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Dilma Deposed |

Variations on this image have assumed iconic value ...

Variations on this image have assumed iconic value …

Source: GGN

What is happening to Sabesp?

Is the company circling the drain?

I was receiving leafing through some of my old files and came across a 2011 post on the state-controlled water & sewer utility Sabesp, which recently announced the departure of its chief executive, who served since 2011.  I will reproduce it below as representing another (discouraging) benchmark of life in Sambodia. The opinions are those of Luis Nassif.

Dilma Pena has set the date in which she will step down as president of Sabesp, in 2015.

Throughout her watch, as she worked on the delays she inherited from her predecessors, she behaved in a responsible manner, like a true civil servant, recommending more aggressive campaigns to inform the public, and a more aggressive approach to conservation of water.

Dilma, who headed the company starting in 2011, got burned because of her responsibility as an executive, contrasting with the irresponsibility of the Alckmin faction as they worsened a situation that was already a tragedy foretold …

The departure of Dilma was taken as a done deal among members of the Governor’s cabinet but never acknowledged officially.

Her situation became untenable after recordings of her speaking leaked out. In the first, she told a meeting of company executives that an “orientation from on high” prevented Sabesp from alerting the population to the need to conserve water.

In another audio recording, Dilma characterized an inquiry by the municipal legislature into the relationship of Sabesp with the city “a piece of  play-acting.” The recording captures her and Andrea Matarazzo (PSDB) moments before speaking to the house. The statement outraged city councilmembers. Dilma and Matarazzo withdrew their remarks later on.

Back to the Future

In 2003, when Sabesp was selling its shares in the market, lawmakers and activists were already concerned about the priority afforded private interests over the universalization of access to water. .

Though the crisis did not explode until 2014, the reasons for the serious drought conditions in São Paulo today reach back to episodes that have little to do with lack of rain or the whims of Mother Nature.

One such episodes took place in 2003, when Alesp, the state legislature, in a midnight vote, approved Law No. 410/2003, drafted by the PSDB and making it possible for Sabesp to sell its shares in the market. The tally was 55 votes to 22, in a session convened at 4:30 a.m. on August 27.

With the change in management, 50.3% of Sabesp shares were held by the state government, with NYSE holding 24.9% and BM&F Bovespa 24.8%. During this period, the company put up impressive numbers: Its share price rose 601% and its market value grew from R$ 6 billion to R$ 17.1 billion.

In 2012, these impressive results were celebrated with a Sabesp Day, a series of events at the NYSE. During the festivities, Sabesp president Dilma Pena reaffirmed the company’s commitment to “offer 100% of treated water and 100% of sewage collection in the entire inland area of the state of São Paulo by 2014”. Applauded by shareholders, the executive argued that “every year that passes, Sabesp demonstrates its ability to meet its goals in an efficient, solid, dynamic, innovative and financially, environmentally and socially sustainable.

Either Pena failed to get her story straight with the Governor, Geraldo Alckmin or she was describing a fantasy land. The water bill does not add up. Despite the success of Sabesp in the stock exchange, São Paulo suffers from a lack of supply — the Cantareira System, for example, is operating at 11% of its capacity and is already down to the second level of its technical reserves, raising the following question: is the company’s management model adequate to guarantee the universalization of the right to access to water?

During the Alesp session that sanctioned the entry of Sabesp into the financial world, state deputy Maria Lúcia Prandi made a “prophetic” declaration on this question, asking whether the company could maintain its publicly traded status and prioritize the public interest or whether it would attend to the desires of the shareholders.

“In practice, this is a virtual privatization, and the company could lose its character as a public works contractor, making way for private interests in search of profits and not the common good.” Those who buy into Sabesp shares will exercise considerable power over management. What will happen to the setting of rates? To what extent will the company invest in impoverished or hard to reach areas, like the hillside shantytowns? How will the company bring water and sewer networks to distant communities?

Ten years later, Prandi says, “It was not a prophecy, it was my view of the world and of the State.” The current federal deputy says her 2003 speech was “proof that in the middle to long term, the population could pay heavily for the choice the government was preparing to endorse.”

Prandi recalls that when Law No. 410/2003 was being debated on the flow, there was strong resistance from the leftist parties of the Alesp, who commissioned extensive reports on which to base their arguments against the measure. “At the time, Sabesp was deep in debt. So much so that pressure was being brought to bear on non-subscribing municipalities. The IPO was one of the tools the government used to control the situation, and they were victorious.”

Prandi’s analysis, however, shines a light on the origins of a crisis treated in a murky manner by the São Paulo powers that be. “When you sell shares, you suffer pressure from shareholders to increase profits, making shareholders your first priority,” she argues. “Access to an essential service such as water should never be relegated to a secondary concern.”

According to Prandi, the government could have made excellent investments that would have prevented crises such as this. The state is suffering an unprecedented shortage and the federal government supplies a significant amount of financial resources in response. “But the priority,” she says, “has to be keeping the shareholders happy.”

Government chose to treat water as a business

In the view of Edson Aparecido da Silva, sociologist and coordinator of the National Front for Environmental Sanitation, the choice made 10 years ago was to treat water management as a private business. “At the time, the argument was that it was necessary to capture resources from financial market actors and international banks. Listing on NYSE would reassure those who lent Sabesp money,” he explains.

“A public company with private management.”That is how Aparecido describes Sabesp ever since it began following the logic of growing profits and distributing dividends.”

The main problem, in Silva’s view, is the absolute lack of transparency in the current management model. “Even though the quantity of resources invested is significant — nearly R$ 2 billion a year — there is no way to discover what it is used for. The quarterly reports state only whether the money was spent in the metro region, the shore, or the inlands, without further details. It may be that other uses are embedded in these values — payments to outsourced services providers whose work is shoddy, for example. The crisis proves that the investments made by Sabesp in recent years could not have been worse.”

Silva repudiates the posture of Governor Geraldo Alckmin in response to the crisis, the seriousness of which he jas failed to address publicly and for which his administration is responsible, even after asking a federal bank for R$ 3.5 billion to fund a package of emergency measures. “Alckmin refuses to admit that water pressure is reduced during certain hours of the day, so that a sizable portion of the metropolitan periphery confront this problem on a daily basis. The government could opt for a more transparent policy, informing the citizenry of a schedule for rationing, which among other things might minimize waste.

“The brewer of a specific brand would never tell its customers, ‘don’t drink beer.’ But this is the marketing logic that Sabesp has followed, even though its product is a public service, open to anyone,” says Silva.

[Photo caption] Beverage warehouse, Itu, inland São Paulo. The city hosts one of the largest beverage concerns in Brazil, despite rationing and the constant shortage of water for local residents and businesses.

Sabesp By Numbers: Imminent Decline?

The corporate charter of Sabesp provides that shareholders are entitled to up to 25% of the annual net profits, but since this regulation was approved, this index has never been lower than 26.1%. In 2003, for example, after Alckmin was elected, the share of profits that ended up in the hands of private capital reached an obscene 60.5% of the total. It is estimated that a third of the total net profits have passed into the hands of shareholders — this implies some R$4.13 billion, double what Sabesp invests per year in basic sanitation, according to calculations by Jornal GGN

Presidente do Sindicato dos Trabalhadores em Água, Esgoto e Meio Ambiente (Sintaema) entre 1988 e 1994 e atual vice-presidente da Central dos Trabalhadores e Trabalhadoras do Brasil (CTB), Nivaldo Santana ressalta que a antes vigorosa taxa de lucro da Sabesp já tem acusado o golpe da crise: “A diminuição da receita tarifária, por conta da menor oferta de água, faz com que a empresa torne-se pouco atraente para os acionistas, até porque o investidor de Nova Iorque, por exemplo, não está preocupado se falta água para a população de São Paulo, mas sim com o retorno de seu investimento. Por isso, a tendência é que a queda nos números se acentue cada vez mais”.

Segundo ele, “o que se vê na Sabesp é uma administração privatista, que segue a lógica privada mesmo tendo uma gestão, ao menos em tese, mista”. “No curto prazo, a aprovação do PL 410/2003 visava fazer caixa para a Sabesp, mas a longo prazo, é parte de um projeto de redução do papel do Estado nos serviços públicos”, assinala.

Por fim, Santana destaca o fator ‘mídia’ como um grande empecilho para a discussão do problema: os grandes meios de comunicação não abordam a dimensão política da crise, em sua opinião, “dando enfoque excessivo ao problema da seca, ao fenômeno natural, como se nos restasse apenas torcer para que chova muito”. Para ele, “trata-se de uma cortina de fumaça sobre os investimentos insuficientes e ruins feitos pela Sabesp, poupando o governo estadual de críticas por parte da opinião pública”.