By Brazil Stock Guide – Sabesp (B3: SBSP3) faces its first tariff review since its July 2024 privatization, as regulatory scrutiny collides with the lowest September water reserves in a decade and pressure to meet accelerated universalization targets by 2029.
The review, scheduled for December and led by state regulator ARSESP, will set water and sewage rates for 2026. It could reset the RAB (Regulatory Asset Base) — the value of assets recognized for tariff purposes — alongside capex (capital expenditures) and its remuneration under the WACC (Weighted Average Cost of Capital), fixed at 7.86% real post-tax. Sabesp has submitted its asset valuation report, with validation due September 30.
Goldman Sachs projects a RAB of R$87 billion in 2025, up from R$77 billion in 2023, and expects a 12% rate increase in its base case. In extreme scenarios, hikes could range from 3% to 17%, depending on capex adjustments and a potential revaluation of the 2022–23 RAB.
A December 2024 amendment aims to shorten the 18-month lag between capex execution and tariff recognition. Depending on methodology, the adjustment could range from R$410 million to R$1.2 billion in 2026, with an impact of R$8–23 per share and up to 360 basis points on tariff hikes.
The bank keeps a Buy rating on Sabesp with a R$146 target price, citing an 11% real IRR and a 1.07x EV/RAB multiple for 2026. Still, Goldman notes that consumer bills may be lower depending on allocations from the FAUSP tariff stabilization fund.
Reservoirs at Decade Low
Between September 14 and 15, total storage in São Paulo’s metropolitan water system slipped from 33.8% to 33.5% (651.95 hm³). Reserves are down 1.8 percentage points on the week and at their lowest for the date since 2015, when they plunged to just 11.7% during a historic drought.
All systems declined, with the Cantareira falling to 31% from 31.3%, Alto Tietê to 26.6% from 26.8% and Guarapiranga to 48.8% from 49.2%. Cotia, Rio Grande, Rio Claro and São Lourenço also retreated.
In response, Sabesp was authorized to lower network pressure for eight hours overnight and cut Cantareira withdrawals after national and state regulators trimmed the authorized flow from 31 m³/s to 27 m³/s.
Sabesp also updated its Fator-U indicators, which track progress toward universalization. As of August, it exceeded targets for new urban water connections (120%), rural and informal water (162%), and urban sewage (117%). But it lagged in rural/informal sewage (66%) and sewage treatment (76%). CEO Carlos Piani said the company will meet treatment goals by 2029, reaffirming its commitment to universalization rules.
Despite projected hikes, the burden on households should be cushioned. Low-income families in CadÚnico qualify for a social tariff, while part of the privatization proceeds has been set aside for a state tariff moderation fund to ease adjustments.
The collision of tariff review, water stress and universalization goals places Sabesp at the center of Brazil’s regulatory and market debate. December’s decision will be critical to balancing returns, expansion and supply stability in a sector already under strain ahead of the summer.
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