Board of Directors Alberto Goldman Alexander Bialer Claudia Polto da Cunha Dilma Pena Edson de Oliveira Giriboni Francisco Vidal Luna (in office since 4/22/2013) Heraldo Gilberto de Oliveira (in office until 3/21/2013) Jerônimo Antunes Reinaldo Guerreiro Walter Tesch Board of Executive Officers Dilma Pena Chief Executive Officer João Paulo Tavares Papa Technology, Project and Environment Officer (in office since 3/21/2013) João Baptista Comparini Technology, Project and Environment Officer (in office until 2/21/2013) 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 Chief Financial and Investor Relations Officer Sustainability Report 2013 TABLE OF CONTENTS MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS ........................................... 4 MESSAGE FROM THE CEO …………………….................................................................................. 6 SANITATION CHALLENGES IN A TRANSFORMING SOCIETY…………………………........................... 8 PROFILE................................................................................................................................... 10 STRATEGY AND VISION FOR THE FUTURE............................................................................... 14 ANALYSIS OF GOALS............................................................................................................... 16 KEY INDICATORS .................................................................................................................... 18 MANAGEMENT ORIENTED BY SECTOR’S INCREASINGLY DEMANDS...................................... 21 EXPANSION OF SUPPLY INFRASTRUCTURE............................................................................. 29 SEWAGE TREATMENT: HEALTH, ENVIRONMENTAL PRESERVATION AND DEVELOPMENT.....37 FINANCIAL MANAGEMENT..................................................................................................... 45 WORKING FOR A SUSTAINABLE ENVIRONMENT…………….……………........................................ 57 VALUING THE QUALITY OF LIFE AND THE RIGHTS OF CITIZENS.....……................................... 63 AWARDS RECEIVED IN 2013 ...................................................................................................81 2013 ANNUAL SOCIAL REPORT .............................................................................................. 82 ABOUT THE REPORT .............................................................................................................. 83 GRI INDICATORS…………………………………………......................................................................... 87 GLOBAL COMPACT PRINCIPLES………………………………….......................................................... 94 FINANCIAL STATEMENTS....................................................................................................... 95 2 Sustainability Report 2013 SANITATION TREATED AS PRIORITY MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS GRI 1.1 The year of 2013 set a period a great social effusion for improvements in public utility infrastructure. Basic sanitation is one of the areas, which must be seen with greater attention, especially in a country where a lot of work still has to be done in terms of expanding the access to water, sewage collection and treatment. The seriousness assumed by Sabesp and the State Government concerning this issue, evidences that in São Paulo, sanitation is priority. After completing 40 years of history, Sabesp is increasingly modern, managing to combine large investments with the most advanced management. For this reason, the Company for instance, was able to assure in 2013 approximately 25% of total FAT (Worker Support Fund)/FGTS (Government Severance Indemnity Fund for Employees) payments transferred to the sector. Eighteen projects have been approved, totaling 1 billion Reais in budget destined to works in the capital city, Greater São Paulo, Santos coast region and inland. Another highlight, also due to a competent management, is the closer relation of technical and financial cooperation regarding the partnership with JICA (Japan International Cooperation Agency). This is a partnership model, which has been allowing a continued structural expansion of relevant programs, besides improving practices directly reflected in the increase of efficiency, productivity and sustainability. Solid investments in reservation works, water mains, pumping stations, expansion of treatment in the metropolitan region and inland, which are resulting in greater supply safety. Since when the loss reduction program has been implemented in 2009 until the end of 2013, it managed to reduce sufficient volume to permanently serve a population of approximately 450,000 inhabitants. With the Water Rational Use Program (PURA), good consumption practices and equipment to reduce waste in public buildings were expanded only in 2013 to another 160 schools of state schools network. The Aquapolo Ambiental, implemented in partnership with Odebrecht, represents Sabesp’s concern with the sustainable development. Currently, it produces 450 liters/second of reuse water to wash warehouses and cool boilers. This volume represents 1.16 billion liters of water/month, corresponding to approximately 450 Olympic swimming pools with drinking water for industrial use every month, which supplies the municipalities. The volume is sufficient for consumption of a city of approximately 300,000 people. In the year declared by the United Nations (UN) as the International Year of Water Cooperation, Sabesp shows to be in line with society’s requirements, and it advances even more towards its universal services target. After all, quality water followed by sewage 3 Sustainability Report 2013 collection and treatment are essential services for everyone to have a respectable and healthy life and cities to develop on a sustainable basis, representing one of the greater legacies that a government may leave to the citizen. EDSON DE OLIVEIRA GIRIBONI Chairman of Sabesp Board of Directors 4 Sustainability Report 2013 ADVANCING TOWARDS SUSTAINABILITY MESSAGE FROM THE CEO GRI 1.1 There can be no talk of health improvement, citizen well‐being and urban development without access to quality water and sewage collection and treatment. In 2013, when the Company could look back on four decades of history, Sabesp also celebrated a track record of effort in the supply of water and sewage collection and treatment in 363 municipalities in São Paulo State. An immediate result of our work is that fish reappeared in many rivers and, in 2014, all the cities’ urban areas operated in inland will have universal access to water. Then, the coast and Greater São Paulo, by the end of the decade, will have 100% of treated water, at least 95% of sewage collection and 100% of collected sewage treatment. We know that this is an ambitious, but absolutely necessary – not to say urgent – goal to be achieved and also know that much planning, structured programs, quality and efficient services, cutting‐edge engineering resources, and transparent governance will be required. With this target in mind, in 2013 we invested R$2.7 billion, a similar level to that of the past five years which is expected to be repeated over the next years. Sewage collection and treatment in the State reached average levels of 84% and 78%, respectively. Besides the advances towards the universalization in inland, in the capital we made progress in stream cleanup activities and moved forward with the execution of Tietê River Cleanup Project. In those cities encompassed by Santos coast region (“Baixada Santista”) and São Paulo State’s northern coast, we initiated the supplementary phase of the “Onda Limpa” (Clean Wave) Program, the major sanitation action underway in the Brazilian coast. Regarding water supply – one of our greatest challenges, since we operate in the São Paulo Metropolitan Region (“RMSP”), where the availability of water resources is very low, the great news is that a public‐private partnership (“PPP”) for São Lourenço Producing System was made. In addition, from 1995 to 2013, Sabesp invested R$9.3 billion to increase the São Paulo Metropolitan Region’s capacity of production, reservation, distribution and water loss reduction. Combined with huge works and investments, carrying out public awareness campaigns for rational water use is still needed. We experienced extreme climate phenomena in the 2013‐ 2014 summer, never recorded before in our recent history. The pluviometric indexes at the Cantareira System, the most important reservoir serving the São Paulo Metropolitan Region (RMSP), came below the historic average between October 2013 and February 2014. In December, an index 72% lower than the average was recorded. Consequently, in January and February it rained approximately 65% less than usually rains. The drought period combined with high records at thermometers resulted in the historical drop in the Cantareira System’s level. The population’s immediate response by reducing consumption was a determining factor among the actions to maintain the water delivery. 5 Sustainability Report 2013 By the way, approaching to society is one of our priorities. In 2013, I visited with our Officers 17 business units distributed throughout the State of São Paulo for accountability roadshows held with mayors and media relations of the municipalities serviced. As for the market, we were assigned the investment grade by Moody´s credit rating