São Paulo’s Sabesp appoints new directors as privatization plan advances

São Paulo sanitation firm Sabesp has continued the overhaul of its top management as the state government advances with plans to privatize the company.

"I think it’s realistic to think about a privatization process for the company taking place between the second half of this year and the first half of 2024, since this seems to be a major priority for the current São Paulo state governor [Tarcisio de Freitas]," Flávio Conde, head of the equity area at local investment house Levante Investimentos, told BNamericas. 

The company, which earlier this month presented a new CEO, has now appointed three directors to take charge of strategic areas.

Bruno Magalhães D'Abadia, was named director of technology and the environment, taking over from Alceu Segamarchi Junior, while Roberval Tavares de Souza became director of regional systems, replacing Antonio Carlos Teixeira. And Paula Violante took over Ricardo Daruiz Borsari’s job as metropolitan director.

Earlier this month Sabesp appointed André Mendes as new CEO, replacing Benedito Braga Junior.

The hiring of Mendes is seen as a step towards Sabesp's privatization, given his background and expertise.

He was business development director at private sanitation firm Iguá Saneamento from 2019-21, and also worked at federal development bank BNDES (2003-19), where he held several positions, including in the areas of infrastructure financing, public-private partnerships, M&A and new business structuring.

On Monday, governor Tarcisio de Freitas announced plans to privatize the firm. "We may even retain a stake in the company, a strategic stake with a golden share. We will have a significant role in the strategic decision-making, but we won't have control of the company," Freitas said in a televised interview on Monday.

The state owns 50.3% of the company, while the remaining shares are traded on the stock market.

Sabesp is considered one of the largest sanitation firms in the world in terms of the population served, supplying 28.4mn people with water and 25.2mn with sewage services.

The company is responsible for around 30% of Brazil’s investments in basic sanitation. For the 2023-27 period, it plans to invest approximately 26.2bn reais (US$5.13bn), with a focus on expanding water availability and treatment, and sewage collection.

"Despite its already large size, Sabesp has a great growth potential within São Paulo since the state has a population of more than 45mn people, and there are still many areas in the interior of the state that aren't served by Sabesp. This expansion potential will also attract great interest in the Sabesp privatization from investors," said Conde.

According to Freitas, the proceeds from the sale of the state’s controlling stake can be used to accelerate sanitation investments. "This money can be used in the sanitation sector, serving regions across the state where there are isolated systems, where Sabesp doesn’t yet operate," he said.

São Paulo’s privatization push gained momentum after Freitas recently announced the creation of an economic council to be headed by Paulo Guedes, who was economy minister in the administration of former president Jair Bolsonaro. Guedes is a major advocate of privatization to increase the role of the private sector in the economy.

Other states are likely to follow the example of São Paulo and move forward with plans to privatize their sanitation companies in the coming quarters, such as Minas Gerais' Copasa and Paraná's Sanepar, according to Conde.