State of São Paulo by 2030. vices with quality and reliable water supply, In the past five years, in compliance with its currently even more pressed due to pollution, mission – provide public basic sanitation services, disorganized occupation, and climate changes, contributing to improve health, quality of life and which may increase the need for investments. the environment –, the company invested an aver- Funded by tariffs, public and private resources, age of R$ 2.2 billion per annum in water supply both domestic and foreign, the Brazilian sanita- and sanitary drainage; that is, approximately tion sector requires substantial investment to 30% of the total invested annually in the country,, broaden its service coverage, which in 2010 was according to data from the National Sanitation 81% for water supply, 46% for sewage collection, Reporting System (SNIS) of the Ministry of Cities. and 38% for sewage treatment, according to In 2012, the company reached its annual data from the National Sanitation Reporting investment target and followed the 2011 invest- System (SNIS) of the Ministry of Cities. ment level, totaling a little over R$ 2.5 billion.

R$ 2.2 billion Investment (1) invested per annum history in water supply and 3,000 2,536 2,440 sewage drainage R$ million 2,500 2,194 2,059 2,000 1,734

1,500

1,000

30% 500

0 2008 2009 2010 2011 2012 of the total invested annually (1) Does not include commitments undertaken with program contracts (R$ 253 million, R$ 18 million, R$ 63 in the country’s sector million, R$ 139 million and R$ 155 million, in 2008, 2009, 2010, 2011 and 2012, respectively)

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 37 MANAGEMENT WITHIN THE CURRENT CONTEXT OF THE SECTOR

investments per region 2013-2015 investment projection and segment in 2012 3,000

(R$ million) 2,589 2,622 R$ million 2,500 2,412 Water Sewage Total 2,274 444 488

2,000 470

São Paulo Metropolitan Region 573.1 802.4 1,375.5 452 1,500

Regional systems (countryside 435.8 724.3 1,160.1 1,130 and coast) 1,000 1,153 1,018 948

Total 1,008.9 1,526.7 2,535.6 500 1,015 924 784 Note: does not include commitments undertaken 0 981 with program contracts (R$ 155 million) 2013 2014 2015 2016

Sewage treatment

Sewage collection

Water

Investments performed in 2012, divided in order to establish tariffs that adequate- by segment and region, are presented in ly compensate the provision of services by the chart above. the company. For the 2013-2016 period, Sabesp expects The efficiency of the strategy adopted by to invest approximately R$ 9.9 billion, dis- Sabesp throughout the years is recognized by tributed among the services illustrated in the the financial market and has once again raised chart above, in order to effectively implement the company’s rating by the Fitch Ratings credit its activities pursuant to its future vision, to risk rating company in 2012, moving from the be recognized as the company that provides International Scale "BB" to "BB+" and in the universal water supply and sanitary drain- National Scale from "A+" to "AA-", consid- age public services based on sustainability, ering that the company is already rated as competitiveness, and excellence in customer "BB+"in the International Scale and "AA+" in the service by 2018. National Scale by the Standard & Poor’s credit It is important to note that, in order to risk rating company since December of 2011. access the financial resources required to Despite rendering services to approximately reach such goal, it is essential for Sabesp 60% of the São Paulo State population, which to maintain proper operational and financial is the highest of the country, Sabesp has not performance. For such, the company strives been considered for non-onerous Government to develop efficient management activities, resources, which forces the company to seek including actions focused on reducing costs other funding sources up to par with the sector’s by increasing efficiency and promoting better characteristic investment maturity. A total of contracts, in addition to actively engaging in R$ 1.6 billion were raised throughout the year, the tariff revision process along with Arsesp, detailed in the following section.

38 2012 sustainability report LOANS AND and Cotia, as well as the development of the executive project of the São Lourenço FINANCING FOR Production System, totaling approximately R$ 180.7 millions and interests indexes to the INVESTMENT TJLP plus 1.72% per annum. The total term for the works is 15 years and eight years for Japan International Cooperation Agency the executive project. (Jica): loan contract for the second stage In February 2013, we entered a loan con- of the Loss Reduction Corporate Program, tract to fund part of the execution project totaling ¥ 33.6 billion (equivalent to regarding the Third Stage of the Tietê River R$ 710 million at the signature date). This Decontamination Program funded by the stage encompasses estimated investments Inter-America Development Bank (BID). The of R$ 1.1 billion (¥ 52.207 billion), of which purpose of the loan contract is to implement R$ 390 million (¥ 18.623 billion) shall be collectors, interceptors, collection systems incurred by Sabesp. The financing term is 25 and household sewage connections, as well years (seven-year grace period) with interest as the expansion of sewage treatment capac- rate of 1.7% per annum. ity in the São Paulo Metropolitan Region, totaling R$ 1.3 billion and interests indexed Caixa Econômica Federal (CEF): 58 contracts to the TJLP plus 1.66% per annum. The total covered in the Growth Acceleration Program term is 15 years (three-year grace period). II, totaling R$ 375.4 million, as detailed below: The Financing Contract no. 01.2.619.3.1 and • 36 contracts to fund studies, projects and Onlending Contract no. 10/669.748-6, signed works regarding water supply and sani- on August 04, 2002, financially settled all R$ 710 million tary drainage in several cities operated obligations arising from effective Financing Japan by Sabesp. The total approximate value is and Onlending Contracts, considering that R$ 215 million, with interests indexed to the last installment of interests and amor- International the TR of 6% per annum, in addition to an tization was effectively paid on February 15, Cooperation administrative fee of 1.4% per annum and 2013. The BNDES is expected to submit a Agency (Jica) risk rate of 0.3% per annum. The total term document officially concluding the financing is up to nine years for the study and project contract by 03/31/2013. modality, and up to 24 years for water supply and sanitary drainage works; • 22 contracts to fund water supply and san- itary drainage works in several cities oper- Capital market ated by Sabesp. The total approximate value R$ 375.4 million is R$ 160,4 million, with interests indexed In February 2012, we completed the 15th deben- Caixa to the TR of 6% per annum, in addition to ture issuance, totaling R$ 771.1 million, in two an administrative fee of 1.4% per annum series, the first amounting to R$ 287.3 million, Econômica and risk rate of 0.3% per annum. The total which pays interest equivalent to the CDI plus Federal term is up to 24 years. 0.99% per year, and the second amounting to R$ 483.8 million, which pays interest equivalent National Bank for Economic and Social to the IPCA (extended consumer price index) Development (BNDES): loan contract cov- plus 6.20% per year. ered in the Growth Acceleration Program II These funds were raised to settle financial to fund sanitary drainage system expansion commitments maturing in 2012, especially for and optimization works in the cities of São the settlement of the 13th debenture issuance, R$ 180.7 million Paulo, Itapecerica da Serra, Embu das Artes, amounting to R$ 600 million, which matured in BNDES Carapicuíba, Osasco, São Bernardo do Campo August and was settled in advance in February.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 39 MANAGEMENT WITHIN THE CURRENT CONTEXT OF THE SECTOR

The funds raised also support the amorti- At the end of 2012, our total debt was R$ zation, in March 2012, of 50% of the second 9.1 billion, and the debt-to-EBITDA rate was series of the 11th debenture issuance, totaling 2.5 times; that is, significantly lower than the R$ 202.5 million. 3.65 times limit established in some contracts, In December 2012, we completed the 15th such as financing and debt securities. The debenture issuance, totaling R$ 500 million, in net debt-to-EBITDA rate was 2 times, which a single series, which pays interest equivalent reinforces a favorable outlook of the compa- to the CDI plus 0.30% in the first six months ny’s financial health. (the CDI surcharge varies half-yearly, until Foreign currency debt totaled 35% of the its maturity, in November 2015, when it will total debt. The yearly amortization amount reach 0.70%). These funds were raised to totaled R$ 1.5 billion, while raised values settle financial commitments maturing in reached R$ 1.6 billion. 2012 and 2013. Additionally, in January 2013, we completed the 17th debenture issuance, totaling R$ 1 billion, in three series, the first amounting to Tariff revision R$ 424.7 million, which matures in January 2018, which pays interest equivalent to the In order to maintain or expand the level of Sabesp tariffs CDI plus 0.75% per year, the second totaling investments and ensure universal sanitation are among the R$ 395.2 million, which pays interest equiva- services within its operating area by the end of lent to the IPCA and annual interest rates of the decade, the services rendered by Sabesp lowest of the 4.5%, which will mature in 2020, and the third must be adequately compensated. country, ranking series totaling R$ 180.1 million, which will Sabesp’s tariffs are among the lowest of the 16th among mature in January 2023, which pays interest country, ranking 16th among 27 state-owned 27 state-owned equal to the IPCA plus 4.75% per year. companies, including lower than those collected The 17th issuance funds were raised to settle by companies located in far more vulnerable companies financial commitments maturing in 2013. In States than São Paulo, such as Alagoas and March, the company settled the 11th deben- Piauí, according to the 2010 ranking published by ture issuance, issued in April 2010, through the National Sanitation Reporting System (SNIS). the amortization of one third of the 1st series Additionally, according to the Family Budget and the 50% remaining from the 2nd series, Survey – base years 2008-2009, of the IBGE, as well as the anticipated withdrawal of the water supply and sanitary drainage services remaining balance of the 1st series, which account for only 0.66% of average monthly will mature in March 2015. expenses of families in the urban area of the Southeast region of the country, compared to 2.3% attributed to electrical power, and less essential services, such as mobile telephony, Debt review which accounts for 0.96%. Investments more than doubled in a ten-year Most of the company’s debt (54.2%) was period, without reflecting a corresponding raised with domestic or foreign sources, increase in revenues; an inconsistency that has multilateral organizations, at low costs and been temporarily compensated by the compa- long terms, choosing fund raising in the cap- ny’s ability to maintain own capital generation ital markets preferably to manage the debt. within sustainable levels.

40 2012 sustainability report

The tariff revision process that will estab- lish a new methodology to calculate Sabesp’s Stock market tariff continued throughout 2012. The com- pany submitted the results of asset base and In the annual performance, the company’s papers Sabesp market Business Plan assessments to the agency, presented the third highest Ibovespa appreci- value in 2012: containing revenue, expense and investment ation, recording a 67% appreciation compared information, allowing Arsesp to publish a to 2011. Our stock closed the year at R$ 86.87, R$ billion Technical Note in 2012, containing the Initial while Ibovespa appreciated only 7.4%. In the U.S. 19.8 Maximum Average Tariff (P0) and Efficiency market, the company’s ADRs recorded a high of Gain Factor (X), which were submitted to 50.2%, compared to a 7.3% Dow Jones appreci- public consultation and hearings. On January ation. With this performance, Sabesp’s previous 15, 2013, Sabesp submitted its contributions market value of R$ 11.8 billion in 2011, reached to the Technical Note for Arsesp’s appraisal. R$ 19.8 billion in 2012. The disclosure of this stage’s results, Such appreciation is mainly attributed to expec- expected for February 22, 2013, was extended tations regarding the potential benefits of the to March 22 2013, in order to clarify the con- tariff revision regarding the company’s investment tent under debate with the São Paulo Sewage return and maintenance. In addition, Sabesp’s and Water Services Managing Committee, shares were indicated as substitutes of the power at the city hall’s request. companies' papers after their respective tariff Arsesp’s assessment activities regarding reduction. It is important to note that such per- the company’s assets and final compensation formance may also have been influenced by the base value currently proceed in compliance country’s growth deceleration, which drives inves- with process stages and events schedules tors to seek shares less vulnerable to economic established by the agency, as provided below: fluctuations, since the company’s income is more • April – submission of a tariff structure intimately related to population growth than the proposal from Sabesp to Arsesp; GDP. The number of company shareholders on • July – public hearing regarding the final BM&FBovespa increased by 66.4% in one year. Maximum Average Tariff (P0), the Tariff Our stock was traded in all BM&FBovespa’s Structure and tariff values for the remain- trading sessions, totaling a financial volume der of Sabesp’s Second Cycle; of R$ 7.7 billion in 2012. In the U.S. market. • August – publication of the Tariff Revision the company closed 2012 with 27.8 million results; outstanding ADRs. The financial volume traded • September – application of the new tariff. in the NYSE in 2012 was US$ 6.1 billion, almost Additionally, in January 2013, Arsesp 64.4% higher than in 2011. published the final draft of the Regulatory In 2012, the number of financial institutions Chart of Accounts and Regulatory Accounting monitoring Sabesp papers and issuing share Manual to be used by companies in the São and ADR value opinions remained stable: Paulo State sanitation segment, regulated approximately 20 institutions. by the agency. One of the main goals of the It is important to note that in early 2013, manual is to define requirements regarding under the purpose of improving ADR liquidity specific regulatory accounting information, and adjust its price to levels recommended to be used by the regulator when assess- by NYSE, Sabesp performed a ratio change, ing the concession’s economic and finan- in which each ADR corresponded to one share. cial balance. Each ADR previously corresponded to two shares.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 41 MANAGEMENT WITHIN THE CURRENT CONTEXT OF THE SECTOR

stock market performance

50.2% 67% 25.3%

50.3%

24.4% 2011 2012 2011 2012 appreciation of ADRs share in the U.S. market appreciation ownership structure 66.4% 64.4% on 12/31/2012

sbsp3 Novo Mercado bm&fbovespa

2011 2012 2011 2012 sbs nyse increased number increase of the financial São Paulo of shareholders volume traded on NYSE State Government

Our stock is traded on the BM&FBovespa corresponding to approximately R$ 2.54 per under ticker symbol SBSP3 and on the New common share and a dividend yield of 4.9%. York Stock Exchange under American Depositary Regarding 2012, the Board of Directors approved Receipts (ADRs), under ticker symbol SBS. The the payment of interest on own capital totaling company is still part of the main indexes of the R$ 534.3 million, or R$ 2.345 per common share Brazilian and NYSE stock markets, including and a dividend yield of 2.7%, to be paid within up to the Dow Jones Sustainability Index, which it 60 days after the Annual Shareholders’ Meeting, adopted recently, in February 2013. Additional to which the 2012 accounts will be submitted information available at sabesp.com.br/rs2012. for approval.

Dividends Debt of municipalities

Under our bylaws, common shares are entitles to to which we mandatory minimum dividends corresponding to 25% of the net profit for the year, obtained after supply bulk water the deductions required or permitted by law, and can be paid as interest on capital. In some municipalities to which we supply In 2012, we paid R$ 578.7 million in dividends bulk water there are pending debts regarding as interest on own capital, related to 2011, water sales, for which the company has been

42 2012 sustainability report

employing its best efforts in order to recover due values. Consolidated Whenever negotiations are not possible, debts are collected via court order, as is the case in financial the cities of , Mauá, Santo André and Diadema; judiciary bonds have already been and economic issued to the former two, and currently await payment. For Santo André, the billing suit is also performance forwarded by issuing judiciary bonds. Regarding Diadema, assessments to create a The sturdiness of our business is reflected in new water and sewage company in the munic- financial results. In 2012 the company record- ipality, with shareholding interest from Sabesp, ed profits of R$ 1.9 billion, a 56.3% increase have been concluded and indicated a business compared to 2011. profit of feasibility opportunity; however, changes in The gross operating revenue regarding the pro- R$ 1.9 billion the city’s administration forced us to resume vision of water supply and sewage collection and in 2012 negotiations in order to amend certain articles treatment services increased by R$ 624.6 million, of the law. It is still not possible to estimate or 7.5%, increasing from R$ 8.3 billion in 2011 to when the company will be created. R$ 8.9 billion in 2012. In 2012, all of the aforementioned cities This result is essentially attributed to the effected partial payments of monthly invoices increased revenue volume of 2.4% in water issued for bulk water supply. It is important to and 3.2% in sewage, totaling 2.7% for both ser- emphasize that the municipalities of Mogi das vices, as well as the tariff adjustment of 6.83% Cruzes and São Caetano paid all invoices in full applied in September 2011, and 5.15% applied at their respective maturity dates. in September 2012. The following charts detail In addition to debts regarding bulk water water and sewage revenue volumes based on supply, the cities of Diadema and Mauá hold use category and region. additional debts towards Sabesp arising from Construction revenue increased by R$ 239.8 due asset indemnity due to anticipated conces- million, or 10.7% compared to the previous year, sion’s repossession. mainly due to greater investments effected in 2012. In the city of Diadema, the execution was pro- In 2012, product and service rendered costs, ceeded upon freezing of ICMS product transfers administrative, business and construction destined to the city. The freezing measure for expenses increased by 5.2% (R$ 392.3 million). such transfers is currently suspended, due to Cost and expenses in net income, however, the suspensive effect attributed to the munic- ipality’s extraordinary appeal. In parallel, 20% of Saned’s revenues have been weekly pledged, using such amount to settle a percentage of the debt related to due Sabesp attorney’s fees. As for the city of Mauá, the petition to sen- 9.1 9.8 10.5 11.4 Gross 2.2 8 2.1 2.5 tence the municipality and the Mauá City 2 Operating Basic Sanitation (Sama) to effective payment

R$ billion 6 Revenue 4 of the debt was granted. Such sentencing 3.7 3.1 3.4 was sanctioned by the Supreme Federal 4 Construction Court and cannot be appealed. Sabesp began 2 enforcement in October 2012. The citation Sewage for the municipality and Sama regarding 0 4 4.3 4.6 4.9 Water payment is currently awaited, whose values 2009 2010 2011 2012 may not be discussed.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 43 MANAGEMENT WITHIN THE CURRENT CONTEXT OF THE SECTOR

reduced from 75.4%, in 2011, to 73.4% in 2012. R$ 3.6 billion in 2012, and the Adjusted EBITDA Therefore, the net operating income totaled R$ margin reached 33.5%, compared to 32.3% 10.8 billion, an 8.2% increase compared to the from the precious fiscal year. Not consider- previous year. ing construction cost and income effects, the The Adjusted EBIDTA recorded an increase Adjusted EBITDA margin totals 42.9% in 2012 of 12.2%, rising from R$ 3.2 billion, in 2011, to (41.1% in 2011).

Water and sewage revenue volume (1) per use category (millions of m3) Water Sewage Water + sewage 2011 2012 % 2011 2012 % 2011 2012 % Residential 1,488 1,530 2.8 1,220.7 1,262.6 3.4 2,708.7 2,792.6 3.1 Business 167.6 172.8 3.1 156.4 160.5 2.6 324 333.3 2.9 Industrial 38.7 38.3 (1) 40.5 41.6 2.7 79.2 79.9 0.9 Public 53.1 54.8 3.2 41.5 42.5 2.4 94.6 97.3 2.9 Total retail 1,747.4 1,795.9 2.8 1,459.1 1,507.2 3.3 3,206.5 3,303.1 3 Bulk 297.3 297.5 0.1 27.2 27.3 0.4 324.5 324.8 0.1 Reclaimed water 0.3 0.4 33.3 - - - 0.3 0.4 33.3 Total 2,045 2,093.8 2.4 1,486.3 1,534.5 3.2 3,531.3 3,628.3 2.7

Notes: (1) Not audited

Water and sewage revenue volume (1) per region (millions of m3) Water Sewage Water + sewage 2011 2012 % 2011 2012 % 2011 2012 % Metropolitan 1,150.6 1,181.9 2.7 976.8 1,005.7 3 2,127.4 2,187.6 2.8

Regional systems (2) 596.8 614 2.9 482.3 501.5 4 1,079.1 1,115.5 3.4

Total retail 1,747.4 1,795.9 2.8 1,459.1 1,507.2 3.3 3,206.5 3,303.1 3

Bulk 297.3 297.5 0.1 27.2 27.3 0.4 324.5 324.8 0.1

Reclaimed water 0.3 0.4 33.3 - - - 0.3 0.4 33.3

Total 2,045 2,093.8 2.4 1,486.3 1,534.5 3.2 3,531.3 3,628.3 2.7

Notes: (1) Not audited. (2) Comprised of the countryside and coast regions

8 10.8

R$ billion 6 9.9 8.6 9.2 8 7.8

6

4

Net operating 2 revenue history 0 2008 2009 2010 2011 2012

44 2012 sustainability report 3.6 3.2 3.2 2.9 2.7 46.3% 44.7% 42.9% 41.2% 41.1% Adjusted EBITDA 36.7% 34.9% 33.5% 32.4%

31.8% and EBITDA margin history 2008 2009 2010 2011 2012

EBITDA (R$ billion)

Adjusted EBITDA Margin

Adjusted EBITDA Margin without revenue and construction cost

Adjusted EBITDA reconciliation (non-accounting) (R$ million) 2008 2009 2010 2011 2012

Net profit 862.9 1,507.7 1,630.4 1,223.4 1,911.9

Financial income 973.1 10 379.4 633.6 301.4

Depreciation and amortization 618.2 562.3 552.2 768.8 740.1

Income tax and social contribution 285.3 602.6 662.3 497.4 632

Other net operating expenses (1) 125.5 44.4 (1.8) 90.1 19.8

Adjusted EBITDA (2) 2,865 2,727 3,222.5 3,213.3 3,605.2

Adjusted EBITDA margin 36.7 31.8 34.9 32.3 33.5

Construction revenue (1,676.9) (2,039.8) (2,130.7) (2,234.8) (2,474.6)

Construction cost 1,650.5 2,009.6 2,081.1 2,186.3 2,423.8

Adjusted EBITDA without revenue and construction cost 2,838.6 2,696.8 3,172.9 3,164.8 3,554.4

Adjusted EBITDA margin without revenue and construction cost 46.3 41.2 44.7 41.1 42.9

Notas: (1) Other net operating expenses refer mainly to fixed assets write-off, provision for losses with intangible assets, losses with economically unfeasible projects, deducted from fixed asset sales revenues, bid sales, indemnities and reimbursement of expenses, fines and securities, real estate leasing, reclaimed water, Pura and Aqualog projects and services

(2) Adjusted EBITDA corresponds to net profit before: (i) depreciation and amortization expenses; (ii) income tax and social contribution (federal income taxes); (iii) financial income; (iv) other net operating expenses. The Adjusted EBITDA is not deemed a financial performance measurement based on accounting practices adopted in Brazil, the International Financial Reporting Standard (IFRS) or US Gaap (Generally Accepted Accounting Principles in the United States), nor must it be considered separately or as an alternative to net profit, operating performance measurement, or operating cash flow alternative, or liquidity measurement. The Adjusted EBITDA does not provide any standard meaning, and the company’s definition of Adjusted EBITDA may vary from those of other companies. The company’s administration believes that the Adjusted EBITDA provides a useful measurement of its performance, extensively applied by investors and analysts to assess performance and compare companies. Other companies may employ different Adjusted EBITDA calculation methods. The Adjusted EBITDA is not part of the financial statements

The purpose of the Adjusted EBITDA is to present an operating economic performance index. Adjusted EBITDA corresponds to net profit before net financial expenses, income tax and social contribution (federal income taxes), depreciation and amortization, and other net operating expenses. The Adjusted EBITDA is not a financial performance index recognized by the Corporate Legislation Method and most not be considered separately or as an alternative to net profit to indicate operating performance, as an alternative to operating cash flows, or as a liquidity index. Sabesp’s Adjusted EBITDA is used as a general indicator of economic performance, not affected by debt structuring, interest rate fluctuation, tax modifications, or depreciation and amortization levels. Subsequently, the Adjusted EBITDA is used as an adequate instrument to regularly compare operating performance. In addition, there is another formula to calculate the Adjusted EBITDA that is adopted in the clauses of specific financial commitments. The Adjusted EBITDA provides a better understanding not only of the operating performance, but also the ability to fulfill the company’s obligations and raise funds for investments in capital goods and working capital. The Adjusted EBITDA, however, presents limitations that prevent it from being used as a profit indicator, since it does not consider other costs arising from Sabesp’s activities or other costs that may considerably affect its profits, such as financial expenses, taxes, depreciation, capital expenditures and other related charges

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 45 MANAGEMENT WITHIN THE CURRENT CONTEXT OF THE SECTOR

Aggregate economic value in three years EC1 (R$ thou) Component 2010 2011 2012

A - Direct economic value added 10,174,994 11,077,360 11,820,477

Revenues (a) 10,174,994 11,077,360 11,820,477

B- Economic value distributed 8,157,364 9,241,671 9,410,019

Operating costs (b) 4,289,738 4,716,260 5,113,183

Employee salaries and benefits (c) 1,405,063 1,810,686 1,735,434

Payments to shareholders and lenders (d) 1,089,695 1,377,490 1,158,562

Payments to government (e) 1,341,635 1,300,799 1,364,646

Investments in community (f) 31,233 36,436 38,194

Aggregate economic value (a-b) 2,017,630 1,835,689 2,410,458

Notas: (a) Consists of all operating revenues, financial and other operating income, interest and inflation and exchange rate change gains, and income earned in connection with the construction of own asset. (b) Consist of operating costs and expenses, such as: materials in general, treatment materials, services, power and electricity, general expenses and employees’ training courses. Excludes depreciation and amortization expenses and write-off of receivables. (c) Consist of salaries and related charges. Includes amounts paid to the government (employees’ charges and taxation). (d) Consists of Interest on Capital, financial expenses (interest, fines, and other financial expenses), and inflation and exchange rate losses. Excludes retained earnings. (e) Consist of Cofins/Pasep on operating revenue and non-operating income, tax expenses, income tax and social contribution, and income tax on remittances abroad. (f) Consist of institutional support, sponsorships, receiving, exhibits and tax incentives distributed in the education, culture, health, sport, hunger eradication and food security areas.

Note: Other operating expenses were not included in any of the items above and totaled R$ 37.6 million in 2010, R$ 162.6 million in 2011, and R$ 91.5 million in 2012.

Corporate also maintained its structure throughout 2012, except for the replacement of the Technology, governance Projects and Environment Officer, João Baptista Comparini. The latter was replaced structure by João Paulo Tavares Papa in March 2013. Our governance structure is presented in the GRI 4.1/4.2/4.3 Sabesp’s corporate governance following chart. Additional information regard- model reflects its state-owned mixed-econo- ing the operation of all governance instances my nature, whose shareholding interest must is available in the "Corporate Governance" be greater than 50% of the share capital, section of the company website’s Investor comprised exclusively by common shares. Relations area (available at sabesp.com.br/ The Board of Directors maintained all investidores). ten members elected in the Shareholders' Ethical values that guide the activities of Meeting held in April 2012; three are inde- Sabesp and its relationship audiences are pendent directors, as required by the Novo detailed in the corporate Code of Ethics and Mercado regulations (bmfbovespa.com.br). Conduct, and its compliance is monitored by In December, however, one board member the Ethics and Conduct Committee, which was replaced as indicated by the controlling relies on resources such as the Internal shareholder. Denouncement Channel, the Corporate Except for our CEO, none of our other officers Accountability Procedure, the Ombudsman is a member of the Board of Directors; the and Customer Service. The internal chan- CEO may not hold the position of chairman of nel receives anonymous tips and the result the Board of Directors. Our executive board of investigation processes is submitted to

46 2012 sustainability report corporate governance structure

shareholders' meeting

board of auditors

board of directors independent audit audit committee

executive board internal audit

executive governance board

the Board of Auditors. In 2012, a total of 160 denouncements, 61% of which were investi- Director and officer gated and 39% are currently being assessed. Of the total amount of denouncements, 22% compensation relate to improper behavior, such as mor- al harassment, prejudice, discrimination, The compensation of directors and officers in stalking and unfair treatment. SO4 During this 2012, including benefits, totaled approximately period, sanctions 27 company and outsourced R$ 3.2 million. We paid around R$ 1.1 million employees were sanctioned (one warning, two in variable compensation. suspensions and 24 dismissals). HR4 It is important to note that, in August 2012, SO2 Based on materiality criteria, the formal the State government enacted Decree no. process of assessing controls and identify- 58.265, which prohibits the remunerated ing fraud-related risks considered the most participation of political agents and servers representative units. Assessed risks allow from the State Administration from direct- the improvement of controls throughout the ly or indirectly operating in more than two entire company. board of directors our board of auditors of SO3/SO4 With the purpose of preventing irreg- mixed-economy companies, as well as other ularities in processes deemed relevant, the entities directly or indirectly controlled by the company is currently implementing a cor- State, as well as prohibiting remuneration porate fraud prevention program, in order to based on results, eventual bonuses or profit update fraud risk audits, adjust policies and sharing programs. Implemented in the com- procedures, revise indicators and disseminate pany, the decree affected the remuneration anti-corruption practices among employees. of only one officer.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 47 MANAGEMENT WITHIN THE CURRENT CONTEXT OF THE SECTOR

GRI 4.5 According to the Brazilian corporate Deloitte Brasil Auditores Independentes has law, the compensation paid to members of audited Sesamm since August 2012, while the board of directors, members of the board Attend Ambiental has not contracted any of auditors and executive officers is set, as a independent auditor or audit service since whole, by the General Shareholders' Meeting. its incorporation, in 2010. Our director and officer compensation policy During such periods, auditors did not perform is established according to the guidelines of any services not related to external auditing. the of the São Paulo State Government, mainly based on market performance and compet- itiveness, always subject to the approval by shareholders at the Annual Shareholders’ Meeting. Thus, the aforementioned decree Internal shall be addressed and sanctioned by the General Shareholders' Meeting to be held controls in April 2013. The assessment of internal controls is per- formed in a structured and systematic man- ner since 2005, based on the parameters of the Committee of Sponsoring Organizations External of the Treadway Commission (Coso) and Control Objectives for Information and Related audit services Technology (Cobit). The internal control assessment process Regarding the relationship with independent is annually reassessed considering both the auditors, Sabesp and all companies in which eventual existence of new risks associated it has minority shareholding interest comply to the development and disclosure of finan- with the principles that preserve the indepen- cial statements and potential significant dence of external auditors, preventing them modifications in electronic processes and from auditing their own activities, exerting systems. management functions and advocating in Tested by a unit not affiliated to the com- favor of clients. PricewaterhouseCoopers pany, controls encompass procedures that Auditores Independentes audited Sabesp ensure the accuracy of accounting records, between the 3Q08 and 2Q12, and Deloitte development of financial statements based on Touche Tohmatsu Auditores Independentes official regulations, and due authorization of began auditing the company’s financial state- transactions related to acquisitions, use and ments by reviewing quarterly information - disposal of company assets. ITR regarding September 30, 2012. The revision process conducted regarding the KPMG Auditores Independentes has audited efficiency of the internal controls environment the companies Águas de Andradina and Águas de in 2011, in compliance with section 404 of the Castilho since 3Q11. PricewaterhouseCoopers Sarbanes-Oxley law, was concluded in April Auditores Independentes has audited the 2012, not identifying any significant deficiency, financial statements of Aquapolo Ambiental similarly to previous years. Tests regarding and Saneaqua Mairinque since October 2012 the fiscal year of 2012 shall be concluded in and July 2012, respectively. April 2013.

48 2012 sustainability report

Risk management Information Services (SIC), serving and instructing the general public, receiving and In order to develop corporate governance managing information requests, and providing practices, we systematized corporate risk citizens with key information without requiring management by creating procedures for the formal justification. identification, measurement and treatment of Within the State Executive Branch, the law internally and externally generated risks for the was regulated by Decree no. 58.052, from May organization. One of the main results of such 16 2012, which presents safe guidelines to efforts is the creation of a specific risk man- organize SICs in all São Paulo Administration agement unit, following strict independence entities and agencies, which shall be respon- criteria. The unit’s official implementation is sible for "searching and providing" requested pending approval from government authorities. documents, data and information. Risk management activities are fully Decree no. 58.052/2012, which regulated the aligned with current market requirements, Information Access Law (LAI) of the State of São the Sarbanes-Oxley Act, the Code of Best Paulo, also revised the attributions of the File Corporate Governance Practices of the Document Assessment Commissions, increas- Brazilian Corporate Governance Institute, ing their scope, redefining their structure and technical standards such as ABN NBR ISO name, which has been changed to Document 31000 – Risk Management – Principles and Assessment and Access Commission (Cada), Guidelines, and other procedures set by the which must develop a Rating Plan for docu- Brazilian Securities and Exchange Commission ments, schedules, as well as confidential and (CVM), the US Securities and Exchange personal information, document and data tables. Commission (SEC), and BM&FBovespa. The technical activities of each SIC will con- In 2012, important investments were directed tribute with document management instru- towards qualifying the professionals in such ments, which in turn shall communicate with the unit, as well as risk identification and mea- Integrated Citizen Information System (SIC.SP). surement procedures. The company aims at In compliance with LAI, we implemented the developing risk management activities under a SIC, structuring the internal information flow structured focus, aligning the strategy to pro- to serve citizens within the terms established cesses, personnel, technology, and knowledge, by the law, currently developing the docu- in order to manage natural uncertainties faced ments, data, and information table, defining by organizations and generate value. restrictive information, protecting strategic business information, and striving to promote transparent management. We have also disclosed basic information Access to information required by law and the citizen informa- tion request software in our website, based from public on standards set forth by the São Paulo State Government. Sabesp agencies Such attributions are associated to the Risk Management area, which is essentially based Federal Law no. 12.527/2011 deliberates that on premises such as transparency, information Public Administration entities and agen- quality, and compliance with strategic rules cies must create a unit to render Citizen of a public company.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 49 MANAGEMENT WITHIN THE CURRENT CONTEXT OF THE SECTOR

income of R$ 275 million for the company; New environmental an increase of 18% compared to the previ- ous year. A total of 144 new contracts were solutions signed in 2012. Non-domestic sewage treatment arising from and businesses productive processes of Sabesp’s customers generated an income of R$ 180 million – a 1% In the last few years, Sabesp has been striv- drop compared to 2011. Within this modali- ing to operate in new markets, other than ty, 23.6 million cubic meters were collected the stricto sensu provision of water supply and treated in 2012. Also in this context, we and sewage drainage services, expansing its expect to operate Attend Ambiental by 2014; a activities abroad and developing solutions that partnership with Estre Ambiental destined to optimize productive processes and contribute implement and operate a sludge conditioning to preserving natural resources. non-domestic wastewater treatment plant in We have established consultancy agreements Barueri, within RMSP. regarding rational water use and business/ We are currently working with Alto Tietê cit- operational management in Panama, where, ies, in the São Paulo Metropolitan Region, to in partnership with Latin Consult, we serve 68 implement a solid waste handling unit destined cities and developed a model to be followed for power generation. A regional waste man- throughout the country by the local conces- agement plan has already been developed, sionaire, Idaan; and in Honduras, where we and Sabesp will be responsible for contracting provide technical support to modernize the the institutional model regarding the call for water and sewage system. These projects submissions to obtain a partner for the project. jointly total R$ 11.5 million. Also regarding the use of gas generated in Sabesp also holds partnerships with two sewage treatment processes, the company will state-owned sanitation companies: Casal, in develop, along with Comgás, a business model Alagoas, and Cesan, in Espírito Santo. With that allows the conversion of the biogas in Casal, the purpose is to mitigate actual and natura generated by Sabesp (namely in the ABC apparent water losses, assisting the company and Barueri STPs) into biomethane to be dis- to face intermittent supply. With the company’s tributed among the concessionaire’s pipelines. interventions, which began in 2009, we man- Additional information regarding our envi- aged to reduce all recorded losses in Maceió ronmental solution projects are available at by 50%. The contract covers R$ 25 million sabesp.com.br. and extends through October 2014. Cesan’s contract covers the installation and customi- zation of the Aqualog software, developed and owned by Sabesp, in the municipality of Nova Research and Venécia (ES). Totaling R$ 1.3 million, installa- tion activities are currently being concluded. innovation The Sabesp Environmental Solutions plat- form’s main initiatives are the Pura (Rational 2012 was particularly relevant for the com- Water Use Program) and other activities regard- pany in terms of research, development and ing the production of reclaimed water. Such innovation investments (RD&I). Total invest- actions are detailed in the chapter "Reliable ments reached R$ 6.3 million, well above the water supply in an environment of shortage". historical average and practically two-times Other environmental solution initiatives are the amount spent last year. Such increase loyalty contracts entered with major clients stems from projects implemented by Sabesp and consumers, which accounted for an annual in search of new technologies that allow the

50 2012 sustainability report 18% fleet supplied with biogas

2011 2012 increase of annual revenue Franca STP regarding contracts with 1,600 tons of greenhouse major clients and consumers gases not released into of R$ 275 million the atmosphere every year

company to produce with greater efficiency, leak identification services will increase the optimize the use of natural resources, and efficiency of our services. Part of the invest- reduce environmental impacts caused by ments made by the company is being funded its activities. by Fapesp. One of the RD&I investment drivers is a Sabesp also performs important actions cooperation agreement established with directed towards the use of gases generat- Fapesp (São Paulo State Research Support ed in the sewage treatment process, posi- Foundation) in 2009. The initial maturity tively reducing greenhouse gas emissions term was 2014; however, we have success- and residues disposed in landfills. By the fully extended such term to 2019. In 2012, we second half of 2013, we will implement the significantly increased expenses regarding production of biogas arising from sewage projects promoted by this line, totaling R$ 50 treatment at the Franca STP to supply 49 cars million to use throughout the period, divided of our fleet, in partnership with the Fraunhofer in half between the company and the public Institute, from Germany. When the entire agency. Of a total of 12 approved projects, production of biomethane is used as fuel, nine are currently implemented. we will have reached a reduction of 1,600 In 2012, we also launched the second call tons of greenhouse gases released into the of the Fapesp association. Among the seven atmosphere annually. investigation and research lines we intend to Among 2012’s accomplishments, it is import- promote, are the development of sludge treat- ant to highlight Sabesp’s implementation of ment, disposal and application from water a comprehensive technological prospecting treatment plants (WTPs) and sewage treat- study, initially developed in 2010. The first of ment plants (STPs); monitoring water quality; its kind in the South America sanitation seg- new technologies to implement, operate and ment, such assessment assists in identifying maintain water distribution and sewage col- promising technologies, as well as indicates lection systems; and power efficiency. business and partnership opportunities. As a Sabesp implemented Brazil’s first research result, it enhances future estimates regarding center dedicated to the environmental sanita- activities developed, in line with applicable tion area in São José dos Campos. Currently, best practices. eight master’s degree projects are being In the intellectual property and rights area, developed, focusing on the diffuse pollution we have six patent applications and ten soft- impacts over the Paraíba do Sul river, as well ware products patented. One of such patents as the development of specific equipment addresses the development of a device to wash to automate services. Projects are held in water reservoirs, capable of reducing the vol- partnership with Ipen (Power and Nuclear ume of water spent in such operations by up to Research Institute) and ITA (Aeronautic 90%, in addition to decreasing the time spent. Technological Institute). The automation of The invention received the Innovation Award, Learn more at sabesp.com.br/rs2012 sanitation, water meter reading, and water granted by our Regional Systems Board.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 51 CARING FOR THE ENVIRONMENT: PRESENT AND FUTURE

R$ 26.2 million paid in 2012 for the use of water in federal rivers

52 Due to its sanitation business nature, Sabesp by late 2013. In the next few years, we intend to continue implementing the SGA throughout believes that contributing to preserving the our units, covering 302 STPs and WTPs by 2018. Since 2009, Sabesp has already invested R$ 15 environment is an integral part of its management million in the system’s development. Since 2010, we have trained 300 multipli- process. This commitment is expressed in ers in order to meet ISO 14001 normative requirements. As the program is implement- our Environment Policy, effective since 2008, ed, we expect to qualify over 400 individuals by December 2013. and is enforced by a committee integrated by Sabesp operates in the decentralized and integrated management of water resources representatives from all of our five divisions. established in the National Water Resource Policy. Our representation encompasses participation of approximately 150 employ- We constantly strive to be recognized as an ees throughout 21 committees of state important agent of sustainable development. hydrographic basins, three federal commit- Based on this goal, we began building our tees within the State of São Paulo, and the Institutional Sustainability Policy in 2012. Paranapanema River Federal Committee We believe that sustainability is the essence installation support group. of our business. Our activities positively affect We also occupy a chair in the plenary session public health, socioeconomic and environmen- and some technical chambers of the National tal development, and the quality of life of the Water Resource Board, as well as the State population we serve. Water Resources Board, in which Sabesp Among the guidelines established, we intend participates in technical chambers as a rep- to incorporate sustainability principles within resentative of the São Paulo Water Resource the strategic planning, investment programs, and Sanitation Department. and all corporate activities, from inception to Collection of water use – management instru- operation of all systems. Throughout 2012, ment set forth in National and State Water the minute that establishes concepts, guide- Resource policies, aimed at raising awareness lines and competencies of our future policy regarding the rational use of such input and 300 multipliers was submitted to public inquiry and currently funding programs and initiatives in basin plans trained to meet awaits deliberation from the Collegiate Board – is currently being gradually implemented in ISO 14001 in order to be implemented. the State of São Paulo, where Sabesp is the normative requirements In order to promote sustainable growth, we top individual contributor. implemented the Environmental Management In 2012, the company paid approximately goal: over 400 people by December 2013 System (SGA) in the sewage treatment plants R$ 26.2 million for the use of waters in federal (STPs) and water treatment plants (WTPs), and state rivers – initiative launched in 2003, associated to the ISO 14001 certification in in the Paraíba do Sul hydrographic basin –, strategic operating units. Sabesp’s geographic launched in 2007 in the same basin and in the coverage, different types of employee treatment , Capivari and Jundiaí river basins. processes, and different unit scales were con- Collection was initiated in the Baixada Santista R$ 26.2 million sidered when selecting such facilities. basin this year, and the following basins are paid in 2012 The SGA is currently implemented in 62 STPs expected in 2013: Alto Tietê, Baixo Tietê, Tietê/ for the use and 3 WTPs; 50 STPs have the ISO14001 certi- Batalha, Tietê/Jacaré, Baixo Pardo e Grande, fication. In 2012, we began implementing the Mogi Guaçu, Pardo, Sapucaí Mirim/Grande, Serra of water in system in 30 additional STPs. We are confident da Mantiqueira, Ribeira do Iguape/South Coast, federal rivers that the SGA will be implemented in 129 plants Pontal do Paranapanema and Turvo/Grande.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 53 CARING FOR THE ENVIRONMENT: PRESENT AND FUTURE

Regarding environmental licenses and per- Also in line with our Corporate GHG mits, the current operating park is covered in Management Program, our strategy aims at Corporate Programs to Obtain and Maintain mitigating emissions, managing and mitigat- Permits for the Right to Use Water Resources ing potential climate risks, converting them and Environmental Licensing. Regarding into business opportunities - either through permits, the process has progressed based technological innovations, improving the on the plan to complete 100% registered or processes' power efficiency, and increasing permitted uses throughout 2013. For new the company’s ability to adjusted to forecast ventures, obtaining licenses and permits is climate changes. already inherent to its life cycles. Some initiatives adopted by the company to mitigate the risks regarding power security are the implementation of a small hydroelec- tric central and the use of biogas generated Climate changes from sewage treatment processes. Regarding the water availability reduction risk, some and greenhouse examples of ongoing initiatives are the Water Losses Reduction Corporate Program, Pura gas emission (Rational Water Use Program) and the expan- sion of planned water reuse for urban and management industrial purposes. The renewal of the vehicle fleet is still one EC2/EN18 We are aware of the need to identify of the actions considered to reduce GHG possible impacts on our business and we have emissions. In 2012, we replaced 105 light listed some of the most significant effects of vehicles equipped with flex technology, which climate change that can interfere directly with only used ethanol; 254 trucks equipped with our activities. Namely: engines compliant with the Euro-5 law, which • Water availability variations; establishes the reduction of emissions; 28 • Variations in the extraction, production backhoes and 40 motorcycles. The renewal and transportation of items required in our of our light vehicle fleet has reached 75.3%, operations; while truck replacement reached 48.3%. • Increase of sea level, with higher risks of Another initiative is collecting carbon via damages and impacts in sanitary facilities riparian reforestation initiatives in watersheds. and increased frequency of extreme events; A total of 30,000 saplings were planted this EN16 As Part of the Corporate Greenhouse Gas year. The Verde Vida project, developed in the Emission Management Program, currently under Pardo e Grande Business Unit, includes envi- development, we reached the goal of completing ronmental education, riparian reforestation, the 2009 and 2010 corporate inventories in 2012, and, especially, initiatives to preserve and whose results were respectively 1,804,307.16 recover the Canoas River, responsible for and 1,873,729.32 tonnes of CO2eq. 80% of Franca’s supply, as well as the Pouso Electrical power (+124%) was the source that Alegre brook. A total of 92,000 samplings have most varied in absolute terms for emissions already been planted (12,000 in 2012), grown between 2009 and 2010, directly affecting the in a nursery in the Franca STP. increase of total company emissions by 4% in In 2012, we were unable to proceed with the period. Increased emissions, in this case, our partnership plans to implement a rotat- stemmed from the expansion of the Brazilian ing carbon fund with resources arising from energy matrix’s thermoelectric base, which carbon credit sales. The idea may be even- took place that year. tually resumed.

54 2012 sustainability report GRI 4.12/EN18 Sabesp participated in the Carbon • Student and teacher field trips to WTPs and Disclosure Project - CDP Investors for seven STPs. In 2012, a total of 1,474 visits were per- Fleet years. The program encompasses the dis- formed, covering 56,456 people; closure of GHG emission data based on a • Lectures in schools, communities and com- renewal questionnaire developed by the entity, stan- panies. In 2012, we serviced an audience of dardizing and organizing the manner through 165,948 people, throughout 1,516 events. which companies report business information We have promoted 31 sustainability hear- regarding potential risks and opportunities ings; two in 2012. We also implemented seven related to climate changes. Associated to eco-mobilizations this year, totaling 25 mutu- such effort, we have integrated the CDP Supply al-aid groups to collect garbage and plant 75% Chain in 2011, but decided not to proceed with seedlings in water resource banks, in part- such participation in 2012, due to the low adhesion nership with NGOs, civil society entities and Light vehicle fleet rate of our suppliers. community leaders. renewed EN26 In 2012, The State Sustainable Public In 2012, we decided to interrupt the installa- Contracting Program granted the Socio- tion of ecopoints in areas next to the company’s environmental Seal to 37 Sabesp purchase main facilities due to difficulties in conciliating specifications, totaling 208 specifications. We available space with the demands of the sur- have reached 30% of the established goal – rounding community. 700 specifications certified – due to the need 48% to implement technical adjustments in the seal issuance process, required by the State

Truck fleet Environment Department. Enacted by State Sabesp 3Rs renewed Decree no. 50.170/05, the seal indicates to the supplier market the State of São Paulo’s inten- Based on the “reduce, reuse, and recycle” concept, tion to adjust its consumption profile to inter- in 2012 the selective waste collection program national sustainable development guidelines. gathered 372 tonnes of materials for recycling, sent to waste collector cooperatives. The result represents a 30% increase compared to the previous year, when a total of 386 tonnes were Environmental gathered. Throughout the program, created in 2008, approximately 75 awareness activities, tech- education program nical visits, specific training and qualification of 372 tonnes representatives of the company’s organizational of recycling Sabesp maintains a Corporate Environmental units were performed, covering approximately materials sent Education Program (PEA), in which measures 1,200 employees and outsourced service providers. are developed to build social values, knowledge, to cooperatives skills and approaches towards a sustainable world. Since 2007, over one thousand employees were trained to disseminate the environmental Environmental sanitation culture. The PEA sets guidelines for over one hundred initiatives and projects, processes among which are: 30% • Adoption of the Pura (Rational Water Use Sabesp participates in some environmental increase Program) in schools, which, in 2012, reduced nature processes within the administrative water consumption in educational institutions and judicial scope promoted by the Public compared to within the city of São Paulo by 72 million liters Prosecutor’s Office, certain municipalities the previous year per month; and non-governmental organizations. Most

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 55 CARING FOR THE ENVIRONMENT: PRESENT AND FUTURE

related to the disposal of raw sewage in water Construction works have bee concluded and bodies, indemnities for eventual environmental the STP is currently under pre-operation stage; damages caused, and investments in sewage the green building awaits the Leed (Leadership in treatment system facilities. Energy and Environmental Design) environmental The company has established commit- sustainability seal, granted by the USGBC (United ments and formalized conduct adjustment States Green Building Council), based on the set terms and judicial agreements with the Public of sustainable solutions adopted. Prosecutor’s Office, including such resources The new building is located in an area of 19,000 in its budget planning. square meters, with a built area of 391 square In October 2012, the Public Prosecutor’s Office meters. The remaining 13,000 square meters of São Paulo filed a civil suit in which it requests (70% of the total area) will be occupied by green the annulment of the agreement entered between areas. The construction meets sustainability Sabesp and the city of São Paulo to provide basic requirements in six categories: space, rational sanitation services; universal sewage collection water use, energy efficiency, natural materials and treatment in the Capital city by 2018; reduction and resources, indoor environmental air quality, of Iodine volume produced in WTPs and STPs, and design innovation. The Leed seal certification among others. The company presented an answer is expected by June 2013. to the interlocutory appeal in 2012, serving the suit in March 2013, deeming remote loss expectations. The amount covered by the suit on December 31 2012 was R$ 11.7 billion. Reserves in

protected areas

Green building EN11/EN13 Sabesp owns and maintains areas within preserve units, performing supervi- Sabesp’s first certified green building should sion and monitoring activities, as well as begin operations in July 2013. The administrative supporting biodiversity studies conducted by building of the Bragança Paulista sewage treat- universities, such as USP. Research facilities ment plant will provide 100% sewage collection are available, including for night-time fauna and treatment services to the city. observation studies.

Reserves in protected areas

Rio Claro Reserve Morro Grande Reserve Capivari Farm (cities of (city of Cotia) (city of São Paulo) Salesópolis and Bertioga)

Perimeter: 66 km Perimeter: 152 km Perimeter: 12 km Area: 10,700 ha Area 16,100 ha Area: 2,900 ha Dams: Graça and Pedro Beicht Covers the Rio Claro production Covers the Guarapiranga Alto Cotia WTP system production system Note: The current forest reserve (category extinct Ribeirão do Campo and Rodolfo José da Costa e Silva by the Snuc law) into a Private Natural Heritage Poço Preto dams. WTP (Alto da Boa Vista) Reserve. Casa Grande WTP Note: Integrally inserted in the Capivari-Monos Note: Integrally inserted in the Serra do Mar APA. Predominance of pine trees, whose State Park replacement with native plants is being assessed

56 2012 sustainability report Solutions for Iodine generated in the water and sewage treatment process

Iodine generation is inherent to sanitation activities. Both water and sewage treatment processes generate residues that require proper disposal, in order to leverage environmental benefits. This is a challenge that Sabesp has attempted to overcome, not only because it is required to do treatment and final disposal in Lavapés. Within the next few so by society, but also because caring for the environment’s years, we will adopt the same procedure for the Taubaté water resources is an integral part of the operations of a STP, using 100% of the Iodine generated in the unit’s sewage company whose main raw material is water. treatment process, totaling 30 tonnes per day. The Iodine currently generated in our activities is mainly In RMSP, the company plans to implement incineration destined to proper disposal in landfills - in counterpart, units at the Barueri STP, our largest treatment station, with Sabesp treats the leachate produced in such areas. Since capacity for 9,500 liters per second. The energy contained in these areas are not sustainable elements in our metropolis Iodine will be used as fuel in the incineration process, with and scarcely available in the coast and countryside, we have a portion of biogas produced by anaerobic digestion agents. attempted to develop new alternatives with the purpose of Surplus biogas may be injected in the public gas system. reducing the final volume disposed. Among such initiatives, By optimizing the treatment process and applying new tech- the most relevant are incineration, considering the energetic nologies, the company has also obtained significant results use of residues, and composting, producing soil conditioners in water treatment plants. In all eight units installed in the with agricultural applications. The most promising perspec- metropolitan area, the volume of Iodine generated was reduced tives lie in the use of Iodine to treat sewage. by 32% in the last four years. We also decreased the use of Among the initiatives related to this direction, we are cur- chemical products applied in the water treatment process by rently preparing to transform all of the Iodine produced in 10% in the Great São Paulo Area, benefiting the generation of the Lavapés sewage treatment plant (STP), located in São wastewater and Iodine. José dos Campos, into agricultural compost as of 2013. It’s important to mention that the company has been spon- The bidding process to contract composting services for 70 soring certain research lines, in association with Fapesp, daily tonnes of Iodine is currently being concluded, allowing aimed at reducing and making better use of the Iodine gener- the authorization registry in the Department of Agriculture. ated in water and sewage treatment processes. This year, we This compost was classified as "class D"; that is, it is a soil aimed at encouraging, among other guidelines, the use of STP conditioner of organic source that may be applied in certain Iodine as a material to cover landfills; use of Iodine removed types of plantations, such as coffee, fruits and sugarcane. It from stabilization ponds in sewage treatment as degraded is important to note that the use of Iodine to produce fertilizer area recovery material; and processing sand extracted in allows a reduction of 58% in operating costs regarding Iodine STPs to be used in civil construction.

57 SHAPING THE CITIZENS OF THE FUTURE

58 Every new year, Sabesp strives to improve social entities. We maintain partnerships with NGOs, city halls, schools, among other its relationship with its audiences, since such institutions, building a network of over 1,200 volunteers. During the development of citi- partners (customers, shareholders, collaborators, zenship projects, this group dedicates an ave- rage of 10,000 work hours every year solely suppliers, governments and communities) can help on solidarity, benefiting over 15,000 people. Inclusion is present in several of our acti- the company build a fair organization that promotes vities. We focus mainly on children, since we believe a proper citizenship education is inclusion, citizenship and respect for human rights. paramount to build a fair society. The com- pany operates in social risk areas within the These are values and practices pursued with São Paulo Metropolitan Region, through the Instituto Criança Cidadã (ICC), which invests the same effort that we employ to reach financial in educating children in low-income families. In 2012, our contribution reached R$ 2.7 goals and sustainable development, guided million, providing education and assistance to approximately 6,500 children and ado- by our Code of Ethics and Conduct. lescents, supported by 3.5 million families. Sabesp is also recognized as a Child Friendly Company by the Fundação Abrinq. It is a formal commitment that expresses, GRI 4.12 Sabesp maintains its businesses in for example, supplier contract items, which accordance with the UN Global Compact, whi- guide the production chain, preventing slave ch gathers companies in favor of human labor and child labor. rights, environmental protection and anti- The distressing search of families for mis- -corruption principles. The company is a par- sing children and adolescents was supported ter of Instituto Ethos, in addition to suppor- by Sabesp. Every year, at least 9,000 of them ting and promoting the UN Eight Millennium never return to their homes in the State of Goals, currently integrated to our Corporate São Paulo. The first step was the integra- Volunteering Program. We also supported tion to the São Paulo in Search of Missing in 2012 Planeta Sustentável [Sustainable Children and Teenagers Program, organized Planet], organized by Editora Abril. by the State Government. Then, initiatives Our proposal is to increase engagement were implemented. Water bills, for example, and the promotion of quality of life and started to promote the program and instruct strategic commitment to operate as an customers on measures to be adopted in Agent of Sustainable Development. Our acti- order to overcome this issue. Messages were vities positively affect public health and socio- multiplied throughout the company’s website, economic and environmental development. in the corporate portal, employee payslips Basic sanitation is an essential infrastructure and customer service agencies. segment for sustainable development. Based For individuals between 14 and 21, we hold on articulated socio-environmental respon- a partnership with the National Industrial sibility operations, we also strive to narrow Education Service (Senai-SP), through which our bond with society in general. we allow them to access the company in In the social area, through the Volunteering order to obtain professional information. Program, we organize campaigns that The initiative has generated opportunities to gather tonnes of food, clothes, books and 2,300 young men and women, 560 of which magazines, distributed throughout over 200 joined the company’s staff in 2012.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 59 SHAPING THE CITIZENS OF THE FUTURE

Another initiative aimed at enhancing cus- Customer tomer relations was the extension of services via the External Customer Service Technician relationship (Tace) to 100% of municipalities operated by Sabesp. Cities receive consumption reading, The continuous improvement of our services issuance and calculation services regarding is part of our strategic planning (2011-2020) water and/or sewage services at customer’s and one of the main ingredients of our suc- homes. Technicians are also qualified to cess. We believe that transparent information provide clarifications and instruct clients, and the improvement of tools through which eliminating the need to visit a customer ser- we communicate with our audience further vice agency. strengthen our goal of constantly providing Such need is also prevented with the con- excellence customer service. solidation of the process that automatically In 2012, the company implemented the braille charges or reimburses incorrect payments in water and/or sewage bill for visually-impaired future bills. On a monthly basis, the company customers. The new service stems from the corrects credits or debits in approximately partnership with the Department of Rights 30,000 accounts. for the Visually Impaired. The new bill was EC9 The concern with social inclusion is also developed based on interviews with 400 visu- reflected in the "social tariff", through which ally-impaired individuals, during which they the low-income population is benefited with pointed our their needs. As of 2013, registered sanitation services, considerably improving clients will also receive the braille version of the quality of life within such communities. corporate documents, such as the annual This benefit is regulated by Arsesp and serves water quality report, annual debt settlement families with monthly income of up to three statement, and the adhesion agreement. minimum wages, in addition to considering The Virtual Agency, available at the house size and power consumption variables. company’s website, was also developed to Currently, 280,000 households are benefi- promote the digital inclusion of visually- ted, compared to 242,000 in 2011. (The figure -impaired users. Since April, the channel is reported in the 2011 Sustainability Report is completely accessible, allowing users to check incorrect.) Sabesp’s social tariff is one of the debits, request bill copies and check account lowest fees charged by state-owned sanitation history, among other functions. In 2012, 80% companies in Brazil, with a reduction of appro- of services most requested by customers ximately 64% of the normal residential tariff. could not be provided in the Virtual Agency, We have maintained the Actions to Regularize, but this goal is expected to be fulfilled as of Integrate and Transform Irregular Areas the second half of 2013. Project (Paritá), implemented in the East Side The improvement of customer relations is of the São Paulo Metropolitan Region. In 2012, also covered in the customer telephone servi- approximately 720 water connections in ten ce, in which 100% of calls are answered within areas irregularly occupied were regularized; a maximum hold time of 60 seconds. Sabesp between 2008 and 2011, 51 additional areas performs walk-in service in 391 agencies and were covered. Within the last five years, we stations, 65 in the São Paulo Metropolitan served approximately 20,000 residents. These Region and 326 in the São Paulo State coun- initiatives also reduced losses of 2.7 million tryside and coast. In the metropolitan region, cubic meters of water per year, considered 280 households agencies currently have new working hours, strategic by the company, which operates in covered implemented since August. In compliance with areas with extreme water shortage. Arsesp’s deliberation, new working hours were Also aiming at supplying such underpri- with social established based on each region’s profile. vileged areas, the company established a tariff in 2012

60 2012 sustainability report partnership with the São Paulo City Hall, further reinforcing our commitment towards in September, to install fire hydrants and transparency and constant improvement of water distribution systems around such com- services rendered. munities, in order to assist the fire depart- ment. Sabesp had already installed two fire hydrants in the Sônia Ribeiro settlement, in Jardim Aeroporto, which was considered a Ombudsman pilot project. The program encompasses the installation of fire hydrants in 50 settlements, Our Ombudsman Office broadened its struc- throughout four stages. Planning and execu- ture and the Customer Service Central. tion of works will be performed according to This investment allows us to readily servi- actions required by the city. ce almost all callas made - approximately 99% in up to minute – and, according to our assessment, resulted in a significant reduction of the number of clients seeking customer satisfaction services in other institutions, with substan- tial quantitative and qualitative gains for the PR5 Sabesp annually conducts a satisfaction company’s image. survey with its customers since 2004, always The 2012 results indicate a 45% reduction based on the same methodology, which allows in the total number of clients that filed com- comparing different business units in distinct plaints in the São Paulo State Sanitation and periods. Our goal is to enhance customer Power Regulatory Agency (Arsesp). Results services based on the survey’s results. also indicate an 18% reduction in the number In 2012, the general customer satisfaction of clients seeking assistance from Procon, rate was 89%, three percent lower than the the state consumer defense agency. There previous year. We believe that the maintenan- was also a 3% reduction in the number of ce of such result is mainly attributed to the clients seeking the Digital Special Civil Court quality and regularity of water supply servi- (JEC), which consolidates the successful ces rendered by the company: 90% of 5,862 partnership between Sabesp and JEC. interviewees stated they were "satisfied" or The search for excellence in customer ser- "extremely satisfied" with the service. vice can be attested by the fact that 2012 was Sabesp also began conducting satisfaction the third consecutive year in which Sabesp surveys in each city in which it holds program remained outside the list of 50 most com- contracts. Assessments are performed every plained companies in Procon’s ranking. two years. In 2012, the survey was conducted GRI 2.10 Market recognition came throu- in 198 cities. Results guided the improve- gh the 2012 Brazil Ombudsman award. ment of our customer service processes. Organized by the Consumidor Moderno Surveys are disclosed to the general public, magazine, the award ceremony relied on a jury selected by the Brazilian Association of Client Company Relations (Abrarec) and the Brazilian Association of Ombudsman Offices (ABO). This initiative consolidated the quality of the customer service model general customer employed by Sabesp’s Ombudsman, since it won all categories of the award: 10 Best satisfaction index 89% Ombudsman Offices in Brazil; Top Three regarding Sabesp Ombudsman Offices; and Top 3 Ombudsman Offices in 2012.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 61 SHAPING THE CITIZENS OF THE FUTURE

Sabesp hires services providers as required. Employee Under such conditions, the company opera- tes with approximately 7,372 professionals. relationship Additionally, we employ 888 interns and 560 young apprentices, which combine the job Sabesp is extremely proud of its employe- opportunity with qualification courses. es, whose qualification is a reference in the Valuing diversity and social inclusion are essen- basic sanitation segment. The maintenance tial building blocks of a fair and sustainable society. of such professionals, in a competitive and Sabesp complies with Federal Decree no. 3.298, rising market, keeps the company constantly from 1999, which determines the offering of 5% of searching for best personnel management job positions offered in public selection processes practices. We believe that the combination of to individuals with disabilities. In 2012, we had 64 such qualified experiences and the search for job positions occupied under such conditions, 69% new talents will leverage the company’s sus- by physically-impared 22% by hearing-impaired, tainable development. and 9% by visually-impaired employees. GRI 2.8 Sabesp currently has 15,019 employees Since 2005, we have maintained a partnership under the Brazilian Labor Laws (CLT). Most with the Association to Value Individuals with are Caucasian (83%) males (80%), with middle Disabilities (Avape), through which 106 disabled school education (49%) and over the age of 40 individuals operate in our customer service sta- (71%). The average employment span in the tions, an activity for which they receive over 108 company is 17 years. hours of prior training.

80% 49% 15,019 male middle school employees

83% 71%

Caucasian over the age of 40

62 2012 sustainability report number of employees per region LA1

TOTAL TOTAL TOTAL

2010 2011 2012 1. RMSP, Vale do Paraíba and Baixada Santista 8,371 2,374 10,745 8,119 2,367 10,486 8,777 2,569 11,346 2. Regional systems, except Vale do Paraíba and Baixada Santista 4,027 558 4,585 3,849 561 4,410 3,224 449 3,673 Total 12,398 2,932 15,330 11,968 2,928 14,896 12,001 3,018 15,019

Notes: Sabesp hires its employees via civil service examinations, as established in the 1988 Federal Constitution, which details positions, requirements, region, positions and wages. A total of 76% of our managers currently work in Region 1, and 24% in Region 2. Sabesp does not directly hire outsourced employees. It enters service agreements in which such professionals are assigned as required. Under this conditions, Sabesp works with approximately 7,300 professionals, which are not registered under Sabesp’s database EC7

Employee distribution per gender and ethnicity LA13

TOTAL

2010 2011 2012 % 2010 2011 2012 % 2010 2011 2012 % Caucasian 10,370 9,952 9,889 66% 2,509 2,487 2,540 17% 12,879 12,439 12,429 83% African Brazilian 1,833 1,808 1,870 12% 317 329 357 2% 2,150 2,137 2,227 15% Asian 173 184 202 1% 104 110 116 1% 277 294 318 2% Indigenous 4 6 7 0 0 0 0 0 4 6 7 0 Not declared 18 18 33 0 2 2 5 0 20 20 38 0 Total 12,398 11,968 12,001 80% 2,932 2,928 3,018 20% 15,330 14,896 15,019 100%

Employee distribution per job position, gender and ethnicity LA13

MANAGERS College Students

2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012

CAUCASIAN 417 441 450 117 108 111 1,527 1,448 1,493 835 824 827

AFRICAN BRAZILIAN 17 19 17 5 3 4 128 134 139 84 86 86

ASIAN 17 19 18 2 2 2 87 92 96 54 59 60

INDIGENOUS 0 0 0 0 0 0 0 1 1 0 0 0

NOT DECLARED 0 0 0 0 0 0 3 3 4 0 0 0

TOTAL 451 479 485 124 113 117 1,745 1,718 1,733 973 969 973

Operating Administrative/Technical

2010 2011 2012 2010 2011 2012 2010 2011 2012 2010 2011 2012

CAUCASIAN 3,982 3,857 3,750 1,492 1,485 1,485 4,444 4,166 4,196 65 70 117

AFRICAN BRAZILIAN 663 664 671 206 216 227 1,025 991 1,043 22 24 40

ASIAN 55 60 65 48 48 52 14 13 23 0 1 2

INDIGENOUS 2 2 3 0 0 0 2 3 3 0 0 0

NOT DECLARED 5 5 10 2 2 4 10 10 19 0 0 1

TOTAL 4,707 4,588 4,499 1,748 1,751 1,768 5,495 5,183 5,284 87 95 160

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 63 SHAPING THE CITIZENS OF THE FUTURE

Employee distribution per job position category LA13

Employees per category 2010 2011 2012 Managers 575 592 602 College Students 2,718 2,687 2,706 Adm./Technicians 6,455 6,339 6,267 Operational 5,582 5,278 5,444 Subtotal 15,330 14,896 15,019 Interns 1,056 918 888 Apprentices 548 506 560 Total 16,934 16,320 16,467

Employee profile – Per age, time of service, education, working hours, management and gender LA13

TOTAL TOTAL TOTAL

2010 2011 2012 age Up to 17 0 0 0 0 0 0 0 0 0 between 18 and 30 657 259 916 649 289 938 743 327 1,070 between 31 and 40 3,016 755 3,771 2,775 710 3,485 2,589 705 3,294 between 41 and 50 4,507 1,173 5,680 4,434 1,164 5,598 4,498 1,137 5,635 Over 50 4,218 745 4,963 4,110 765 4,875 4,171 849 5,020 Average age 45.7 43.8 45.3 45.8 43.8 45.5 45.9 43.9 45.5 SERVICE TIME Up to 3 years 1,109 254 1,363 1,470 399 1,869 2,028 571 2,599 4 to 10 years 1,754 443 2,197 1,240 331 1,571 764 194 958 11 to 20 years 4,771 1,204 5,975 4,962 1,204 6,166 5,262 1,301 6,563 Over 20 years 4,764 1,031 5,795 4,296 994 5,290 3,947 952 4,899 Average service time 17.3 16.7 17.2 17.1 16.4 17.2 17 16.3 16.9 EDUCATION Primary School 2,187 42 2,229 2,179 53 2,232 2,198 101 2,299 Middle School 6,318 948 7,266 6,233 1,097 7,330 6,164 1,121 7,285 College(1) 3,893 1,942 5,835 3,556 1,778 5,334 3,639 1,796 5,435 WORKING HOURS Part-time(2) 1,265 250 1,515 1,254 266 1,520 1,224 261 1,485 Full-time 11,133 2,682 13,815 10,714 2,662 13,376 10,777 2,757 13,534 MANAGER Not commissioned 0 0 0 0 0 0 0 0 0 Commissioned 451 124 575 479 113 592 485 117 602 Governance divisions Board of Directors and Board of Auditors 11 5 16 14 1 15 14 1 15 Audit Committee 3 0 3 3 0 3 3 0 3

(1) 1,806 professionals have post-graduate specialization courses/MBA, 9.3% of which hold master’s degrees or PhD (2) Work in operating and customer service areas

Ratio between the lowest wage and minimum wage - overall LA14

2010 2011 2012 Lowest wage* (R$) 754.49 814.85 1,100.75 Minimum wage (R$) 510 545 622 Ratio (%) 148% 150% 177% * Lowest starting wage, paid to the Environmental Sanitation Agent I position. There is no difference in the base salary between men and women

64 2012 sustainability report Ratio between the lowest wage and minimum wage - per region EC5

2010 2011 2012 Lowest wage

1. RMSP, Vale do Paraíba and Baixada Santista (R$) 905.40 977.84 1,320.90 2. Regional systems, except Vale do Paraíba and Baixada Santista (R$) 754.49 814.85 1,100.75 Minimum wage (R$) 510 545 622

Ratio

1. RMSP, Vale do Paraíba and Baixada Santista 178% 179% 212% 2. Regional systems, except Vale do Paraíba and Baixada Santista 148% 150% 177% Note: There is no difference in the base salary between men and women

Job rotation – total, per gender, age range and region LA2 (%)

TOTAL TOTAL TOTAL

2010 2011 2012 Gender 5.9 5 5.8 7.7 7.2 7.6 5.5 4.4 5.3

Age range between 20 and 40 4 4.3 4.7 6.1 6.9 6.2 5.1 5.6 5.2 between 41 and 55 5.1 4 3.4 4.3 5.9 4.7 3 2.6 3 Over 55 2.9 1.9 18.8 24.4 17.7 23.2 15.3 10.8 14.7

Region

RMSP 6.6 4.8 13.5 8.1 6.8 9.6 5.4 4 5.1 Countryside and coast 5.1 5.3 11.5 7.3 8.1 5.6 5.6 5.3 5.6 Company total 5.9 5 5.8 7.7 7.2 7.6 5.5 4.4 5.3 Hired employees 7.2 6.7 7.1 4.3 7.2 4.9 5.8 7.2 6.1

LA3 Sabesp adopts a set of benefits that the childcare allowance, with no age limit. contributes to improving the quality of life Employees on sick or accident leave paid and well-being of its employees, resulting whose salary is higher than the ceiling allow- in enhanced performance and rationalization ance established by the public social welfare of benefit management. The benefit package are automatically granted a salary supplement adopted by the company includes: Benefit during up to six months. Card – Basic Food Basket and Discounts at EC3 In addition to these benefits, we also Supermarkets and Pharmacies, and Meal subsidize healthcare and pension fund ben- Voucher. These benefits are provided to all efits for all employees, through Fundação employees, regardless of working hours, Sabesp (Sabesprev). In 2012, we contributed The same benefit position, gender or ethnicity. Except for with 1.8% of monthly payroll to the employees’ package is provided apprentices, whose benefits are governed defined benefit pension plan. to all employees, by specific laws. In late December 2011, we entered into an regardless of working Employees with legal custody of children agreement with the entities representing the are granted a childcare allowance or can employees to make changes in their pension hours, position, use our Daycare Center, for children from six plan. The proposal provides for the increase gender, or ethnicity. months to less then six years old. We reim- in the incentives granted to those employees burse the expenses incurred by employees willing to migrate from the defined benefit with physically or mentally disabled children pension plan (Basic Plan) to the defined con- on their treatment in specialized institutions tribution plan (Sabesprev Mais Plan). It also equivalent to up to two times the amount of incorporates changes in the risk benefits.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 65 SHAPING THE CITIZENS OF THE FUTURE

With the agreement, we expect to address capital as a competitive force". The company the basic pension plan’s technical deficit issue, employed all efforts to seek a people man- estimated at R$ 557 million. The solution still agement system that allows restructuring the need to be approved by the State Government organization based on their needs, qualifying oversight bodies and will also be submitted them for new challenges and rewarding per- to the approval of courts, due to the lawsuit formances. Some of the main 2012 people that in November 2010 suspended migrations management projects are the implementation to the Sabesprev Mais plan. In September of the new Charge and Salary Plan (PCS), the 2012, the judge ruling the case determined Performance and Competence Assessment the execution of a financial audit process. An System, and the Management Excellence auditor was assigned in early 2013. Program, in addition to the automatic replace- ‘Viver Feliz’: As regards the healthcare plan Sabesprev, ment of employees. actions to in 2012 the National Supplementary health One of the goals of the new Charge and improve Agency edited a normative resolution that Salary Plan is to reward professional devel- regulates the offer of healthcare plans to opment, instituting a meritocratic system. In employee former and retired employees, which inter- order for the company to maintain its com- health rupted the activities of the joint committee to petitive edge and retain its talents, salaries define proposals to improve plan coverage. were adjusted based on the market, enhanc- Assessments will be resumed in 2013. ing early and late career remunerations. Under the purpose of "building a work Investments were made in budget resources environment with productivity, quality of related to promotions, covering a greater life and well-being, contributing to reducing number of employees. absenteeism and improving the organiza- Sabesp also implemented a new Competence tional environment," in 2012, the Viver Feliz and Performance Assessment System, [Happy Life] program conducted initiatives designed to allow managers to have a diagno- regarding healthy eating and physical exer- sis of their units, evaluating the performance cise, since obesity and sedentary lifestyle and skills of employees and establishing were identified as the main risk factors for development commitments throughout the employee health. unit. The company also began immediate- Sabesp took a qualitative leap in the ful- ly hiring candidates approved in civil ser- fillment of its corporate guidelines: "human vice examinations.

2011 final PSP payment distribution

Professional category Average* (R$)

Operational 2,343.64

Adm./Technicians 3,121.87

college students 5,416.37

managers 10,848.76

sabesp average 3,584.70

* Calculation formula: VPPR = {R$ 1,143.91 + [70% x (base sal. + function bonus and commission + ATS)]} x % target

66 2012 sustainability report We have leveraged the development of our affiliated themselves to union entities, estab- leaders by implementing the Management lishing collective bargaining agreements. Excellence Program, encompassing devel- The company negotiates with responsibility opment activities based on results-oriented and transparency, valuing healthy debates with management: attendance course focused on union entities. Eventual meetings are held several business management segments, to discuss reasonable proposals in order to lectures with renowned professionals, man- meet employees' expectations and maintain agerial profile assessment and coaching. a positive work environment, based on its Throughout the year, we have benefited 240 financial capacity and government guidelines. leaders in all five divisions. In the next two In 2012, there were no scenarios in which years, the program will be extended to all such freedom of affiliation and negotiation employees in leadership positions. was compromised. HR5 The perception of organizational environ- Sabesp annually negotiates with the five ment management was assessed by 14,185 main union entities representing most (90%) employees, within the competence and per- of its employees: Sintaema, Sintius, Seesp, formance assessment process, who rated the Sasp and Sintec. It is important to note that following aspects with grades from zero to 80% of our employees are spontaneously five: work environment (4.27); communication affiliated to one of these entities. LA4 (3.99); work conditions (3.91); institutional The 2012/2013 collective bargaining process aspects (3.99); activities (3.92); and recogni- occurred in May, involving the main union enti- tion/appreciation (3.27). ties. Negotiations established an adjustment In addition, a more comprehensive census of 6.17% in salaries and benefits, as well as survey shall be conducted in 2013, with the the Profit Sharing Program (PSP). As agreed steady purpose of consolidating the com- upon with unions during the 2011 collective pany as one of the best companies to work bargaining, final 2011 PSP payments occurred for in the near future. LA4 Sabesp supports on 04/26/12. A total of R$ 53 million was dis- and encourages its employees to participate tributed among 100% of the staff. in entities and associations, in addition to LA12 In 2012, a regular performance and com- assisting in their individual development and petence assessment was held for 11,348 male overall organizational environment. All of employees and 2,837 female employees. The our collaborators have complete freedom to remaining 834 employees were not evaluated

LA10 Qualification – average of hours per functional category in 2012

TOTAL

Category Adm/ Technical 44.2 61.2 49 Apprentice 77.5 75.6 76.8 Intern 77.1 83.8 80.5 Management 50.4 58.6 52 Operational 29.7 37 29.9 College Student 61.3 82.7 69 Total 42.9 69.4 48.8

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 67 SHAPING THE CITIZENS OF THE FUTURE

for the following reasons: disability retire- The company also focused on qualifying its ment, admission in less than three months, professional staff, subsidizing post-graduate, or because they were attending other entities. MBA, technical-professional and language A total of 1,873 personnel transfers were courses, through partnerships with renowned performed, encompassing promotions, trans- market institutions. Additionally, partner- fers, designation and destitution of positions. ships with over 135 educational institutions Sabesp complies with Brazilian laws that provided discounts of up to 40% to employees protect employees, preventing changes that and dependents in graduate, post-graduate, affect their work conditions. In case of pro- basic and middle school, technical, child cess changes that affect the labor relation- education, language, and literacy courses. ship, the company previously discusses such The purpose of the company’s occupational matters with employee representatives. health and safety management is to ensure The sustainability of our business depends actions that promote a preventive culture on those who will take on leadership positions throughout the company, improving work within the company in the medium and long conditions, ultimately leveraging the quality terms. This is even more pressing based on of life of employees and service providers. the fact that 35% of our managers will be PR1/PR2 Sabesp’s Occupational Health and eligible for retirement in the next five years. In Safety Management System is certified by the 2012, we created the first class of the Career OHSAS 18001 standard, covering 72 estab- and Succession Preparation Program, with lishments within the scope of excavation a total of 39 professionals. services and works in confined areas exe- We also began qualifying 45 other employ- cuted in public roads, re-certified by Bureau ees who indicated essential and potential Veritas in 2012. skills to become future Sabesp leaders. The LA6 25% of the total staff works in formal development process includes MBAs, coach- health and safety committees, engaging in ing, assessments, personal development and activities such as: systematization, monitor- language courses, national and international, ing, and specific programs. Special emphasis regarding business priority issues. goes to the efforts and commitment of 4,000 LA11 The training and qualification process Internal Accident Prevention Committee of our employees has always deserved special members, emergency brigade members attention. Sabesp is a pioneer in corporate and professionals in Specialized Occupational education in Brazil, with the incorporation Health and Safety Engineering Services. of its Business University in 2001 to qualify Formal health and safety committees leaders and employees in all levels. The receive the following attributions: university’s investments hover around R$ • Regional Cipa Committee - operates within 12.8 million, prioritizing courses mainly the Business Unit, comprising presidents focused on sustainability, corporate gover- and vice-presidents of the Business nance, environment, social responsibility, Unit’s Cipas; quality, health, and safety. • Institutional Cipa Committee - responsible HR3/HR8 In 2012, substantial investments were for the mediation between Regional made in occupational hygiene, health and Committees and Functional Authority, safety training activities, including human comprised of a president and vice- rights aspects. Courses totaled 25,000 hours president representing each Regional of social responsibility training, covering Cipa Committee; over 4,000 employees. In addition, occupa- • Regional Brigades Committee – operates tional health and safety programs, which within the Business Unit, comprised also cover human rights themes, covered of managers and vice-managers of 42,000 employees, totaling 134,000 hours. Business Unit emergency brigades, as

68 2012 sustainability report well as occupational safety professional and collisions against moving or fixed objects representatives servicing the Business Unit; (18%). Human behavior (68%) is the main • Institutional Brigade Committee – factor behind accidents due to overconfidence responsible for the mediation between and noncompliance with safety procedures. Regional Committees and the Functional This year, we have invested approximately Authority, comprised of a manager and vice- R$ 12 million in accident prevention mea- managers of each Regional Committee’s sures. The main programs are: Cipa em Ação emergency brigade, as well as occupational (identifying 1,047 unsafe conditions, 75% safety professional representatives concluded); Campanha Segurança Nota 10 servicing the Business Units. (3,904 inspections concluded); Capacitação Occupational health and safety programs de Saúde e Segurança do Trabalho (40,000 resulted in a gradual reduction of accident participants) and Minuto da Prevenção (2,460 frequency and severity. The most frequent events, with 39,338 participants); Campanha accidents occur in traffic (28%), falls (24%) Você no Trânsito: Prevenção de Acidente

Occupational health and safety indicators – per region LA7

TOTAL TOTAL TOTAL

2010 2011 2012

Sabesp

Frequency rate 7.2 3 6.4 8 2.9 7.1 6.2 1.7 5.4 Severity rate 814 63 682 365 189 334 209 20 175 Occupational disease 58 13 71 103 16 119 5 1 6 Absenteeism 3% 3% 2% Death 2 0 2 0 0 0 1 0 1

Region 1 (RMSP, Vale do Paraíba and Baixada Santista)

Frequency rate 6.6 2.9 5.8 8.3 3.4 7.3 5.1 2.1 4.7 Severity rate 657 44 532 298 140 266 150 25 124 Occupational disease 42 10 52 81 16 97 0 0 0 Absenteeism 3% 3% 3% Death 1 0 1 0 0 0 1 0 0

Region 2 (Regional systems, except Vale do Paraíba and Baixada Santista)

Frequency rate 8.3 3.6 7.8 7.3 1.1 6.6 8.6 0 7.7 Severity rate 1,145 149 1,038 506 402 495 335 0 296 Occupational disease 16 3 19 22 0 22 5 1 6 Absenteeism 3% 2% 2% Death 1 0 1 0 0 0 0 0 0

Definitions: Frequency rate: number of work-related accidents resulting in injuries and leave of absence per million of man-hours worked, per year Severity rate: days lost to work plus days debited from work-related accidents per million of man-hours worked, per year Occupational disease: number of employees on leave due to disease associated with or caused by the performance of a certain activity The 2010 and 2011 values include cases of conversion from common disease into occupational disease, as per INSS, due to the technical-epidemiological nexus defined by the entity. Official data regarding conversions occurred in 2012 still has not been disclosed by the INSS Absenteeism: percentage that measures the decrease in the total number of hours worked due to absence from work.

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 69 SHAPING THE CITIZENS OF THE FUTURE

com Motociclistas; Controle Médico de The Sies will combine the financial, accounting, Saúde Ocupacional (11,645 medical exams); human resources, legal and acquisitions/procure- Campanha de Imunização (11,343 employees ment areas within a single platform. Known from vaccinated against the flu). the Enterprise Resourcing Planning (ERP), the integrated system will increase corporate operation Knowledge efficiency, expediting the decision-making process. The implementation of the Sies project has management already started and should be concluded with- in 40 months. The process will be imple- Sabesp’s knowledge management promotes mented in two stages: implementation of the assimilation and sharing of experiences, administrative and financial macroprocesses ideas and values, contributing towards the by 1Q14, and business macroprocesses by development of human capital, adding value the end of 2014. to the business, and promoting management excellence. Among its practices is the Knowledge Database, Specialty Database, External Supplier Event and Trip Reports, Virtual Community, Sabesp Wiki (internal encyclopedia), Corporate relationship Blog, Virtual Spaces (areas restricted to work groups), Electronic Document Management Our relationship with suppliers is based on (MaxDoc), Narratives (videos addressing ethics, transparency, and social and envi- technical-operational activities), and the ronmental criteria, reasons for which we Knowledge Repository. encourage companies with which we hold Another 2012 highlight was the production business relations to adhere to greenhouse of 75 articles under the theme "Sanitation gas emission reduction and management Innovation", focused on water, sewage and envi- practices. In our electronic bidding portal, ronment, which were submitted for evaluation available on the company’s website, we and the three best articles were recognized disseminate contests held by the company, abroad in the 2012 International Symposium ensuring equal participation conditions to on Sanitary and Environmental Engineering all suppliers. (Sidisa), ranking between fourth and eighth We are the first company in Brazil to imple- places, with courses or congresses in national ment an electronic acquisition process. In territory, as well as the digital publishing of an addition to reducing costs, the system pro- e-book with 15 articles. vides transparency, efficiency and agility to suppliers and customers. A total of 1,869 electronic floor trades were performed throughout the year, totaling R$ 1.6 billion, Corporate management saving R$ 296 million for the company. Sabesp promotes the participation and 2012 was extremely important for Sabesp hiring of local suppliers within its operating within the corporate sustainability path. We region. Our business units have separate employed best efforts to leverage the trans- budgets and autonomy to contract suppliers parency and reliability of our internal man- in a decentralized manner. agement process. For such, we conceived the EC6 In compliance with the extensive periph- Sabesp Integrated Reporting System (Sies), eral legislation regarding contracts, special designed to increase the reliability of pro- treatment is provided to micro and small cesses and reduce costs. companies, as well as cooperatives, also

70 2012 sustainability report encouraging the contracting of local suppli- ers. In 2012, such participation – considering Investor only bidding-exempt contracts by value and invitation – reached 35%. relations Sabesp promotes as much advertising as possible in the market regarding its acqui- GRI 4.4 Our Investor Relations area operates with sition plan, with the purpose of stimulating transparency, providing clarifications and solving competition. We have developed the Public doubts regarding company-related issues, and Acquisition Competition Guidelines manual, conveys market demands to top management. available at sabesp.com.br, in which we estab- Thus, we render information in a democratic lish general guidelines to broaden the scope fashion, allowing all stakeholders to be ade- of suppliers and promote greater competition. quately fit to make decisions based on the In compliance with State Decree no. 53.336/08, same knowledge. Sabesp also discloses its Sustainable Public Throughout 2012, the company participat- Contracting Report, which lists our main social ed in 11 conferences and roadshows in Brazil and environmental actions and best practices and abroad, in addition to dozens of individual applied to our supply chain. meetings in our headquarters. The reflected HR1 Contract minutes and notes also include quality of such relations was evidenced during social and environmental aspects, namely: the debenture offering performed in January • Participation conditions: companies cur- 2013, when demands reached approximately rently restricted by environmental crimes four times the offered value. The tariff revision as per the terms of article 10 of Law no. process conducted by the Regulating Agency 9.605/98, which addresses penal and admin- was one of the main reasons behind many of istrative sanctions arising from conducts the meetings held throughout the year. and activities harmful to the environment, are expressly prohibited from participating in Sabesp’s bidding processes; • Child labor prevention: bidders must submit Relationship a statement indicating no pending issues in the Department of Labor; HR6 with governments

• Statement indicating the absence of any type of work similar to forced or slave work, in any of We constantly strive to achieve excellence in its forms, throughout the productive chain; HR7 government dynamics. Our public segment • Wood products and byproducts: bidders interfaces encompass all three political-govern- must submitted a statement indicating mental levels (Union, States, and municipalities), that only wood products or byproducts of its agencies and entities. We collaborate with exotic or native origin legally permitted by the processes of developing and implementing State Decree no. 53.047/08 shall be used to public policies in the segment, among other execute engineering services and works; initiatives of social interest, directed towards • Normative Qualification Guideline: Sabesp improving quality of life, for which basic sani- seeks suppliers committed to the environ- tation is an essential element. ment and its surroundings. It also requires Within the federal scope, in 2012, we partic- compliance with local environmental laws ipated in a public inquiry related to the pro- through installation and operation per- posal of a new National Basic Sanitation Plan; mits issued by environmental agencies. additionally, we reduced the significantly Additionally, it assesses the toxicology high tax rates applied over water and sew- risks of products, ensuring safe use both age services, along with sanitation segment in treatment plants and end consumers. representative entities. In 2012, Sabesp paid

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 71 SHAPING THE CITIZENS OF THE FUTURE

R$ 1.34 billion in income tax, Pasep, Cofins, aimed at promoting the socioeconomic and and CSLL, which represents approximately environmental sustainability of ventures, 53% of investments performed in the year. encompassing community engagement and Within the State scope, the company partic- environmental education, based on the char- ipates in several programs and definition of acteristics of works and the profile of the guidelines for the sanitation segment, with audience benefited. the purpose of expediting the universal ser- One of the main methodologies is the vices goal. We also assign resources to State Collaborative Governance, developed by the Government initiatives, such as those promot- Brazilian Center of Analysis and Planning ing culture and sports, based on tax incentives. (Cebrap) and employed, for example, in pro- Interactions with municipalities are exten- grams such as the Córrego Limpo [Clean sive, based on the conditions of our main Brook] by the Metropolitan Board. In this customers. We strive to understand and approach, social and environmental proj- fulfill local demands, participating in the ects are maintained with engagement of all most relevant discussion forums, and sup- interested parties, and the beneficiaries are port several programs and initiatives in the monitored and supported by the company’s environment, health, sports, and culture social responsibility teams. areas, based on tax incentives. In RMSP, Sabesp also develops the Agente da Gente [Our Agent] - Community Engagement Program, through which we establish an efficient communication channel Community between our 40 community technicians and local community leaders. They work together relationshiP to engage the residents, transforming them into multiplying agents of environmental Sabesp constantly supports educational awareness. In 2012, over 1.6 million were activities focused on customers, suppliers served, including participation in lectures and communities. We have stood out in train- and events related to sanitation. ing activities regarding the rational use of The company constantly seeks methods to water and environmental education. In 2012, bring its professionals closer to the communities we technically and financially supported a where they operate. One of the efforts has been healthy competition conceived by Sagarana to perform services through own workforce, a Comunicação. Employees and residents of 15 model adopted by the Regional Systems Board. residential buildings in the Moema district, on Named Gente Que Faz [Hands-on People], it the South side of São Paulo, participated in also addresses a strategy that seeks to value the Condominium Contest, whose challenge the staff and add value to the company’s results. proposed was to save water. GRI 4.15 The company is open and seeking to During two months – June and July – the establish new connections with stakeholders efforts of all 15 buildings saved 1,894,822 in different segments, but it adopts specific liters of water, which corresponds to 190 criteria regarding such partnerships, in order water trucks with capacity for 10,000 liters to generate benefits to our business and mis- each. The Ponte di Rialto building won the sion. Therefore, the assessment for sponsor- competition, saving 200,000 liters of water ships, institutional support and cooperation and reducing overall consumption by 14%. terms is based on the following criteria: (i) SO1 Sabesp also operates in commu- prioritizing entities/headquarters/operation nities in partnership with local city halls. in the operated base; (ii) initiatives associated Programs focused on low-income popula- to water and sustainability (e.g. water sports); tions include technical and social activities (iii) allow social engagement and inclusion; (iv)

72 2012 sustainability report Financial aid received from governments EC4 (R$ thou) TOTAL INCENTIVES 2012 integrity, history of activities and compliance Cultural incentive - Rouanet Law 9,280 with applicable laws to provide support from Audiovisual incentive 4,672 state-owned companies. We also establish Sports incentive 2,872 agreements through bidding processes with Condeca 3,000 Oscips, NGOs and universities for eco-social Total 19,831 projects, as per Law no. 8.666/93.

Incentives to Culture and Sports

We grant institutional and financial support the relationship between students and teachers: to environmental, sociocultural and sports 20,000 students have already watched com- projects developed by organizations dedicated mented sessions at Cine Sabesp, one of the last to environmental preservation and aligned with street movie theaters in the capital city, currently social responsibility principles, cultural incen- maintained by the company. In 2012, the program tive and community welfare. We believe that services 5,000 children. practicing social and environmental respon- We consider contributing to the release of the sibility is respecting life in its wide array of Online Cultural Accessibility Guide to be very needs. Among which is culture and its different important, since it offers information on cultural forms of expression. public equipment available in the capital city. One of our initiatives is the Sabesp Para Developed by Instituto Mara Gabrilli, in part- Quem Tem Sede de Cultura [Sabesp For Those nership with the State Cultural Department, the With a Thirst For Culture], through which we guide lists 186 establishments such as theaters, sponsor cinema, literature, visual arts, music, museums, cultural centers, shows, libraries and dance, theater, circus and preservation of cul- movie theaters, among which is Cine Sabesp. The tural heritage projects. In 2012, we invested guide is available at acessibilidadecultural.com.br. R$ 13.9 million, R$ 4.6 million of which are part Sabesp also promoted sports projects, directing of the São Paulo Cinema Incentive Program, R$ 2.8 million under tax incentives in 2012. Among which encompasses 15 films and documen- the beneficiaries are the Clube Pinheiros swim- taries. The films were selected by the State ming team athletes. An additional R$ 3 million Cultural Department and received resources was directed by the company to the State Fund for provided by Sabesp via the Audiovisual Law. Child and Adolescent Rights, through Condeca. As required by Sabesp, as of 2012, each pro- duction provided a version adapted to visually and hearing impaired individuals, through captions and audio-description, an initiative Awards received which we have pioneered. Since 2004, when the company joined the by Sabesp program, 141 films have already been spon- sored, allowing the company to be recognized GRI 2.10 In 2012, the company’s effort to further as a top investor in the São Paulo State cinema enhance its operation, developing best manage- segment, and one of the top three investors ment practices, broadening services scopes, and around the country. adding value to society were recognized through Another initiative is the Escola no Cinema 18 awards received throughout the year, available [School in Cinema] project, destined to enhance at sabesp.com.br/rs2012/premios

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 73 SHAPING THE CITIZENS OF THE FUTURE

Lessons taught and learned

In 2012, 8,604 people participated in lectures and pro- universities, schools and NGOs. Over 130,000 native grams, through which Sabesp seeks partners to help and fruit-producing species have already been planted the company strengthen its environmental commitment. throughout 80 hectares. In addition to learning more about The Educational Learning Program, for example, is the sewage treatment process, the population enjoys open to schools, universities, NGOs, domestic and foreign the beautiful themed gardens, the seedling nursery, companies, investors, among several others. The program trails and the fishing tank. In 2012, we received 2,344 allows visitors to learn more about two water treatment visitors, in addition to students from 41 schools of the systems. The Cantareira, one of the largest water produc- region. In partnership with the local Santa Casa, we also tion systems in the world, comprised of six dams connected developed the Nasce uma Criança, Plante uma Árvore by 48 kilometers of tunnels, is responsible for supplying [Plant a Tree for Every Child Born] project. In 2012, we water to almost 50% of the São Paulo Metropolitan Region planted 1,910 seedlings. (RMSP), which concentrates approximately 20 million Between January and July, 609 employee relatives people. The other system is Alto Cotia, responsible for between the ages of 7 and 14 participated in the Um supplying the western region of RMSP. Dia na Sabesp [A Day at Sabesp] program. The children This year, our facilities received 5,720 people in 164 learned how water and sewage are treated in the com- visits, including representatives of international institu- pany where their relatives work. tions such as the Franklin Templeton Inv-US, Explorador The children’s reactions indicate that the company in on Capital, Mirae Asset Global Investments, CSHG, Crédit the right path by opening its doors to society, searching Agricole/Amundi and J.P. Morgan. In addition to showing for partners to raise awareness regarding the importan- how water is produced in these systems, our technicians ce of basic sanitation, preserving our water resources, address important subjects such as global water shortage and clearly showcasing the company’s constant strive and the need to use such resource rationally. Since its to achieve excellence. After participating in one of the implementation, the Educational Learning Program has visits, Juan Silva Garcia, age 7, jumped in his father’s already hosted over 900,000 people. car and immediately started to share a lesson he learned EC8 Another important initiative is the visitation pro- regarding water treatment: “Did you know that water gram to the Jales STP; a partnership between Sabesp, is treated with aluminum sulfide, lime and chlorine?”.

74 “When I learned how water is treated, I decided that I wanted to be part of the staff,” said Ana Stela. “Water is a limited resource that we must preserve.”

Also as part of the program, the children went to Cine engineer Ana Stela Barcelos Ferreira de Sá, after visiting Sabesp to watch Dr. Seuss’ The Lorax, addressing the the Guaraú WTP, one of the largest water treatment importance of preserving nature. Watching the free ani- stations of the world: “When I learned how water is mation film was not a privilege granted only to employee treated, I decided that I wanted to be part of the staff,” relatives. In partnership with the Escola no Cinema [School said Ana Stela. “Water is a limited resource that we in Cinema] project, we distributed 5,000 tickets to basic and must preserve.” After participating in two civil service middle school students, from public and private schools, exams, in 2012 the engineer celebrated one year working to see the story inspired by the American cartoonist and in Sabesp’s Equipment and Material Procurement writer Dr. Seuss’ book. Department. She is responsible for acquiring inputs Sabesp’s initiatives also encouraged several visitors to treat the water that Sabesp distributes to all of its to work for the company. That was the case of civil 27.7 million customers.

75 Annual Social Balance Sheet / 2012 EN30

1 - Calculation basis 2012 (R$ thou) 2011 (R$ thou)

Net revenue (NR) 10,737,631 9,927,445

Operating profit (OP) 2,843,343 2,354,495

Gross payroll (GP) 1,498,445 1,395,844 2 - Internal social indicators R$ thou % on GP % on NR R$ thou % on GP % on NR

Meals 118,368 7.90 1.10 109,966 7.88 1.11

Mandatory payroll taxes 144,082 9.62 1.34 133,908 9.59 1.35

Pension plan 51,829 3.46 0.48 65,923 4.72 0.66

Healthcare 124,614 8.32 1.16 108,243 7.75 1.09

Occupational health and safety 10,983 0.73 0.10 10,254 0.73 0.10

Education 997 0.07 0.01 688 0.05 0.01

Culture 848 0.06 0.01 970 0.07 0.01

Professional training and development 11,788 0.79 0.11 8,779 0.63 0.09

Daycare centers or childcare allowance 1,797 0.12 0.02 1,473 0.11 0.01

Profit sharing 52,574 3.51 0.49 56,692 4.06 0.57

Other 4,164 0.28 0.04 4,563 0.33 0.05

Total - Internal social indicators 522,044 34.84 4.86 501,459 35.93 5.05

3 - External social indicators R$ thou % on OP % on NR R$ thou % on OP % on NR

Education 2,700 0.10 0.03 - - -

Culture 15,375 0.55 0.14 20,163 0.86 0.20

Health and sanitation 3,048 0.11 0.03 2,510 0.11 0.03

Sports 4,713 0.17 0.04 5,943 0.25 0.06

Hunger eradication and food security 105 - - - - -

Other 12,253 0.43 0.11 7,820 0.33 0.08

Total contributions to society 38,194 1.35 0.36 36,436 1.55 0.37

Taxes (excluding payroll taxes) 1,701,446 60.33 15.85 1,466,228 62.27 14.77

Total - External social indicators 1,739,640 61.68 16.20 1,502,664 63.82 15,14

4 - Environmental indicators R$ thou % on OP % on NR R$ thou % on OP % on NR Investments related to 7,569 0.27 0.07 9,304 0.40 0.09 company production/operation Investments in external 20,147 0.71 0.19 21,122 0.90 0.21 programs and/or projects

Total environmental investments 27,716 0.98 0.26 30,426 1.29 0.31

With regard to the establishment of annual ( x ) has no goals ( x ) has no goals goals to minimize waste, general consumption ( ) meets 51 to 75% ( ) meets 51 to 75% in production/operation, and improved efficien- ( ) meets 0 to 50% ( ) meets 0 to 50% cy in natural resource use, the company: ( ) meets 76 to 100% ( ) meets 76 to 100%

76 5 - Staff indicators 2012 2011 No. of employees at end of period 15,019 14,896

No. of hires during the period 915 723

No. of outsourced employees * 7,372 7,399 No. of interns 888 1,424 No. of employees over 45 y/o 8,471 7,757 No. of female employees 3,018 2,928

% of management positions held by female employees 19.44 19.09

No. of African Brazilian employees 2,227 2,137 % of management positions held by African 3.49 3.72 Brazilian employees No. of disabled employees or employees with 170 163 special needs (includes Avape partnership)

6 - Relevant information on 2012 2013 Goals the exercise of corporate citizenship

Ratio between highest wage to 20.1 nd entry level wage in the company Total number of work accidents 140 136

Social and environmental projects developed by (x) officers (x) officers ( ) officers ( ) all employees ( ) officers ( ) all employees the company were set by: and managers and managers

The safety and health standards in the work (x) officers and (x) officers and ( ) all employees ( ) all + Cipa ( ) all employees ( ) all + Cipa environment were set by: managers managers

Regarding union affiliation freedom, the right to ( ) does not get ( ) follows ILO (x) encourages and ( ) will not get ( ) will follow ILO (x) will encourage collective bargaining and internal representation of involved standards follows ILO involved standards and follow ILO employees, the company:

( ) officers and ( ) officers and ( ) officers (x) all employees ( ) officers (x) all employees The pension fund encompasses: managers managers

( ) officers and ( ) officers and ( ) officers (x) all employees ( ) officers (x) all employees Profit sharing encompasses: managers managers

In the selection of suppliers, the same ethical, ( ) are not ( ) will not be ( ) are suggested (x) are required ( ) will be suggested (x) will be required social and environmental responsibility standards considered considered are adopted by the company:

Regarding the involvement of employees in ( ) does not get (x) organizes and ( ) will not get (x) will organize and ( ) supports ( ) will support voluntary work programs, the company: involved encourages involved encourage

at company at JEC/Conc. courts: at company at JEC/Conc. Total number of complaints and criticisms from consumers at Procon CIP: 1,222 at Procon CIP: nd Ombudsman: 42,174 343 Ombudsman: nd courts: nd

at company at at Procon CIP: at JEC/Conc. courts: at company Ombudsman: at Procon CIP: nd JEC/Conc. courts: % of complaints and criticisms pursued or solved 88.2% 75.5% Ombudsman: nd 99.99% nd

Wealth for distribution (in R$ thou.): In 2012: 6,133,683 In 2011: 5,714,179

27.3% government 25.7% employees 25.5% government 29% employees Distribution of wealth: 31.3% shareholders 15.7% third parties 21.4% shareholders 24.1% third parties 0% retained 0% retained

7 - Other information

The company does not employ child labor or work similar to slave labor, in addition to not being involved with prostitution or exploitation of children or adolescents, including corruption activities. Our company values and respects diversity both internally and externally.

* The number of outsourced workers is estimated considering the labor allocated to the service arrangements, since Sabesp does not contract outsourced labor directly.

77 Reporting parameters GRI 3.5/3.7 The information screening process prior- itized the relevance of subjects related to Sabesp’s and processes strategic options, transparent relationship with all stakeholders, results of the materiality matrix, and ren- GRI 3.10/3.11 This is the sixth time we disclose our dering of accounts to analysts, investors, governments, Sustainability Report and the second time it is issued employees, clients, and especially the community in simultaneously with our Management Report, according which we operate. In summary, the report reveals the to the decision of our Executive Committee deliberated organization’s interests and efforts towards integrating in 2011. Such procedure is aligned with best market sustainability to its management process. practices and has shown to be extremely important This year’s report conveys objective and concise word- to disseminate Sabesp’s socio-environmental per- ing, in line with the sustainability concept, reducing formance and economic-financial results to society paper consumption and related expenses. The number in general. This routine was definitively incorporated of copies has been progressively reduced each year, as to disclosure principles and transparency precepts indicated in the chart below. adopted by the company. We have maintained efforts to enhance reported infor- mation, both in quantitative and analytical terms. Our Edition 2008 2009 (1) 2010 2011 (2) 2012 goal is open Sabesp to further examination by our stakeholders, which is a natural path for a company of Portuguese 2,000 1,000 700 600 400 No. of our size, which handles such a crucial raw material. English 300 200 - 200 - Copies GRI 3.13 In this edition, we reported 96 indicators, two less than the previous edition. We have assigned the Spanish 300 200 - - - GRI level B to the present report, similarly to the three (1) As of this year, we will cease to publish the printed Spanish version of this document, previous editions. In order to facilitate the identification which shall be provided exclusively electronically of GRI indicators, its numbers appear throughout the (2) The 2011 version was printed in English on account of our participation in events such text, next to the respective theme, and a chart provided as Rio+20 and in celebration of our tenth year listed on the New York Stock Exchange. In 2012, we decided to provide such version exclusively digitally. in the end of the document summarizes results. The economic and financial dimensions are already audited by Deloitte Touche Tohmatsu, which also assess- The search for conciseness does not affect, howe- es the summary published in Diário Oficial do Estado ver, the integrity and availability of relevant company de São Paulo and Valor Econômico newspaper, which information. For such, we have prioritized access to contains a summarized vision of our social and envi- supplementary data on our Internet site, reducing ronmental activities. For the social and environmental the volume published in the printed version, without areas, our purpose is to assess external evaluators - preventing readers from accessing essential informa- including attempting to involve institutions associated tion in order to understand the company’s operations. to academic activity, with the purpose of collaborating GRI 3.9 Operating indicators, goals and performance with the educator qualification process. projections are provided throughout the document GRI 3.6 In addition to monitoring activities, our top for the period covered until 2018. We also report management was intimately involved with the reporting historical series with data at least three years old. process, which covers all activities in our operating and Operational information reported is calculated by administrative units between January 1 and December Sabesp’s technical areas, based on international 31, 2012. The proposal was debated and approved during experience, in a standardization process adopted a meeting of the Executive Board in November, and by the National Sanitation Reporting System of the then submitted to the Board of Administration in two Ministry of Cities. There is a constant effort to impro- separate occasions: December 2012 and February 2013. ve the quality of such indicators and add new ones Once again, wording was developed by a team com- whenever relevant. prised of our own technical body. We conducted succes- For the economic and financial statements, also sive specific meetings since the second half of 2012, as available on our website, we followed the standards well as revisions throughout the year, in order to obtain issued by the Brazilian Securities and Exchange balance, comparativeness, accuracy and transparen- Commission (CVM) and the Brazilian Association of cy of information reported. During the development Listed Companies (Abrasca), and the transparent process, we obtained external consulting assistance communication principles of the Brazilian Association from Weingrill Informação e Comunicação Ltda., for of Corporate Communication (Aberje). For corporate the second consecutive year. governance and sustainability aspects, we used the

78 2012 sustainability report GRI model, and for the Social Balance Sheet, we used the Social Balance Preparation Guide of the MATERIALITY MATRIX Brazilian Institute of Social and Economic Analyses (Ibase) and the Instituto Ethos standard. In order to assess the level of compliance between what we Since 2006, we are signatories of the Global Pact, consider as material to be highlighted in the report in the a UN initiative that gathers companies to promo- environmental and social dimensions and what stakeholders te sustainable developments. We annually sub- point out as being important, for the third consecutive year mit the English version of our report as “progress we used the materiality matrix tool, presented below. The communication”. opinions were gathered from NGOs, associations and busi- GRI 4.14/4.16/4.17 The stakeholders’ engagement process nesses, and the responses were given only by one of their for the preparation of the report included a sustaina- leaders or agents. Questionnaires were sent and received bility hearing, held on December 11, 2012, promoting online. We received 38 responses (in 2011, we received 102, a sustainability experts workshop, aimed at gathering in 2010, we received 62 and, in 2009, 54). inputs for report preparation and suggestions on our We once again noted that the subjects of environmental Corporate Sustainability Policy. This workshop was management, water resources management and people attended by 51 external guests, who joined 38 peo- management obtained the highest scores. ple from our staff, divided into three theme panels: As we can see, there is a concentration of topics represen- social; financial; environmental. ting each subject in the upper right corner of the matrices, GRI 3.4 The electronic version of this report is avai- which indicates high consistency between the internal and the lable at sabesp.com.br/rs2012. Further information, outside standpoints. In this aspect, we maintained the same suggestions or criticism on this publication can be trend of 2011. There is not much difference between what the addressed to [email protected]. As company considers as important for its activities and what the in previous editions, this report is carbon neutral. stakeholders consider material to be included in the report.

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COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 79 Location of GRI Indicators 3.12

GRI INDICATOR G3 PAGES 1.1 Statement from the most senior decision-maker of the organization 6 and 7 1.2 Description of key impacts, risks and opportunities Throughout the entire report 2.1 Name of the organization 8 2.2 Primary brands, products and/or services 8 2.3 Operational structure of the organization 8 2.4 Location of organization’s headquarters 8 2.5 Countries in which the organization operates 8 2.6 Nature of ownership and legal form 8 2.7 Market served 8 2.8 Scale of the reporting organization 8 and 62 Significant changes during the reporting period regarding size, structure 2.9 There were no changes in terms of size or equity interest in 2012 or ownership 2.10 Received awards 61 and 73 3.1 Reporting period January 1st 2012 to December 31st 2012 3.2 Date of previous report March 23rd, 2012 The next sustainability report is scheduled for publishing in 3.3 Reporting cycle (annual, biennial) 2014,related to fiscal year of 2013. The report is published annually 3.4 Suggestion/contact information 79 3.5 Content-definition process 78 3.6 Report boundaries (units/facilities) 78 3.7 Content restrictions 78 3.8 Basis for reporting on subsidiaries or other entities Sabesp does not have subsidiaries Data measurement techniques and the bases of calculations, including 3.9 assumptions and techniques underlying estimates applied to the 78 compilation of the indicators and other information in the report 3.10 Revisions regarding the previous report 78 3.11 Scope, limit ad measurement changes 78 3.12 GRI indicator location chart 80 Policy and current practice with regard to seeking external assurance for 3.13 78 the report 4.1 Governance structure 46 Indicate whether the chairman of the highest governance body is also an 4.2 46 executive officer State the number of members of the highest governance body that are 4.3 46 independent and/or non-executive members Mechanisms for shareholders and employees to provide 4.4 71 recommendations to the highest governance body Association between compensation for members of the highest 4.5 governance body, senior managers and other executives, and the 48 organization’s performance Statements of mission or values, codes of conduct and relevant 4.8 8 principles Externally developed economic, environmental and social charters, 4.12 principles or other initiatives to which the organization subscribes or 55 and 59 endorses Sabesp is a member of industry organizations, such as Associação das Empresas de Saneamento Básico Estaduais (Aesbe), Memberships in associations and/or national/international advocacy 4.13 Asociación Interamericana de Ingeniería Sanitaria y Ambiental organizations (Aidis), and Associação Brasileira da Infraestrutura e Indústrias de Base (Abdib) 4.14 Stakeholders' engagement 79 4.15 Basis for stakeholders' engagement 72 4.16 Approaches for stakeholders' engagement 79 Key topics and concerns that have been raised through stakeholder 4.17 79 engagement, and measures adopted by the organization to address them EC1 Economic value generated and distributed 46 Financial implications and other risks and opportunities for the EC2 54 organization’s activities due to climate changes EC3 Coverage of the organization’s defined benefit plan obligations 65 EC4 Significant financial assistance received from government 73 Range of ratios regarding standard entry level wage compared to local EC5 65 minimum wage at relevant operating areas

80 2012 sustainability report Policies, practices and expense ratios with local suppliers on relevant EC6 70 operating units Procedures for local hiring and proportion of senior management hired EC7 63 from the local community at relevant operating areas Development and impact of infrastructure investments and services EC8 provided primarily for public benefit through commercial, in kind or pro 74 bono engagement Understanding and describing significant indirect economic impacts, EC9 60 including its extent EN1 Materials used by weight or volume 12 EN2 Percentage of recycled materials used 12 EN3 Direct energy consumption by primary energy source 12 Initiatives to provide energy-efficient or renewable energy based products EN6 and services, and reductions in energy requirements as a result of these 12 initiatives EN10 Percentage and total volume of water recycled and reused 12 Location and size of land owned, leased, managed in, or adjacent to, EN11 protected areas and areas of high biodiversity value beyond protected 56 areas EN13 Protected or restored habitats 56 EN16 Total direct and indirect greenhouse gas emissions by weight 12 and 54 EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved 54 and 55 EN21 Total water discharge by quality and destination 12 Initiatives to mitigate environmental impacts of products and services, EN26 23 and 55 and extent of impact mitigation EN30 Total environmental protection expenditures and investments, per type 12 and 76 LA1 Total workforce by employment type, employment contract and region 63 Total number and rate of employee turnover by age group, gender and LA2 65 region Benefits provided to full-time employees that are not provided to LA3 65 temporary or part-time employees, separated by major operations LA4 Percentage of employees covered by collective agreements 67 The collective agreements do not stipulate the minimum notice Minimum notice period regarding operational changes, including period regarding operational changes. Possible changes are LA5 whether it is specified in collective agreements communicated in advance, and the period varies according to the circumstances Percentage of total workforce represented in formal joint management– LA6 worker health and safety committees that help monitor and advise on 68 occupational health and safety programs Rates of injury, occupational diseases, lost days and absenteeism, and LA7 69 number of work-related fatalities by region Education, training, counseling, prevention and risk-control programs in Employees attend courses and lectures related to disease LA8 place to assist employees, their family members or community members prevention and risk-control. Treatments (physiotherapy, GPR, regarding serious diseases acupuncture, etc.) are covered by our healthcare plan Sabesprev The collective agreements entered into between Sabesp and trade LA9 Health and safety topics covered in formal agreements with trade unions unions do not specifically cover health and safety topics Average hours of training per year and per employee, by employee LA10 67 category Programs for skills management and lifelong learning that support LA11 the continued employability of employees and assist them in managing 68 career endings Percentage of employees receiving regular performance and career LA12 67 development reviews Composition of governance bodies and breakdown of employees per LA13 category according to gender, age group, minority group and other 63 and 64 diversity indicators LA14 Ratio of basic salary between men and women, by employee category 64 Percentage and total number of significant investment agreements that HR1 include human rights clauses or that have undergone human rights 71 assessments Percentage of significant suppliers and contractors that have undergone We do not carry out human rights assessments regarding HR2 assessments on human rights and measures adopted significant suppliers and/or contractors Total hours of employee training on policies and procedures concerning HR3 aspects of human rights that are relevant to operations, including the 68 percentage of employees trained HR4 Total number of incidents of discrimination and actions taken 47 Operations identified in which the right to exercise freedom of HR5 association and collective bargaining may be at significant risk, and 67 actions taken to support these rights Operations identified as having significant risk for incidents of child labor, HR6 71 and measures adopted to contribute towards eradicating child labor Operations identified as having significant risk for incidents of forced or HR7 compulsory labor, and measures to contribute to eradicating forced or 71 compulsory labor

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 81 Percentage of security personnel trained in the organization’s policies HR8 or procedures concerning aspects of human rights that are relevant to 68 operations Total number of incidents of violations involving rights of indigenous HR9 No incidents of this type were recorded in 2012 people and measures adopted Nature, scope and effectiveness of any programs and practices that SO1 assess and manage the impacts of operations on communities, 72 including entering, operating and exiting Percentage and total number of business units analyzed for risks related SO2 47 to corruption Percentage of employees trained in organization’s anti-corruption SO3 47 policies and procedures SO4 Actions taken in response to corruption incidents 47 We operate pursuant to the environmental sustainability policies and objectives and the public policies on such subject. We are Public policy positions and participation in public policy development actively involved in the National and State Water Resources SO5 and lobbying Management Systems at all levels, and we have representatives in the São Paulo State Hydrographic Basin Technical Chambers, Committees and Subcommittees Total value of financial and in-kind contributions to political parties, SO6 Sabesp does not adopt this practice politicians and related institutions by country The lawsuit, filed in 2010, claiming compensation for damages Total number of legal lawsuits for anticompetitive behavior, anti-trust, caused by the gas cartel condemned by Cade is still in progress. SO7 and monopoly practices and their outcomes There was a lower court ruling unfavorable to Sabesp and we are currently awaiting judgment of the appeal filed Life cycle stages in which health and safety impacts of products and PR1 services are assessed for improvement, and percentage of significant 68 products and services categories subject to such procedures Total number of incidents of noncompliance with regulations and PR2 voluntary codes concerning health and safety impacts of products and 68 services during their life cycle, separated by result type Despite not employing procedures regarding the mitigation of specific product and service labeling risks - since they are Type of product and service information required by product and service related to bottled products - the company discloses all water PR3 labeling procedures, and percentage of products and services subject to quality parameter (turbidity, chlorine, fluorine, total coliforms, such requirements thermotolerant coliforms) in the monthly water and/or sewage service bill, as per Presidential Decree no. 5.440/05 and Directive no. 2.914/11, of the Department of Health Despite not employing procedures regarding the mitigation of specific product and service labeling risks - since they are Total number of incidents of noncompliance with regulations and related to bottled products - the company discloses all water PR4 voluntary codes concerning product and service labeling information, quality parameter (turbidity, chlorine, fluorine, total coliforms, separated by result type thermotolerant coliforms) in the monthly water and/or sewage service bill, as per Presidential Decree no. 5.440/05 and Directive no. 2.914/11, of the Department of Health Practices related to customer satisfaction, including results of surveys PR5 61 measuring customer satisfaction Sabesp complies with relevant legislation and the standards Programs for adherence to laws, standards and voluntary codes related enacted by the National Advertising Self-regulation Council PR6 to marketing communications, including advertising, promotion and (Conar). To date, there was no case involving Sabesp judged sponsorship irregular by Conar Total number of incidents of non-compliance with regulations and In 2012, we did not have any non-compliance cases related to PR7 voluntary codes concerning marketing communications, including codes or legislation concerning marketing communications, advertising, promotion and sponsorship, separated by result type including advertising, promotion and sponsorship Total number of substantiated complaints regarding breaches of In 2012, there were no complaints regarding breaches of PR8 customer privacy and losses of customer data customer privacy and losses of customer data

Location of Global Pact Principles principles PAGES 1 Respect and protect human rights 19, 46, 47, 59, 62, 67, 68, 70 and 72 2 Prevent human rights violations 62, 68 and 71 3 Support freedom of association in the workplace 67 4 Abolish forced labor 59, 62, 68 and 71 5 Abolish child labor 59, 62, 68 and 71 6 Eliminate discrimination at the workplace 46, 47, 60 and 62 7 Support a preventive approach to environmental challenges 25 and 72 8 Promote environmental responsibility 25 and 72 9 Encourage technologies that do not harm the environment 25 and 72 10 Fight corruption in all of its forms, including extortion and bribery 46, 47 and 59

82 2012 sustainability report CORPORATE INFORMATION

sabesp.com.br / Investors: sabesp.com.br/investidores

2012 Sustainability Report sabesp.com.br/rs2012

Suggestions/comments for the report: [email protected]

SOCIAL NETWORKS youtube.com.br/user/saneamentosabesp flickr.com/sabesp facebook.com/oficialsabesp twitter.com/ciasabesp

CUSTOMER SERVICE

Virtual Branch: your online service office. Request a copy of your water bill, leak repairs, check your consumption history and know how to make payments. https://www9.sabesp.com.br/agenciavirtual

Online customer service: contact our attendants and clarify doubts regarding our services. Monday through Friday, 8:00 am to 9:00 pm, and Saturdays, 8:00 am to 5:00 pm. sabesp.com.br • Option: atendimento online

Service branches: find the service branch closer to your home on our website or on the water bill delivered in your home. sabesp.com.br • Option: clientes e serviços

CALL CENTER

195 (toll free) For emergencies, such as water shortage, leaks and clogged sewage. Available 24/7.

COMMERCIAL SERVICES

For information on bills, request a copy (for lost or not received bills), request services, addresses, useful phone numbers, or brochures.

São Paulo Metropolitan Region: 0800-0119911 (toll free) Monday through Friday, 7:00 am to 9:00 pm, and Saturdays, 8:00 am to 5:00 pm.

Inland and coast cities: 0800-0550195 (toll free) Available 24/7.

Telephone service for the hearing impaired: 0800-7773700 (toll free) Call center for all operational and sales services in the São Paulo Metropolitan Region. Monday through Friday, 8:00 am to 6:00 pm.

Sabesp Environmental Solutions for São Paulo Metropolitan Region: 0800-07712482 (toll free) Provides exclusive service for large customers on individualized water metering, Pura (Rational Use of Water Program), non-domestic wastewater, reclaimed water and the other services of the program. Monday through Friday, 8:00 am to 6:00 pm.

Ombudsman Office: 0800-0550565 (toll free) With the filing number in hands, users can register complaints regarding services already requested. In addition, you can send criticism, report irregularities or make compliments. Monday through Friday, 8:00 am to 6:00 pm. sabesp.com.br • Option: ouvidoria

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO / sabesp 83 Follow us on Twitter. Check our posts on the 2012 Sustainability Report @CiaSabesp #rs2012

UNIVERSAL SERVICES @CiaSabesp progresses toward universal water and sewage services in the area where it operates by the end of the decade. #rs2012

Se Liga na Rede Through the Se Liga na Rede program, @CiaSabesp connects low-income family homes to the public sewage system. #rs2012

27.7 million people Largest sanitation company of the Americas. Fifth largest in population served: @CiaSabesp serves 27.7 million people. #rs2012

APPRECIATION @CiaSabesp’s shares recorded the third highest Ibovespa appreciation, and the company’s market value grew by 67%. #rs2012

BEST ENVIRONMENTAL PRACTICES In line with best environmental practices, @CiaSabesp renewed 75.3% of its light vehicle fleet and 48.3% of its truck fleet. #rs2012

SOCIAL RESPONSIBILITY Through the Se Liga na Rede Program, @CiaSabesp connects low-income households to the public sewage system. #rs2012

SEWAGE COLLECTION @CiaSabesp collects the sewage of 21 million people. #rs2012

AQUAPOLO AMBIENTAL @CiaSabesp’s Aquapolo Ambiental has the largest reclaimed water production plant in Brazil and one of the top five in the world. #rs2012

SPORTS INCENTIVE In 2012, @CiaSabesp invested R$ 2.8 million in sports incentive projects. #rs2012

INVESTMENT In 2012, @CiaSabesp invested R$ 2.5 billion and recorded profits 56.3% greater than 2011. Message from Sabesp’s CEO. #rs2012

BIOGAS PRODUCTION Using biomethane as fuel, @CiaSabesp will prevent the emission of 1,600 tonnes of greenhouse gases into the atmosphere. #rs2012

@CiaSabesp

TREATMENT PLANTS @CiaSabesp operates 214 water treatment plants and 493 sewage treatment plants. #rs2012

CINEMA INVESTMENTS @CiaSabesp is one of the top investors in cinema in the State of São Paulo and one of the three largest sponsors of Brazilian cinema. #rs2012

SUSTAINABILITY Initiatives against water waste implemented by @CiaSabesp successfully reduced water consumption per capita in the Metropolitan São Paulo Region by 11%. #rs2012

COVERAGE The @CiaSabesp sewer system is colossal: 45,800 km. The water distribution system is even larger: 67,600 km. #rs2012

PURA @CiaSabesp’s rational water use program Pura saves sufficient water to supply 26,000 people. #rs2012

NOSSA GUARAPIRANGA In 2012, @CiaSabesp retained 4,400 cubic meters of residues through the Nossa Guarapiranga program – one garbage truck per day. #rs2012

RESEARCH AND INNOVATION In 2012, @CiaSabesp invested R$ 6.3 million in RD&I, practically doubling last years’s investments. #rs2012

FOREST RESERVES @CiaSabesp maintains 30,000 hectares preserved in three forest reserves. #rs2012 projeto TIETÊ With the conclusion of the 3rd stage of Projeto Tietê, an additional 1.5 million people will benefit from sewage services from @CiaSabesp. #rs2012

Córrego limpo Through the Córrego Limpo program, @CiaSabesp reached the mark of 116 brooks free from sewage. #rs2012

LOW TARIFF @CiaSabesp tariffs are among the lowest of the entire country. The company currently ranks 16th among 27 state companies. #rs2012 @CiaSabesp

CORPORATE GOVERNANCE @CiaSabesp integrates BM&FBovespa’s Novo Mercado, the stock market’s segment with highest level of transparency between the market and shareholders. #rs2012

MARKET VALUE @CiaSabesp’s market value reached R$ 19.8 billion in 2012. #rs2012

REDUCE, RECLAIM AND RECYCLE In 2012, @CiaSabesp directed 372 tons of materials to recycling. #rs2012 digital inclusion The @CiaSabesp Virtual Agency was perfected to support access by visually impaired users. #rs2012

RESPECT FOR DISABLED CITIZENS In 2012, @CiaSabesp began providing braille versions of water and/or sewage bills. #rs2012

CUSTOMER SERVICE EFFICIENCY 100% of telephone customer service contacts at @CiaSabesp are completed within up to 60 seconds. #rs2012

SOCIAL TARIFF 280,000 households were benefited with the @CiaSabesp social tariff in 2012. #rs2012

CUSTOMER SATISFACTION In 2012, 89% of 5,862 individuals interviewed by @CiaSabesp stated they were satisfied or extremely satisfied with the company’s services. #rs2012

OMBUDSMAN @CiaSabesp won all categories of the 2012 Brazilian Ombudsman Award, from the Consumidor Moderno magazine. #rs2012

ENVIRONMENTAL SANITATION RESEARCH @CiaSabesp implemented Brazil’s first research center dedicated to the environmental sanitation area in São José dos Campos. #rs2012

RECLAIMED WATER With the Aquapolo Ambiental, located in ABC, @CiaSabesp expanded its reclaimed water production thirteen-fold. #rs2012 SUSTAINABILITY REPORT AINABILITY T SUST REPOR

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