Companhia de Saneamento Basico do Estado de Sao Paulo SABESP

BOVESPA:SBSP3

Q1-2025 Earnings Call

[Operator]

Good morning, and welcome to SABESP First Quarter of 2025 Earnings Presentation. With us here today are Carlos Piani, CEO; Daniel Szlak, CFO; and Thiago Levy, Investor Relations.

Before we begin, we clarify that the statements made during this presentation will not include projections or estimates of future events. However, they may contain forward-looking statements indicating potential trends related to SABESP based on the reasonable expectations, beliefs and assumptions of SABESP's management as of today.

These statements involve risks and uncertainties and are based on assumptions and factors such as market, regulatory and economic conditions, which may not materialize in addition to the risk factors disclosed in SABESP filings with the Brazilian Securities and Exchange Commission, B3 and on its Investor Relations website.

Investors should understand that changes in such factors may lead to outcomes that differ from current trends and that undue reliance should not be placed on these statements. The full disclaimer will be presented next and must be read carefully by all participants. This presentation is being recorded [Operator Instructions]

I will now turn the floor over to Daniel Szlak, who will discuss the results. Daniel, you may proceed.

[Daniel Szlak, executive]

Thank you, operator. Good morning to all our investors. Thank you for joining us today for SABESP's First Quarter 2025 Earnings Call. My name is Daniel Szlak, and I'll be presenting our financial and operational results. After me, our CEO, Carlos Piani, will give his remarks on the progress of our evolution in our new phase.

Starting with our operational figures. Production volumes grew 4% compared to the same period last year, driven by higher reservation and water pressure in the network. When we look at the number of connections, we've observed growth both in water and sewage progressing against our U Factor targets, which we will address in a few pages.

The strong operational figures translated to sound financial results with adjusted net revenue increasing by 3.9% and EBITDA reaching BRL 3 billion in the quarter with a 17% growth rate and increasing our margin roughly 1 percentage point versus Q4. Moving ahead, our reported net income also increased by a remarkable 80% year-on-year.

Last but not least, we've generated BRL 1.1 billion of operating cash, a 37% conversion from our EBITDA. The conversion was lower versus prior year, mainly due to higher income taxes retained for interest on own capital paid in January versus January 2024, better working capital terms to our CapEx vendors versus the prior model to foster the growth of our supplier base.

Before deep diving into the drivers of the financial results, we will first walk you through the reported versus adjusted figures for the quarter.

This quarter saw 2 small positive nonrecurring effects with the adjustment of the sales tax rate on revenue estimates moving from the statutory to the effective rate. Additionally, we saw the payment of roughly BRL 55 million in municipal debt to SABESP with BRL 10 million positive impact in the allowance for doubtful accounts and BRL 45 million in interest income. We continue to monitor the payments of the remaining amounts already published in October '24 and April '25.

Looking at the main drivers of our net revenue, the 3.9% increase came mainly from pricing carryover from 2024 and the positive impact from the removal of discounts to large clients, contributing a positive 7% in total, an increase in volumes, adding 1.2%, already net of a negative effect from having a leap year in 2024. These were partially offset by the implementation of [ FAUSP ] in Q3 last year and the adoption of Cadastro Unico in the social tariffs, which expanded the number of economies receiving subsidized tariffs.

Diving deeper into the revenue figures, we expand on our price and mix effects. For price, we saw a gain versus 1Q last year due to the carryover of the tariff cycle, contributing a positive BRL 300 million, combined with the gain from the removal of discounts to large clients, represented BRL 100 million in the quarter.

On the mix front, we've expanded the number of economies with access to subsidized tariffs with the adoption in September 2024 of the Cadastro Unico base. This generated a negative effect of roughly BRL 100 million in the quarter.

Zooming out and looking at our EBITDA drivers. We had challenges on electricity, driven by the increase in the water network pressure and lower rainfall, requiring more maneuvers in our water dams. These were more than offset by favorability in people, which we'll zoom in and G&A, mainly from the lower municipal fund payments in connection with the anticipation from 2024. We also had a large settlement in 1Q '24 that we are also lapping.

Looking at our labor cost evolution, we have seen an overall gain of 8% year-on-year, driven by the lower headcount behind 2023 and 2024 voluntary dismissal programs, that was partially offset by the inflation adjustment carryover from 2024, negotiated with our unions. As disclosed in last quarter's call, we have started the departures from the 2024 voluntary dismissal plan in February, with the average happening in Q2 '25. We have ended Q1 with roughly 9,700 employees.

Now moving on to CapEx. We're excited to announce that we have doubled the CapEx execution year-on-year. This is the most important metric we've been tracking and focusing our efforts on since we took over, and the results are starting to reflect that effort. When we look at how this translates to U Factor attainment, we have progressed a lot in water and sewage collection, and we'll see the progress on sewage treatment mostly in the second half as we are working on expanding our wastewater treatment stations prior to connecting all the economies, and we're also laying down sewage collection pipes concomitantly.

When we look at how this translates to impact in the lives of the population we serve and the environment we act, this is something we're very proud of. A few highlights here. In Q1, we have a CapEx backlog that is 3 times what we had in the same period of last year in more than 90 projects with more than 90 suppliers. And the additional sewage treatment capacity that came online in Q1 is the equivalent of removing 12 Olympic pools from Tiete River per months of sewage.

Now, turning our focus to our balance sheet. We have progressed immensely in our liability management, extending our debt profile and tenure and reducing our relative cost by 63 bps even as we grew our total debt amount. We have renegotiated debt, reducing spreads, took advantage of tighter credit spreads to refi some of our notes and also took a proactive stance on swapping foreign currency-denominated debt to eliminate currency risk. All of this translated into sound leverage ratios and superior returns to our shareholders.

Thank you for your attention, and I'll now pass the floor to our CEO, Carlos Piani. See you on the Q&A.

[Carlos Leone Piani, executive]

Thanks again, Daniel. Good morning, everyone, and thank you for joining our first quarter 2025 earnings call. As we transition from the groundwork laid in 2024 to full execution mode in 2025, I'm pleased to report that we're seeing tangible progress across every front of our transformation agenda, following the next few slides of our presentation.

Let's start with a quick recap of our key priorities.

As shared in our previous call, our strategy continues to be anchored around 3 pillars: first, addressing the new challenges brought by the concession agreement; second, elevating SABESP's operating standards; and lastly, reinforcing our corporate foundations through people, technology and process transformation. These priorities provide the steady direction behind our work.

Now moving to the next slide, which brings a snapshot of recent execution. Let me start with CapEx. Execution in the first quarter 2025 was fully in line with our plan. More importantly, the supplier base supporting that execution continues to expand. The number of active vendors has tripled compared to early last year, allowing us to diversify risk and accelerate delivery.

On the regulatory front, roughly 70% of the injunctions filed by large clients to retain legacy discounts have now been overruled in SABESP's favor. That gives us confidence in our approach and in our ability to recover this revenue over time.

We've also began executing on our obligations to extend service into rural areas. The rural census has already been contracted, and our teams are actively preparing delivery plans. Also, the water resilience plan has been delivered to our SASB, our regulatory agency, ensuring we're better prepared for climate-related stress.

On the commercial side, our overdue receivables campaign brought in BRL 35 million in collections in the Gato Molhado operation, with focuses on cracking down water theft and consumption fraud continues to scale. In Q1 alone, we identified over 7,300 cases of fraud, an essential step towards reducing nonrevenue water and strengthening fairness across our client base. We're also accelerating our metering modernization. In the quarter, we installed 205,000 new meters, up 25% versus the first quarter of last year, marking an important milestone in improving both measurement accuracy and consumption transparency.

Finally, on cost discipline. ZBB initiatives are underway. This quarter, we executed several changes, including centralized logistics, fleet optimization and new electricity procurement contracts and tighter controls on labor shifts and overtime. We also began optimizing our call center operations to better align with demand.

Let's move now to the last slide to wrap up.

In the first quarter of 2025 marked another quarter of consistent and resilient financial results. Revenue grew 4% year-over-year. EBITDA was up 17%, and we continue to generate strong cash flow. Our covenants are solid, debt is under control, and we're progressing well with our funding road map.

Beyond the numbers, we're seeing impact on the ground. Our CapEx program is evolving to achieve the 2025 universalization targets and is directly benefiting communities. Over 98,000 people gained access to water or sewage services this quarter and then an additional 32 million liters of sewage are now being treated daily.

We're also making an important contribution to employment. Around 40,000 direct and indirect jobs have been created through our investments and construction activities. Internally, our Sabesp Gente program, our talent management program, continues to perform well. We've onboarded fresh talent, retain experienced professionals through smooth transitions and build strong leadership teams.

And finally, we continue to work closely with regulators to close historic gaps. While there is more to do, we're encouraged by the dialogue and confident in our path forward.

So in summary, we're executing with speed and purpose. The transformation of SABESP is underway, not just in strategy, but in action.

With that, I'll turn back to Daniel, and we'll open the floor for questions.

[Daniel Szlak, executive]

Thank you, everyone. We're going to now open for questions. The first question is coming from Guilherme Lima from Santander.

[Guilherme Lima, analyst]

Could you comment on the general expenses line which decreased from around BRL 600 million in first quarter '24 to around BRL 260 million in first quarter '25? Part of the reduction is due to the almost BRL 100 million from the municipality fund, right? I would like to understand the other part of this variation. That's it from us.

[Daniel Szlak, executive]

Thank you for your question. Indeed, BRL 100 million comes from the anticipation of municipal funds that happened last year. So going forward, we will probably continue to see a similar effect until 2029, actually. And then, when we think about the remaining, the bulk of that comes from legal accruals and settlements, whereby in February last year we had a large settlement. That has not repeated this year. So this is really what explains the bulk of the variance, Guilherme.

Our next question comes from Joao Pimentel from Citibank.

[João Pimentel, analyst]

Actually, if you allow, I have 2 questions. The first one is the company was able to boost its top line by removing BRL 100 million in tariff discounts to clients. And it seems there are more discounts currently being tackled by the company. So if you could provide more color on the development of these negotiations? That will be my first.

And my second question is, we saw a very good progress on cost reduction and improvement in EBITDA margins jumping from 49% to 59% -- to 55% this quarter. But when we look at some more mature private concessions, we see the most efficient ones, of course, we see EBITDA margins close to 75%. So how do you compare those concessions with the potential of SABESP?

[Daniel Szlak, executive]

Thank you, Joao. I'll pass this one for Piani.

[Carlos Leone Piani, executive]

Thanks Joao. Regarding the discounts, so we -- after the communication that we made at the end of the year for some of our customers, we retained a little bit less than BRL 300 million in contracts with large customers that had discounts. Some of these customers that received the notice, they filed for injunction. This is very small today, roughly BRL 5 million to BRL 6 million per month, and we are very optimistic that we're going to eliminate this through time.

To qualify for the BRL 300 million allowance, that's a provision that we have in our concession contract, that period ended in March. So this ability doesn't exist anymore. From the balance of a little bit less than BRL 300 million, we were able to -- we're confident that we can cancel roughly 80% of that balance. So probably we're going to keep 20% of the gap around -- let's put it around BRL 50 million, BRL 60 million, that maybe we will need another solution, okay? But it -- we'll continue to notify these customers below the BRL 300 million threshold that we believe that we can -- they can have regular tariffs.

Regarding your second comment, remember, we have a very ambitious goal to provide universal access by 2029 with annual goals. So we need to balance our efficiency gains with this very aggressive execution plan. I think where the other players are today is something that's achievable through time. But we need to do this in a way that we preserve or we don't put this -- our capacity to execute at risk. So our efficiency gains will happen through time. And we don't have a goal. We don't have a target. We don't have a guidance for this. This we'll figure out through time as we get better at the execution of the CapEx.

This year is going to be a very relevant year because this is the first one. Our run rate, we are already at the level that we want to be at. So everything looking good, so we can have a better perspective by year-end how we should execute our efficiency goals from an OpEx standpoint. I hope this was clear.

[Daniel Szlak, executive]

The next question comes from Maria Carolina from Safra.

[Maria Carolina Carneiro, analyst]

A follow-up first on the tariff front, Piani, that you just mentioned. On top of the negotiation with clients for those that you are not able to actually take out the discounts, what would be maybe the alternatives here presenting something to the regulatory agency that might be able to fit here and provide discounts to, I don't know, maybe sectors that need them? At the same time, the company want -- will be able to recover at least part of the gap?

And secondly, also on the regulatory front here, I understand that May would be an important milestone. The company was supposedly to deliver the first appraisal of the regulatory asset base. If you guys can remind us if that's the correct timetable and how it's going to work in terms of the next important days referring to the tariff review that's supposedly occurring at the end of the year?

[Carlos Leone Piani, executive]

Okay. I'll [ keep ] here and the next one Daniel gets. Let me start by the end. I think the time line or annual calendar is the following. We finished the year. We have until May of the following year to provide the report of the more incremental investments that we made to the regulator. So this RAB report -- incremental RAB report's due on May. We're on track. No worries there. The regulator has up to the end of September to make an audit and give us a feedback if he accepts 100% or less than 100%. And by November he needs to give an estimate of what's the tariff repositioning or tariff review number that should be applied 1st of January the following year. This will happen on every year for the next 10 years. So this is the timing.

Going back to your first question, there was a provision as well in the concession contract to -- for the regulator to evaluate a new discount policy or program for customers that signed contracts after the end of 2022. We already had some discussions with the regulator regarding this program. And since this is a state policy, not even a regulator takes that decision, the government is reviewing these policies, seeing which industries or which sectors they believe they should attract or incentivize in terms of price. So what I can say to our -- to the extent that we could contribute, we already did this. Now it's in the [ camp ] of the state to make a decision in terms of a new program.

Just to keep in mind, the balance of what stayed with a gap, it's less than 3 individual clients. So it's not material. And we also -- if this new discount program does not materialize, we're looking, negotiating creative ways to try to offer other solutions like a free market solution type of other benefits from the captive market to these customers so we can try to reduce or -- in our objective to eliminate 100% of the outstanding balance. So this is our game plan.

[Daniel Szlak, executive]

The next one comes from Bruno Amorim from Goldman Sachs.

[Bruno Amorim, analyst]

I just have a quick follow-up on your strategy to reduce personnel costs. Can you provide more color on the strategy there? And also, will you need to increase other cost lines as you reduce the number of employees? Any color there would be very helpful.

[Daniel Szlak, executive]

Thank you, Bruno. Thank you very much. I think the voluntary dismissal plan is a part of a broader initiative that we have, which is called Sabesp Gente. Sabesp Gente basically has 3 pillars. The first pillar is internal moves because we have many talented people. And I think what we'll need now as a private -- or not a private, but like no longer an SOE, is a bit different than what the company needed when it was an SOE. So there are opportunities for people to be reskilled. So we have a lot of very talented people. So we have an important pillar, which is internal recruiting. We had more than 1,000 applicants internally to new positions.

We're going to bring -- the second pillar is recruiting. So we're bringing in fresh talent. We've hired 200 people since we joined to the company, and we'll hire another 200, give or take in the following months. And as part of the voluntary dismissal plan, we had 2,000 give or take, people taking it, right, like we disclosed last quarter. And when we think about that, we mapped at least 400 critical positions that for sure we needed to replace. So that's how I -- we think about that in itself.

When I think about how we continue to work with our personnel, I think there are a few things that you have to keep in mind. The first one is as an SOE and given the career tenure, there are many things that you tack on to the personnel costs, and that's a comparison that everybody used to make about the average personnel cost for SABESP compared to the market and to other companies.

And we start to see that change in the mix and the average cost in the new hiring process. So this is one of the things that you have to keep in mind. But I think it's actually the opposite, Bruno. As an SOE, the company had to wait for a public servant test to recruit people. We no longer have to do that.

So there were many positions that were hired through third-party services because the company simply couldn't hire people. And we're actually looking at how and which positions of those are actually positions that we want to internalize and actually to make offers to these people. So we actually expect a bit of the opposite.

And there are other things that are going to materialize in terms of savings and so on. And this will bring in itself savings to the company because we'll no longer have to pay a margin for someone that's actually outsourcing that. But more than that, I think there will be things that will actually require investment, that will require changes in processes that will happen throughout our journey here.

For example, the S/4 go-live, which will happen in the middle of 2026 is, for sure, one of those enablers. But there are many other things that we are doing in terms of investments for smart metering and other things, that will actually enable us to continue becoming more and more efficient and actually using people for more value-added activities vis-a-vis manual repetitive tasks.

[Daniel Szlak, executive]

The next one comes from Luiza Candiota from Itau.

[Luiza Candiota, analyst]

Actually, my question is a follow-up on Bruno's question regarding personnel expenses. So we observed a significant year-over-year reduction in this line, mainly due to the employee layoffs, as you mentioned during the presentation. I would just like to get more color on the exact impact of the most recent voluntary dismissal program in this quarter? And if you could share more details on the expected cost savings going forward, the expected payback period coming from this program and also the time line for the departures?

[Daniel Szlak, executive]

Thank you for your question. I'll take this one too. Look, we had about 2,040 people that actually adhered to the voluntary dismissal plan. We started the departures in February 2025. So we don't see a lot of impact from that plan in Q1. That said, we ended 2024 with about 10,500 employees, and we ended Q1 with 9,700 employees. So we had already a relatively big departure in March, but the bulk of the departure actually happens between April and May. Okay? So I think at the end of Q2, we should probably be relatively well in terms of the execution itself of the voluntary dismissal plan.

But in parallel, like I mentioned, we'll probably be rehiring some of those positions in the market. But again, at probably a lower average cost as we've seen so far if you compare SOE's average personnel cost compared to regular companies, especially on the base of the pyramid that they're very different. So this is what we'll expect. We'll see in the upcoming months.

We are not necessarily disclosing the payback of the plan, but one thing that you should keep in mind is we have a no layoff policy until January and April 2026 with different triggers. And for sure, the plan has to pay back better than this. So because otherwise we just wait for it, right? So I think that's a good thing to keep in mind. It is like what would be your ceiling in terms of payback. That's what we probably could comment on that.

The next question comes from Francisco Navarrete from Banco.

[Francisco Navarrete, analyst]

I just have 2 questions, if I may. One is regarding the tariff mix. You indicated that because of this mix and the CadUnico, you had a negative impact of BRL 100 million, or BRL 105 million estimated in the first quarter. And first, just to see if I'm getting this right, this would mean that maybe if you forecast it for the full year would be equivalent to about BRL 400 million?

And then can you recover this at the tariff review? I understand that this increase in the number of consumers with access to subsidized tariffs makes all the sense in the world because there -- you're including them in the CadUnico because, of course, they should be enrolled in this program, makes sense, I suppose, and I believe so. But will the regulator be sensible to look at this from the standpoint that this is public policy and should be public policy and not something that should be paid by the company and by investors. And then if I may... well, sorry Daniel.

[Daniel Szlak, executive]

No, no. no. Go ahead. Go ahead. Go ahead. If you have a follow-up, go ahead.

[Francisco Navarrete, analyst]

The second question was only about what Carlos said on the gap -- on the revenue gap that BRL 50 million or BRL 60 million that will remain. All else held equal, just imagine that just for the sake of argument, we don't get any other fix into this. The curve to get to the BRL 50 million , BRL 60 million as a permanent gap will be, I imagine, only 2026. Would that be a correct statement? Like first quarter '26 is when I would see this gap going forward of only BRL 50 million, BRL 60 million, just for the sake of argument? Would that be a correct statement? Those 2 questions only.

[Daniel Szlak, executive]

Thank you, Nava. Let me first address the mix question, right? We had BRL 105 million negative impact from mix. And this is driven by 2 factors mainly. The first one is as per the new contract, we had -- we used to have social and vulnerable tariffs that had a criteria. And for the new contract, we had to introduce Cadastro Unico, had to harmonize Cadastro Unico as the eligibility criteria for these tariffs. And that meant that we would exclude people that had access to vulnerable social tariffs with this new scheme. Right?

And what we -- when we saw that in December, what we decided to do was to extend that for a few months, which is going to happen until the end of Q2, with access to those subsidized tariffs for many reasons. But in the end, when we think about the $105 million that we had in Q1, I would say, about 60% of that is the adoption of Cadastro Unico and that would be, for sure, contemplated into the new tariff revision at the end of the year.

And if you think about that and you think about the expansion, if you recall, in last quarter's call, one of the investors actually asked the question about how this would impact our mix in terms of economies as we grow, right? Because we typically grow, especially in the metropolitan regions, we grow to lower income economies, right? So that will be a mix impact.

The first year naturally is a negative working capital, I want to say, impact because you get a compensation for that in the next tariff cycle. With the last year, assuming you don't continue growing to lower income economies, you don't continue worsening your mix with regards to average price, you actually get a positive carryover at the last year. So it's just a head and tail effect with roughly 60% of that.

The remaining 40% of that it was done at our discretion as a company, and we'll continue doing that until the end of Q2. But after -- at which we're discussing together with the regulator and the government, a potential expansion of the subsidized rates to make sure that we encompass the whole population that is currently receiving these discounts. If that does happen, then we would get compensation for that, and we'll keep these people on the tariffs. But that's how you should think about that going forward.

[Francisco Navarrete, analyst]

Understood.

[Daniel Szlak, executive]

That's the first question. Your second question with regards to commercial discounts. I think what Piani said is we're -- we first rescinded 580 contracts, give or take. And with that, we captured about BRL 500 million of potential discounts, which we have about BRL 5 million to BRL 6 million per month now that are actually fighting with injunctions, and we so far have been successful at that. We've won more than we lost, so which is always a good thing to happen. And we've taken the remaining BRL 260 million that we had in terms of discounts, and we've rescinded another BRL 200 million of that.

And when we think about those BRL 200 million that we've rescinded, naturally, they are not all like a flip of a switch decision, right? So there are some contracts that need to run off. There are some contracts that have 60 days, some contracts that will have 90 days, some that will have 120 days and so on and so forth in different contracts.

And we'll potentially see a movement on injunctions as well there. And we're ready for that, and we'll continue to do what we believe is correct and fair for the whole system, which is continue to try to enforce the actual tariff for those clients. But the timing of that could vary depending on that, Nava. I think optimistically, we'd finish the year with all of that captured, and that's what we're working against. But that could vary depending on clients' decisions with regards to trying to enforce that at the legal front. But that would be the part that we don't control.

[Carlos Leone Piani, executive]

Nava, just to add a couple of things on the 2 points. Our commitment was to finance with our own balance sheet until May of this year. We have aligned with the government starting on June or there's going to be a change on eligibility process that will encompass more consumers, or these guys will -- these consumers will become regular residential consumers.

So we have discussed many alternatives with the government and with the regulatory agency, and this will happen starting in June. We are going to stop financing at the end of May. So 2 options, or they become naturally regular consumers, or they are going to be able to receive the benefits given a potential change, and this is going to be compensated 2 years down the road. This is it.

Regarding the discounts, where the injunctions happen because we have no decision at the first level. We're working with the Court of Appeals at the second level. When we get there, this is going to be a judicial prudence. We're going to have a rule that's going to decide this very quickly. So we expect when we get there, there's going to be no injunctions anymore. As Daniel said, probably the longer tenure that we have is 120 days on this new batch of contracts that we're terminating.

So all that to say probably this is by year-end. This is unfortunately Brazil, court is a little bit more complicated. But I think we're in a good track to solve all the -- the majority of these problems.

[Daniel Szlak, executive]

The next question comes from Antonio Junqueira from BTG Pactual.

[Antonio Junqueira, analyst]

My question was mostly answered in Navarrete question. And my question was answered, I guess, mostly, if not 100% of it. I think it's clear like the fingerprints of you guys on cost control, on investments, on the development of new factor. Thanks, by the way, for that slide, is interesting. So I think I can complement his question by asking how the relationship with the regulator is? Because this revenue gap thing is a historical problem for SABESP. I think all of us analysts always achieved much larger regulatory revenues than actual revenues. The previous administrations could not explain all the gaps, why the gaps existed.

I think there was a philosophical debate on wholesale discounts, on some variables that created that big gap, but the entire gap was never explained. So how is the interaction about all those topics with the regulator? How -- Is he receiving it? Because I guess like the regulator has also been a reason for skepticism on our side. So how do you -- how is your confidence level that we're not going to see revenue gap from the tariff event at the end of this year onwards?

[Carlos Leone Piani, executive]

Thank you, Junqueira. I think I can -- we can give you our perception, right, and our -- how we think. On an incentive-based regulation, the one -- we have a hybrid regulation, but based on incentive-based regulation where you have RAB concept and regulatory costs and so forth, you need a strong regulator. And this is to the benefit of the company. And I think ours is a strong regulator. And this is helpful to us, right? If we had a weak regulator that didn't understand the rules and had different parameters, this would be a different problem to solve.

So our interactions based on this has been very good, I would say, as very public relationship, very technical. Many challenges of the new contract for both sides. Of course, I think the expectations of having SABESP as a private player are higher, or are the same. But at the end of the day, everybody expects more of the private player, and we hope to deliver. I think that we're going to be able at the end of the day to solve most of the issues, I'm not going to guarantee that we're going to solve all the issues, right? But I think we're going to solve most of the issues through time.

And I have -- I don't see, to your point, that the agency is a restriction for our performance. I see it the other way. And I'm telling this publicly on this call because I already told them publicly in another event with them on my side, okay? So I think this is to the benefit of SABESP, and I think we would have benefited in other states if we had stronger regulators to have those discussions. And I think through time, we're going to show through results -- objective results that this is feasible for us to achieve given this relationship and how competent they are.

[Antonio Junqueira, analyst]

Understood. And there's no major pushback -- technical pushback on their side when you debate this revenue gap, right?

[Carlos Leone Piani, executive]

No. They weren't just -- they said the rules are the rules. You should follow the rules. And when the rules don't make sense, they hear. I can tell you, this is the most technical relationship with our regulator that I had in many years. So far, so good.

[Daniel Szlak, executive]

Our next and final question comes from Andre Sampaio.

[Andre Sampaio, analyst]

Very briefly here. I just want to hear you guys a bit about the rural census? What is the expectation to when we should have that ready? And what do you guys expect in terms of the impact for the project, I mean, the projections going forward?

My second question was related to the tariffs as well. So fully already discussed it. So first on the rural census?

[Carlos Leone Piani, executive]

I can take that. We already hired the third-party provider. There was a rule on the contract how to do this. We've already been through this. We're going to start Q3 -- beginning Q3. There's an 18-month time frame at the very end of the period to validate and provide a final report, but we expect to have intermediary results starting even in the second half of the year, so we can have a basis to compare to the plans that we're doing for the works until the end of the 2029 cycle.

So on track, no major issue here. Time frame is long until the end of the year, but probably we -- as the concessionary, we're going to receive partial results first and probably the public -- the final results are going to be public at year-end, of next year.

[Daniel Szlak, executive]

Just to give you a few numbers on that and actual date. The field work actually is going to start in June 2025. So it's going to be a long work, and we'll probably have about 400 people on the ground doing that census, just to give you some color on that.

[Andre Sampaio, analyst]

And guys, let me see if I get this right. Let's imagine we have a census which are much higher expectation of, let me say, demand for CapEx. That I would say would be something that we would probably have to have some discussion with the regulator and the government about adjusting tariffs potentially on the revision, right?

[Daniel Szlak, executive]

In theory -- let me see if I understand your question. In theory, what you're saying is if there is a variation on the CapEx because in the end, the rural census shows you that you actually have to do more than what was originally thought on the appendix of the concession agreement. Is that how --

[Andre Sampaio, analyst]

Yes.

[Daniel Szlak, executive]

Okay. In the end, given the contractual model that we have, if the CapEx is prudent, it gets compensated on the RAB. For sure, the concession, so [indiscernible] has an expectation of how much the tariffs are going to increase to the consumers. And if that's materially different, they, of course, need to discuss and understand. But in theory, there shouldn't be a change to the contract. It may be a change in expectations, but it shouldn't represent a change in the contract.

[Carlos Leone Piani, executive]

Yes. Let me add here. There's a provision in the contract. If there's a gap larger or equal to 3 percentage points in coverage on the eve of switching between 2026 and '27, there may be a time to discuss. So that's the provision. And maybe depending on the census where you have a larger rural population than expected, this may be triggered. We don't see this. This is -- It won't happen on the eve of 2027. We'll receive this by municipality, by municipality.

And the final result will happen just by year-end of 2026. So we'll see the buildup of this gap through time, and we'll have the time to manage this deviation from expectation, okay? We just need to understand how we can communicate this to the market given this is under the regulatory contract. But we don't see, just to be clear, this is an issue or additional risk for SABESP. We're on track and everything is working well.

[Operator]

Thank you. The Q&A session is now over. We wish to give the floor back to Mr. Carlos Piani for the company's closing remarks.

[Carlos Leone Piani, executive]

So thank you, all, for the questions, and thank you again for joining us today. We appreciate your continued interest and support as we move forward with the transformation of SABESP. We know that the road ahead is ambitious, but we're confident in the path that we're taking. And more importantly, in our ability to deliver results that create value for all stakeholders. We look forward to keeping you updated on our progress in the coming quarters. Have all a great day today. Bye-bye.

[Operator]

SABESP earnings presentation is now closed. Thank you very much for your participation, and we wish you all a very good day.