Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (SBS) 2020 Q4 法說會逐字稿

Good afternoon, everybody. Welcome to SABESP's video conference to discuss the results for the 2020 results. My name is Mario Sampaio. I'm the Head of Capital Markets and Investor Relations. Let's start by informing all participants that this video conference is being recorded. The presentation accompanied by slides is being transmitted over the Internet through the website, www.sabesp.com.br and through the MZiQ platform. The presentation will be available for download on the same portal as well as the results release. We remind you that the questions will be accepted to the speakers only through the videocast platform. Our conference will take approximately 1 hour and 30 minutes, and we will reserve up to 45 minutes for question and answers from analysts and investors.

Before proceeding, we would like to clarify that any statements that may be made during this conference relating to the company's business prospects, projections and operational and financial goals constitutes the beliefs and assumptions of SABESP management as well as information currently available for the company. Future considerations are not guarantees of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the future results of the company and may lead to results that differ materially from those expressed in such forward-looking statements.

Let me start by presenting our speakers and our -- my colleagues. Okay. So today, we have with us Mr. Rui Affonso, Chief Financial Officer and Investor Relations Officer; also Mr. Marcelo Miyagui Accounting -- Head of Accounting; Agnaldo Pacheco, Head of -- Controller; and Luiz Tiberio, Head of Tariffs and Costs.

Let me start by making some considerations on the slides. And so let's get started. Okay. Great. So let me -- before we go through the slides, let's make a brief -- an introduction. We'd like to start saying that 2020 was marked by a number of unprecedented events that are essential to understand in order to analyze the results of any company in any sector of the economy. These events take on a particular dimension for SABESP and the sanitation sector, which we will highlight below as an outlining condition for the results presented by the company last year.

The prospects for the economy -- economic recovery in Brazil in early 2020 were highly uncertain and were radically reversed with the World Health Organization declare COVID-19 a pandemic in early March.

The global spread of the virus created a double crisis: one in public health, marked by efforts to reduce the contamination of rates of the virus and adapt to hospital structures according to the demand of each country and region; and another in the economy arising from steep reductions in domestic and external demands, which resulted in retention -- in recession and wide spread deflationary pressures. Combined effects of these double crisis began to be perceived as of the second quarter of the year. Social distancing measures, higher unemployment rates, lower tax collection and the increase in public debt led to a sharp decline in GDP projections and a scenario marked by high uncertainty, volatility and low confidence from all economic agents.

Under this scenario, the company revenues began to drop, delinquency rates began to rise as did financial expenses. The lower availability of public and product credit impacted the company's business, which faced the situation from its particular condition as a supplier of an essential service and the fight against COVID-19 pandemic, that is the water. By not overlooking regular water supply to the population, SABESP has played an active role in facing the crisis on several fronts.

First, the company temporarily exempted payments of water bills for the social residents and social and favela residents categories benefited more than 2 million people who live in the most vulnerable situations of society. The company also allowed customers in the commercial and service categories to pay their in debt installments. And furthermore, directed by SABESP, by ARSESP, the company also postponed their readjustment, which was scheduled originally to occur in the first half of the year but was implemented in the second half.

Second, SABESP boosted harmonization in its reduced water supply to be used for cleaning and sanitizing surrounding areas of hospitals and emergency room. The company also promoted the distribution of water tanks to -- small water tanks to households without reservation capacity, installed public wash basins and drinking fountains in areas lacking infrastructure and distributed food baskets to reinforce food availability to the population in these locations.

The financial impacts brought by the crisis affected the company revenues as the second quarter -- as of the second quarter of 2020 in which billed volumes for nonresidential categories fell roughly, while volumes in the residential category increased, but as -- but at tariffs that are, on average, 50% lower on the residential category.

The volume of water produced rose slightly, 1.2%, but not enough to mitigate the drop in revenues due to the lower average tariff and the change in the mix of build volumes, as mentioned, among different consumption categories and regions.

SABESP management did not hesitate to take measures in adapting the company's expenses to the new scenario, expense budget reductions in the amount of BRL 450 million were implemented and a program to reduce its staff by 8% was maintained. This effort resulted in a 2% reduction in costs, administrative and selling expenses, excluding construction cost, depreciation and amortization and estimated loss with doubtful accounts.

Simultaneously, with the cost adjustment, the company took over actions to preserve its cash position during the highly uncertain period. Despite highly selective and credit constrained markets, SABESP managed to raise BRL 4.5 billion by issuing 3 debentures. We added BRL 3.5 billion and complemented our funding requirements with BRL 550 million loan from the IDB Invest.

In addition, we signed a standstill operation with the BNDES to postpone the payment of BRL 131 million of debt servicing due in 2020 and use the issuance of guarantee insurance to avoid a cash outflow of BRL 223 million in some of the legal proceedings we have. At the same time, actions aimed at reducing the foreign exchange exposure of the debt we initiated in 2019 were intensified in 2020 in view of the impacts of the crisis on the economy and its effect on exchange rate volatility.

In May '20, we exchanged $494 million IDB-denominated -- dollar-denominated debt. We exchanged for real denominated debt in an amount -- resulting in an amount of BRL 2.8 billion. And in September, we prepaid with reais a $350 million eurobond that was to mature in December this year -- last year.

Along with these amortizations carried out in 2020, the company foreign currency debt was reduced by more than $900 million. As a result, foreign currency debt decreased from 48% on December 31, '19 to 21% on December 31, '20.

In summary, the company proved to be quite resilient in the unfavorable crisis conditions that marked last year, overcoming obstacles on the operational side as well as on the financial side and in terms of accessing capital markets. This was possible to a great extent because of the engagement of our staff with approximately 5,900 employees working from home and the remaining frontline employees adopting strict health security protocols.

There was no customer service interruption for the population as they were directed to our virtual agencies. Strategic suppliers were also mapped to ensure the regular delivery of supplies. We also reorganized our teams to take advantage of the low urban traffic and intensified the maintenance works necessary to guarantee service and water supply at this crucial time.

Management's efforts along with employee engagement allowed the company to maintain investment levels, enter into an agreement to supply water at retail level with the municipality of Mauá, a city with a population of approximately 500,000. Also to participate with robust and technically detailed contributions to the third tariff review process and tariff restructuring proposal made by ARSESP. At the end of '20, SABESP resumed its profitability, significantly increasing any projected dividend distribution expectation after the first quarter result, as we will see below.

Having said this, now let's go and start the discussions on the results for '20. Moving then to Slide 3, we can see a 3.1% increase in total build volume for the year -- for the year, of which 2.2% was for water and 4.1% for sewage. Excluding Mauá, Santo André and part of the exemption given to the social and favela categories, the increase was 0.9%.

Moving to the next slide. Let me just come back here. Well, on Slide 4, let's overview some financials. And highlight some financials, starting with revenue in 2020. We had a 6.1% reduction in gross revenue and a 1% reduction in net revenue. As you can see in the graph, in comparison, construction revenue was significantly higher in 2020, which largely mitigated the impacts on net revenue. The drop in revenue is explained by the one-off effect from the in debt agreement with the city of Santo André in 2019 in the amount of BRL 1.261 million (sic) BRL 1.261 billion compared to the debt agreement with the city of Mauá in '20 in the amount of BRL 193 million. This resulting in a negative variation of [BRL 1,068 million] in gross revenues.

In addition, the tariff adjustment rate of 3.4% applied in August '20 was not enough to offset the reduction in revenues from the nonrecurring events, including the drop in the average tariff arising from the change in the consumption profile, as already mentioned.

If we exclude construction costs, the company administrative and selling expenses increased by 4.5%, which is in line with inflation. If we also exclude 247% -- the 247% increase in estimated loss from doubtful accounts and the 14.4% increase in depreciation and amortization expenses, our expenses decreased actually by 2% or BRL 152 million, all this as a result of the efforts to reduce costs during the period.

Due to these variations in revenue and expenses, adjusted EBITDA decreased by 14.5%, but if we disregard the nonrecurring effects of '20, in this case, the agreement with Mauá and the other nonrecurring events in '19, which includes the reversal of the provision with the retired tax and agreements with Santo André, Guarujá, and São Bernardo do Campo, the variation in EBITDA would actually be positive by 1.1%.

Finally, the net profit for the period of BRL 973 million was 71% lower than the net profit presented in the previous years.

Let's -- on Slide 5, analyzing 2020 quarter-by-quarter. We note that starting from a loss of BRL 658 million in the first quarter, mainly due to the devaluation of the real of 29% against the dollar, we end the year with almost -- we ended the year with almost BRL 1 billion in net profit, which means that the company generated BRL 1.6 billion of profit in the last 9 months of the year. Although below the value obtained -- the profit obtained in 2019, the profit in '20 can be considered very good given the adverse impacts brought about economic and health crisis. In addition, also 2019 represents a specifically high basis of comparison due to the difference in the one-off effects of the debt agreements that we mentioned related to Santo André and Mauá.

Let's move on to our next slide, the -- Slide 6, where we show cost and expenses. The main increases in expenses were related to estimated losses of allowance for loan losses of 247% in the amount of BRL 360 million product of the economic framework already described by us. Depreciation and amortization also increased by 14.4% or BRL 256 million. Treatment materials increased 9.1% or BRL 28.4 million. Electricity rose by BRL 6.5 million or BRL 74 million. And finally, tax expenses had an increase of 5.7%.

The most relevant reductions on the other hand in expenses were for general expenses at 15.2% with a value of BRL 179 million; personnel of 1.2% -- sorry, 1.3% or BRL 34 million; services of 2% or $36 million; and general materials of 3.3% or BRL 9.1 million. Well, the details, I'm sure you can find them in other variations and discussions in our earnings release.

Let's now go to slide -- next slide. Here, we show our financial performance, summarize -- which summarizes all that we have explained so far. We started with a net income of BRL 3.3 billion in 2019, which was greatly impacted by the one-off effect from the Santo André agreement, plus the pre-pandemic economic context.

Net operating revenue decreased by BRL 186 million due to the nonrecurring effects in '19 and the drop in the average tariff in '20, which was partly offset by the construction revenue, costs and expenses, including costs -- construction costs increased by BRL 1.2 billion. Other operating revenues and expenses, including equity result was positive by BRL 136 million.

Our financial results fell by BRL 2.1 billion, mainly due to the depreciation of the real. Income tax and social contribution increased by BRL 957 million due to the lower taxable income, which partly offset losses in the results. And finally, net income totaled BRL 973 million in 2020.

On the next slide, we will briefly comment on some of our performance indicators for the fourth quarter of 2020. The following performance management indicators show basically gross revenue, operating expenses and EBITDA, all of them per billed cubic meter. The historical series is presented since 2014, as you can see, based on quarterly financial data disclosed by the company, excluding nonrecurrent and relevant events that would distort the resolving comparison.

In order also to maintain the indexes of the period with the same price space, all the indicators were calculated in average values for fourth quarter '20 and adjusted by the EPCA inflation index. So in this case, gross revenue per cubic meter has been increasing gradually in average terms in relation to the previous quarters in '20, although it is still below '19. Operating expenses per cubic meter billed has been stable in long term. In the fourth quarter of 2020, it decreased over the previous quarter of the year and was also lower than in 2019.

Last, EBITDA per cubic meter build ratio reinforces, once again, the growth trajectory in the period. The index for the fourth quarter of 2020 improved in relation to the previous quarters, returning to the same level that it was in the fourth quarter of 2019.

Let's now then move to the next slide, talk about CapEx. So despite the uncertainties and volatility that we still experience, in 2020, we were able to practically maintain the expected level of investments for the year and exceed that of 2019. In 2020, the total book value of investments was BRL 4.4 billion. If we disregard from this value, the extraordinary effect of the agreement with Mauá, the value reduces to BRL 4.1 billion.

Now 2019 CapEx book value was BRL 5.1 billion. If we disregard, the BRL 1.3 billion value of the agreement with Santo André, this value drops to BRL 3.7 billion. In such, comparing this value with that of 2020 of BRL 4.1 billion, we just commented, we can see that the amount invested actually in 2020 increased in relation to 2019.

Also comparing the forecasted CapEx value for the year of 2020 last year, on a cash basis of BRL 3.5 billion with the actual value of BRL 3.3 billion, we can see that even in these very adverse condition disbursements with investments were quite consistent.

Now looking ahead, more specifically for the period of '21 to '25, the forecasted disbursement with CapEx adds to BRL 21 billion of which 61% in sewage or BRL 12.8 billion, and 39% or BRL 8.2 billion in water. Considering that investments forecasted for the expansion of the water security during the '14, '15 -- 2014, 2015 water crisis are concluded with only the reversal of the Itapanhaú River remaining, and it should be completed this year. The mix of investments in sewage collection and treatment is currently higher than on water, which means that we will be investing more in sewage collection and water, and this already starts this year, '21, with 58%.

Let's now comment on our -- the tariffs. First of all, we would like to congratulate the technical work performed by the regulatory agency, and the way it has been conducting the tariff review process with predictability and transparency, which makes us believe the process is balanced and is based on strong technical grounds.

On February 8, 2 preliminary technical notes were released: one addressing the proposed calculations for the P0, the maximum average tariff and X Factor; and the other addressing the proposal for the tariff structure review. After these technical notes were released, public hearings were held to discuss these topics. We highlight that the P0 disclosed the amount of BRL 4.8413 per cubic meter was calculated over the metric volume and not to billed volume, which is what we normally report also. The number was net of COFINS and PASEP taxes, making the comparison with other results or previous results, company results, a little more difficult.

Although everyone is aware of this, another important point we draw attention to is the proposal for the new tariff structure, which shows implementation beginning in 2022 with a gradual ramp-up of the tariff until the end of the cycle. We also understand that you have already hopefully read our contributions on both topics. But again, we can cover that later in our Q&A session.

Finally, we emphasize that ARSESP is expected to complete its studies and publish its final technical note with the final numbers by April 9 this year.

Next slide, regarding the water situation and continuity to the comments we made in our last conference call, the third quarter '20 call. Rainfall indexes remain below the historical average. Despite the rainfall being lower than expected, we can observe that the water storage from the water sources that supply the metro region of São Paulo is still very much under control. The construction of the São Lourenço water production system and Jaguari-Atibainha water interconnection increased overall São Paulo metro region water security systems, precisely to cope with the spirit of water stress.

To give you an idea, were not for these investments, in July '20, the Cantareira system would have to reach the level by which we would have to draw water from the technical reserve, but that didn't happen. But we would like also to take the opportunity then right now to bring a point that must be remembered and considered value when analyzing the situation of water availability and the production systems in the metro region of São Paulo, more specifically, the weight, the relevance that each system has in the total supply of the region. Before the '14, '15 water crisis and investments made to increase water security were concluded, the Cantareira system was responsible on average for 49% of the region's supply. If added to the weight of the Tietê system of 17%, both alone covered more than 65% of the demand.

As you can see in the slide, this has substantially changed today. The distribution of water is more flexible and less concentrated in the Cantareira system as compared to the past, which brings much more water security to the region, and it makes it possible to face dry periods as well as the one we saw last year.

The last comment with no slides, we would like to highlight then before we go to the Q&A session is that on March 17, Congress approved the maintenance of executive details to the Law 14,026, the new sanitation law. With this the sanitation framework as it stands today, should provide a clear scenario for the sector to reorganize itself and grow in an accelerated mode.

As we have mentioned several times, the approval of the vetos that prevent the renewal of the program contracts for an additional 30-year has a low impact for SABESP. Today, we have at risk for renewal only 8 contracts, representing 0.26% of our total revenue. All other program contracts we hold were renewed before the law was approved and are insured or we have them secured for an average period of 26 years, with the largest actual contract being the one with the municipality of São Paulo, that is valid until 2040, almost 20 years.

For this reason, we must continue to carefully and actively monitor the discussion and definitions of decrees and regulations that must be arise as a result of the improvement of law. Pending the definition, for example, are the transition rule for municipalities that have precarious contracts, definition on regional block formations, rules for the identification of assets and several other issues that still arise, doubts and uncertainties among the specialists.

Well, this concludes our presentation. Let's go for the question-and-answer session. Okay?

Okay. So here we are. Let me see if we have questions coming in. Just give me a second. Doesn't seem that we have questions.

Okay. We have 1 question here. It's from Juanjuan Niska from Wellington Management. The question is, what is the difference between accounting and cash CapEx, which one goes to the [rack]? Rui?

The first one could be addressed by Mr. Miyagui. And then the portion applied to the (technical difficulty) addressed by Mr. Tiberio. Right?

Okay. Good afternoon, everybody. Talk about the difference about the accounting numbers and the cash numbers is because the -- mainly because the borrowing costs are capitalized in the -- while the construction is in progress. So sometimes or most of the times, we don't have the cash affecting this borrowing costs. So this is one of the big difference. Also some -- like contracts -- performance contracts are also recognized in the accounting numbers, but we do not spend money while it's in progress, okay?

Tiberio, you can talk about the...

Yes. Okay. So let me take from this. Actually, it's very likely that your question is associated with what should they consider for the regulatory asset base, I suppose, right? And the main answer to that is regulatory body will consider an increase on the regulatory asset base once the construction in progress moves to an asset in service, right, when it gets operated. So it's neither cash or accounting wise. It's when it moves from construction progress into the operating assets account. That's the moment when it triggers an increase in the regulatory asset.

Juanjuan, is that clear? Any other questions? Okay. We have 1 more question coming in. Let's see. It's from Hasan Doza from the Water Asset Management. The question is, can you please highlight and talk about the remaining key differences between SABESP and ARSESP at this time in regard to the tariff and P0. Rui?

Very quickly, and then give the floor to Mr. Tiberio to complete in more details. We have several different aspects that, of course, we have differences of methodologies and approaches with ARSESP methods, several, and would take a lot of time to discuss even the main ones. Have hundreds of pages of considerations. But I can summarize, starting by saying that the final number of the tariff hike that is needed to reach the required revenue for SABESP, in our view should be applied in very closely to the financial and the preliminary tariff hike.

I mean we can even agree with the gross number for the tariff needed to achieve the required revenue for the whole period of the next 4 years tariff cycle. But we put attention and we need to reemphasize the need to close the gap between the economic considerations of ARSESP and the financial concrete application of the tariff initial hike. That is our first, and I believe more comprehensive difference between what we proposed and what ARSESP is proposing in its preliminary note, technical note. We have some others, maybe we can choose 1 or 2. Tiberio and share with Mr. Hasan Doza.

Okay. I can do that. Actually, our document, commenting on the preliminary note has more than 100 pages in there. Obviously, it's quite a long document. But really, you could summarize the content in the -- in a few, I would say, 5 or 6 subjects. First, we have commented on volume. We obviously included a few contributions on OpEx. And one that is quite important is the recognition of prior periods regulatory asset base from the first tariff cycle. So we've made a comment on that. That's quite important when you want the regulator to consider this amount that is almost BRL 3 billion that he's recognizing right now. We ask them to regulate that they consider that backwards and not from this point forward. So that's one of the main requests we've made.

And obviously, as Rui mentioned, even though the P0, the P0 calculation looks to -- or seeks to deliver a balance -- an economical balance to the company, you need this economical balance to be translated in the financial year-by-year balance as well. So that's -- once the regulator has populated BRL 4.84 per cubic meter for us but has deferred the application of this adjustment over the years given the new tariff structure. Obviously, we are balanced in economical terms, but we are not exactly balanced in financial year-by-year basis. So we added a comment towards that as well.

And then another few minor items given adjustments from compensation in regards to execution of prior plans as well as impact on our sales mix given the COVID-19 pandemic. So I'd say those are main ones, I'll be summarizing it in a very, very short.

Sorry, I was on mute. So we have 1 more question here from Lilyanna Yang from HSBC. The question is, what are the chances of the delay in the rate renew tariff restructuring agenda and hike implementation? And if the proposed tariff hike for May, 2021 comes as is at below inflation, what are the risks to your CapEx budget?

Another question. Could you please give color and your appetite for new service contracts out of São Paulo state at a time year when you are still undergoing a change in the tariff structure. And when you seem to be getting a relatively low 1-digit tariff increase this May '21?

So we mix 2 things here. One, related to the increase and 2 related to the expansion of markets. So Rui, pass the word to you.

Maybe Tiberio could start with this first one, and I'll talk a little bit about the second question, right? So the tariff implication of the initial proposal or process. And second, I'll talk about the market expansion, appetite of -- for SABESP, right?

Okay. I can do that. Yes, indeed you are reading of the technical notes are right. I mean we should be getting a tariff hike of mid 2 digits. And the tariff -- the proposed tariff adjustment for the first year of the cycle, which kind of translates back to that, which I just gave between economical balance and financial year-by-year review.

In the first year, we should be getting based on the initial proposal, we should be getting mid to low -- or low to mid 1 digit increase, actually between 4% to 5% increase. We made a comment on that. So we said that obviously, it shouldn't be the case. Even more, if you were to consider the fact that we are increasing our CapEx. Our CapEx program for the next 4 years is way higher than what we have performed in this cycle that ended in 2020. So that's one of the main reasons why we should also that get most of the tariff hikes as close as possible to what the economical balance is pointing to -- is pointing at. So that's the basis of our contribution.

Obviously, we need to understand that if we are moving from one tariff structure to another one, which should be a more competitive environment for SABESP to the nonresidential customers, someone is going to pay that. And obviously, if someone is paying less tariff on one side of the equation, someone else should be paying more so that you still match the review.

You will -- I mean, it doesn't make a lot of sense if you were to do that at once, right? I guess we all should agree that some type of -- some type of transition period should be considered. Whether this transition period is 4 years, 6 years, 10 years, 1 year wouldn't be the case. But I mean, it's something to discuss. We obviously want the economical balance to be as upfront as we can. And we want any difference to be capitalized so that there is no loss for any SABESP shareholder, right? So if we are not to get the full amount that we should in the first year, obviously then we should be having this portion that is not being achieved, capitalized and included in the next few years of the summer. So that's kind of how we look at it.

I don't feel [Maariv] is a smart guy market who is going to access the financial markets. So I don't feel that even though we do not reach 15%, 16%, 12% or whatever the figure is, the final figure is going to be in the first year, company will still be financeable, if I may, does that work. And obviously, we shouldn't compromise that. That's the view at this point in time.

Okay. Rui, it's up to you now.

All right. All right. First, Lilyanna, I would like to remind everybody that SABESP actually is being very active -- proactive in maintaining and expanding market share the last 3 years. During the discussion of the new regulatory framework for sanitation in Brazil, we have been able to expand big municipalities, expand big municipalities assuring contracts like remember Guarulhos, Diadema, Santo André and lastly, Mauá. But those -- we have been able to assure contracts with dozens and dozens of medium-sized municipalities during this period. And to say, we are not (technical difficulty) right now. We got a close attention in our neighborhood in São Paulo. We are now approaching (technical difficulty) outside São Paulo, like we did in (technical difficulty) and some other possibility. We are analyzing very carefully, like our CEO have mentioned during our conference call this morning.

But we -- we're conscious. We are a big company. We have not just to expand, we also -- we have great opportunities to expand our productivity and our profitability in our area of concessions. In other words, we have a lot, a lot, hundreds of municipalities, millions of clients and possibilities to expand our profitability inside São Paulo market share. Of course, we are -- we will take -- as Mr. Tiberio have said, careful look at new opportunities, but they have to be profitable and look not uncertain because we are not desperate to expand and deteriorate somehow our good position in the market. That's between these 2 milestones, we have to take our decisions.

Sorry, again. I just want to make sure I don't miss any questions here. I think there's one more from Juanjuan. Let me make sure get it here. Just a second please. Okay. There is a first on from Juanjuan? No, I think it's -- Juanjuan, I think the question is the same. The question was, what is the difference between accounting and cash CapEx, which one goes to the [rack]? That's the one I -- yes. I don't seem to realize -- yes, I don't seem to find it.

Okay. Yes. Yes, the question continues to be over the long term, are there -- the numbers that are close to the accounting CapEx that goes to the rack , there's a big difference between accounting and cash. I think I was just complementing. I think we answered that. And if we did not well, Juanjuan ask again or we can explain later, of course, in the call however best we can.

Okay. Let me check. Are there any more questions? No more questions. Okay. Let's do this. That's quick. Let's finalize our call, so the word is with you for -- wait, there seems to be 1 more question.

Yes. There's one from Lily. That's where I got that one. Okay. Okay. Yes. So there's one more from Lily.

The guaranteed revenue target set by the regulator seems to be a great idea, but seems to come with the risk of underperformance, if your actual revenue comes -- sorry, very small. If your actual revenues come to be 5% to 10% below the revenue target. So what are the chances and key risks for your revenues to come short of the targets? And what's the rationale of having such a high range, plus or minus 10%? And can this wide range narrow? Got it, guys.

You want me to take that? Who do you want to make a comment before?

Yes, please. Your time.

Okay. So that's a great question. Actually, the regulator has defined the range to be in the first year, plus or minus 5% then, 7.5%, then 10%, right? So it is indeed a huge range. And it's only the portion that goes over this limit, that should be somehow compensated in the following year. So it's only what's off this limit that gets compensated. So indeed, the assured revenue is something -- it's a good idea in a period, in a transition period. So indeed it is a good idea.

The fact, though, is that the range doesn't seem to be right. And we made a comment on that. Actually, our comment was that for the first year, given the fact that there is no new tariff structure that in the first year, we are actually going to still be billing our customers the same way that we were billing before. And we are not getting the entire percentage increase that we -- that the P0 was pointing at. We said, okay, so if you're not getting the entire revenue for the first year, then the range would be 0%. So everything that is off -- I mean, below it or above it, everything that is off the BRL 16.5 billion, that is the required revenue for the first year should be compensated in the following year.

And then for the upcoming years, when you have a new tariff structure get in place, we propose 2.5%, up or down 2.5%. So that gives us a full range of 5%. We believe that plus or minus 2.5% is something that would grant the equilibrium for the company, plus or minus 10% is -- we haven't really received any indication that there was an economical calculation under finding that choice. We didn't find it. So our consideration is to go 2.5% for the second, third and fourth year, 0% for the first year.

Okay. We don't have any other questions on the pipeline. Let me give you guys 10, 15, 20 seconds here to see if you still have some questions before we finalize. So let's just wait a while then.

Seems no questions. So just asking the backup team. No other questions? Confirm, right?

So Rui, the word is with you for the final remarks.

All right. I would like to say to all of you it was a pleasure to meet you all, to share our efforts in order to secure our results in such a very, very difficult time for all of us, with SABESP, Brazil and the whole world. We hope with meet soon, not only through Internet, but also in person in our one-on-one meetings and investors conferences very soon. Stay safe, thank you very much. See you soon.