27 April 2011

Water services in Sao Paulo, Brazil

MS asks:
I was wondering what you think of the sanitation and water policies going on in Sao Paulo, Brazil. The organization handling infrastructure in this area in a private-public company called Sabesp (the government owns a majority stake in the company). Do you think it is doing a good job? Do you think that Sao Paulo needs to make some major investments in the area of sanitation, clean water, and access to potable water? For the record, I own some stock in Sabesp.
I've never been to Sao Paulo and I don't know anything about Sabesp, so what can I say to an investor?
  1. A company's share price reflects expectations of future profits. If that expectation is too high, than the price will go down.
  2. Profits at Sabesp will depend on its ability to meet performance targets, the government line on water prices, current and future service areas, the cost of debt and the balance between required and useful investments.
  3. The items in #2 will fluctuate with market AND political sentiments. It's possible to guess where they will be by looking at other infrastructure developments and political actions in Brazil. 
  4. President Rousseff, like Lula, appears to understand the benefits of political and legal stability.
How well is Sabesp doing?

Maybe you want to go visit The International Benchmarking Network for Water and Sanitation Utilities (IBNET, a project I have a small affiliation with) and get some data:


Bottom Line: Investing is about being smarter than the average person or willing to take more risks to get more rewards. Everything else is sales propaganda or fraud.

3 comments:

Matt Stewart said...

I probably should have asked you the most relevant question: is Sao Paulo (like so many other major cities in developing nations) in dire need of improvements in sanitation and access to potable water? Is it an epidemic waiting to happen? I hear that large parts of Sao Paolo are open sewers (particularly in the favelas). In addition, Sabesp handles pollution control by major industries working in that city. Supposing I'm right about the difficulties that Sao Paulo faces, these should at least be an indicator as to how well Sabesp will do in the future.

umbrios said...

Hi, I´m from São Paulo, so maybe I can help.

Actually São Paulo sanitation is not as bad as you seem to imagine. There´s treated water acess for almost everyone, except the true homeless, and even in favelas treated water is usually one of the first public services offered (and it´s usually one of the first services people officialy get, unlike eletricity and cable tv, which may come first but are often stolen).

There are problems with the sewer service, but the "open sewer" situation isn´t as common as the "sewer illegaly plugged into the rain drains", which is one of the main sanitation problems in the city. That can happen in slums, but must often happens in rich gated neigborhoods slacking building costs. Suburbanization and problems attached are also big, with new houses going where no sewer sistem has gone before.

Sanitation problems also include scars from having been one of the major industrial cities of the country (the main river of my city, the Tietê, has a bad case of heavy metals pollution because of former industries in it´s margin. There are more than a few places in the city that had their groundwater contaminated by old industries or gasoline leaks fro autostations also), and the fact that some cites don´t use Sabesp services, specially sewer services (I´m looking at you, Guarulhos).

Ok, you probably didn´t get the Guarulhos jibe. Guarulhos, a city conurbed with São Paulo, is known to have a VERY bad sewer collection and treatment, and Guarulhos´s sewer is one of the main reasons why Tiete is a dead river.

Sabesp main problems, tough, aren´t the imminence of epidemy (seriously, a water born disease is VERY low in my list of fears, at least when I´m home. When I was in Naples, though, I was too scared with the city to allow myself to drink tap water. Bad choice for a honey moon stop.).

São Paulo´s population is huge, and catering water for so many people is difficult, specially when the places where most of that water comes from are invaded and deforested. There should be a green belt in the city, but there´s immobiliary problems in Cantareira, in Billings (which, to be fair, is mostly used to make energy and water for industrial uses) and mostly, in Guarapiranga, which are the three main water reservoirs in the city.

The margins of Guarapiranga have been so destroyed that special legislation was made to try to salvage it, and our equivalent of "democratics" in this country is too busy wooing the poor destitutes that have no choice but live there(sometimes... mostimes not so poor and not so destitutes... there´s many private gated housings illegally buit in Guarapiranga) to try to defend one of the main sources of our cities water.

São Paulo today imports some of it´s water from other municipalities, and there´s some heated disput on that, as you may probably imagine.

Mostly, though, Sabesp is well liked around here. There has been visible development of the sewer systems, not only in São Paulo, but specially in beachfront cities.

A brazilian will rarely drink water directly from the tap as we´re taught to always filter or boil it first, even in popular children´s books, like the ones from Monteiro Lobato, the main children´s book author in the history of Brazil, and that´s an ingrained habit. But most people known that the tap water´s safe to drink (and usually of higher quality than bottled water).

Note, though, that these comments are specific for the state of São Paulo. Tap water may not be safe to drink in some other states of Brazil (like Rondônia or Pará)where water treatment is much more precarious. Then again, if you´re thinking about it like an investor, Sabesp doesn´t work in those states, and can´t be blamed for anything going there.

umbrios said...

By the way, Cetesb, and not Sabesp handles industrial pollution control in São Paulo (the state, not the city). Names are similar, the emprises are quite different.