Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to SABESP conference call to discuss its results for the third quarter of 2012. The audio for this conference is being broadcast simultaneously through the Internet on the website, www.sabesp.com.br. In that same address, you can also find the slideshow presentation available for download. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of SABESP's management and on information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of SABESP and could cause results to differ materially from those expressed in such forward-looking statements. Today with us, we have Mr. Rui Affonso, Chief Financial Officer and Investor Relations Officer; Mr. Mario Arruda Sampaio, Head of Capital Markets and Investor Relations; and Ms. Nara Maria Marcondes França, Head of Accounting. Now I'll turn the conference over to Mr. Arruda Sampaio. Sir, you may begin your conference.

Okay, thank you. Good afternoon or good morning for some of you. Let's start this presentation, but to let you know, we have 6 slides. And after we go through the slides and present the overall results for the company and a quick comment on the offset of the development, we will open for question and answers. Let's start on Slide 3. Here we show the company billed water and sewage volume, which was 3.2% above the same quarter in 2011. This higher volume resulted from the 2.5% increase in water connections and a 3.3% upturn in sewage connections, this is in line with the company's expectations to grow with billed water volume by around 2.5% and its billed sewage volume anywhere between 3% to 3.5%. This later influenced by the high investments that the company has been making in this segment, meaning in the sewage segment. In the third quarter of 2012, the water loss ratio remained flat at 25.9% in relation to the same period in 2011. We understand that with the contracting of the investments that are financed on the Japan International Cooperation Agency program, our water loss program, more of a loss reduction program, which is scheduled for conclusion early -- somewhat early 2013, we shift to a greater decline in this indicator as we move into next year. Let's move to financial highlights on next slide. Net revenue was positively affected by the 6.83% tariff increase as of September 2011, and a 3.2% upturn in billed volume as mentioned in the previous slide. Cost and expenses grew by 2.3% in the period as a percentage of net operating revenue, however, cost and expenses fell from 75% in third quarter 2011, and 73.4% in third quarter 2012. EBITDA increased from BRL 814.2 million in third quarter…

[Operator Instructions] Our first question comes Hasan Doza with Water Asset Management.

So I just want to clarify 3 things. From your reading of the technical document, the tariff increase is how much?

1.94%.

Okay. If I am a customer of SABESP and, for example, my bill is, for example, BRL 100 per month. Next year, on February, when this is into effect, my bill in real terms would go up by 1.94%?

On average, yes. That's correct.

Okay. So my bill is not going from BRL 100 to BRL 115. It's going from BRL 100 to BRL 102?

That's the way we, so far, can understand the technical note and what was being proposed by the regulator.

Okay. On that comment, if I look at your 2012 revenues on an annualized basis, just based upon your first 9 months results, you are on case to generate net revenue, net of the Cofins and Pasep taxes of like around BRL 8 billion? So when I look at your revenues for 2012 and I look at your potential revenues for 2013, on a real basis, your revenues could go from, say, net revenues of BRL 8 billion to up like 1.94% next year in real terms, right?

Yes, on real terms. I think you can infer that based on what we can also infer on the technical note.

Okay. So your revenues are going from BRL 8 billion plus on -- if you look at 1.94% plus 5% inflation, on a nominal basis, your revenues are going up from BRL 8 billion, up 7%, not 15%?

No. Again, we don't know how much the revenues are going to go up next year due to inflation. Remember that we don't know the figure. We will only know that later in August. So from a nominal standpoint, I think it's a lot of guessing and we would not like to do that right now. But from a real term, we believe that 1.94% is the closest we can understand and infer from the technical note on how we see impacting in a very general term of our revenue.

Okay, that's helpful. So it's just on your example, if I assume for this year, based upon your 9 months predictive results, you generate BRL 8 billion of net revenues for 2013, it should go up 8x 1.94%, correct?

Just consider that the last quarter is already going to be affected by the September 2012 tariff increase. So revenues from the last quarter, you have to consider the increase which was 5.15% and you can't give it right off the bat on September because of the deferred implementation pretty much have to dilute it through the next -- through September -- sorry, November -- October, November, December. Okay?

Okay. So that's why I was mentioning my 7%. So if I take into account the full-year impact next year of the inflation that you got at the end of August of this year, you have the 5% increase for next year affected, plus you have this real increase of 1.94%. And the way I look at it, okay, you approximately report revenues of approximately BRL 8 billion, give or take a little bit. But your revenues then are going up by 5.15% on a full year basis, plus 1.94% which is 7%. I mean it's not going up by 20%. It's going up in order of magnitude by 7%, right?

Yes. Roughly, the same estimate we would get.

Okay. That's helpful to clarify. That's very helpful. The third question I have is SABESP projected your OpEx to be in the node BRL 4.6 billion for 2013 and as you mentioned, ARSESP is proposing BRL 600 million lower at BRL 4 billion. So my question is if you, for example, don't reduce your OpEx by BRL 600 million, what happens to your earnings? Like what is the impact to earnings if you don't reduce your OpEx by BRL 600 million?

So let's put it this way, first, we're doing some guessing here because we're not totally in agreement with this reduction. I think it's really important to know, as I highlighted in the speech, that we're going to seriously discuss with ARSESP the cuts that they are proposing, especially the cuts in payroll and salary, which to a great extent, we don't even find the legal grounds in some cases for them to support that, the thought that this is not part of the regulatory operations and so forth. So this is -- now remember that the technical note is a parameter for estimating a tariff adjustment for SABESP and to a great extent -- to some extent, not a great extent, it is not so much correlated to our actual numbers, okay? Now if answering your question, if in case it prevails that the regulator will require us to reduce that delta in terms of -- and we do not do it, certainly, there will be an impact in net income.

Okay, that's helpful because that's I wanted to clarify. Is that the way you read this proposal is that the 1.94% real increase is predicated upon having a regulatory OpEx of BRL 4 billion, right?

Give or take, yes. Although there are some different take when you look at the accounting numbers and the regulatory accounting numbers.

Sure, sure. But in terms of the ballpark, we're talking about in terms of, like, order of magnitude. We're talking about, like, BRL 500 million to BRL 600 million delta?

Yes, it nailed us in 13% in our OpEx. I mean if you look at our current OpEx, it's very convincing, simple. We would have to work in reducing it by '13, which will not happen because we disagree with the base -- the bulk of the cuts in the payrolls and so forth.

Okay. I mean, this is the math that I'm doing. It's very simple. Is that your -- I know that if the tariff is predicated, the tariff increase of 1.94% real, it's predicated upon a OpEx, regulatory OpEx of BRL 4 billion and so hypothetically, in the short run, you are not able to reduce BRL 600 million. So, I mean, that's basically a delta of over close to BRL 150 per share, share of penalty that the shareholders would have to borne in the meantime, right?

Yes, yes.

Okay. So the 1.94% tariff increase says that you must get to a regulatory OpEx of BRL 4 billion and whatever is a delta that you're not being able to get to is going to be borne by shareholders?

Yes.

So essentially, theoretically, what could potentially happen at least in the short run, assuming that this BRL 4 billion regulatory OpEx doesn't change? Is that your top line tariff increase of 1.94% could be negated by this BRL 600 million OpEx delta?

Hasan, let me -- let's begin a little there. The point is if we all agree on the approach that what he's really estimating is this allows increase. It is that we're going to get 1.94% increase in reps. If we keep ourselves all constant and we do the math using the accounting base numbers, you're going to find out that definitely you are not going to get the same return on the walk return that we're allowed on the regulatory accounting base. So the point is, we might not even have significant impact on the bottom line because all constant you're just adding 1.94% to the top line. But when you look from a return on the asset base, from an accounting standpoint, we are not going to get the significant amount of increase we were expecting. Now we're going to that's called a complex ground of translating the regulatory accounting numbers that were utilized to term to get -- to provide the estimation for the tariff increase and the renumeration of the asset base, being the regulatory asset base with all the accounting numbers that you and we have access on a publicly public base.

No, that's -- yes, okay.

So imagining that, obviously, if we do move forward and reduce, in a great extent, the OpEx as suggested, we would actually increase the dividend and the income that we will make. But if we don't, we will have just this inefficiency that will not be shared with you guys.

Right. So -- and you said it in your -- at the end of the comment and if I heard you correctly, you said that this 1.94% increase is not sufficient relative to the proposed CapEx that you guys are thinking about. I mean, if I heard you correctly, then my question is going to be the follow-up that, yes, if you look at the math, you would be under earning the allowed return if you're not able to get your a CapEx down to the regulatory OpEx or, I mean, the OpEx. So if you have a 1.94% increase and then this OpEx hanging over your head, I mean, how does that impact your BRL 2.5 billion of CapEx in terms of whether or not it's economic to spend that CapEx when you don't have a sufficient tariff increase, plus you have this regulatory OpEx issue?

Hasan, we -- basically, we're not going to get the desired return of 8.06% of anything like that on the additional CapEx. What we're saying that we don't see, based on the numbers he utilized on his technical note that although from a number crunching standpoint, obviously, it's correct, the numbers he put out there. But we argue that the numbers do not reflect correctly whether on the OpEx side, whether on the depreciation side, whether on the projection of the volume side, what we find proper. So the way we see it is that if you adjust these variables and assumptions to what we think are more actual, real and operational-related, the outcome will be a greater increase than the one provided by the regulator, okay? That's our point.

Our next question comes from Enrique Tuvedi [ph] of UBS.

I would like to confirm one thing. Is the cost of the contract income policy, the different policy, their [indiscernible] 5% of revenues included as a passthrough in the terms of the recent proposal?

No, it's not included. It's not included. All the -- it's called the legal obligations on the contracts we have with City of São Paulo and other municipalities we operate are not part of what the regulator considers a regulatory and an operational cost. So it's going to be treated in separate the way the regulator has set out is that he will allow us to charge on a specific line in our bill, in our water bill. But that is not the final conclusion for that and the implementation for that is not yet clear. The regulator is also working on the legality of that, trying and working on obtaining a legal opinion from the state level lawyers, attorneys. So if it's not included, and it is not yet finalized by the regulator, how and when this is going to be applied. What we know is that it's not included, okay?

Okay, but you're going to treat this in your proposal in the public hearings, right?

No, we're not going to add it because we do agree with them that the 7.5% is not related to the operation. So we're not arguing so far with them. How he's dealing with this. We move from a very negative position to what we see as a very positive position. We recognize this that this is a legal obligation that is -- I'll give you an example. He is not including the Cofins and Pasep in the passthrough for -- in the expenses for passthrough. They're not even including. It has already actually technical notes, comments that he will allow that this will be a charge in separate. So when I'm paying my bill, I will know exactly how much Cofin and Pasep I will be paying, how much I'm paying for the service and potentially, whether we're paying for the legal obligation of the 7.5% for the municipal fund of the city of São Paulo. So it's going to be separate.

Our next question comes from Giovanna Siracusa of Barclays.

It's Francisco Navarrete. I know I already addressed a bunch of questions in the Portuguese call. I just have a one follow-up question. It's -- if you could help us understand the disconnect between what you're saying is going to happen with the revenue for SABESP for next year, either 1.94% increase and the regulator's statement just a few minutes ago saying that what should matter in Page 51 of the technical note is the BRL 10 billion that you're saying that you should achieve as well in year in 2013 with the tariff structure that SABESP needs to decide and provide and inform the regulator about. So in other words, you're saying that the focus should be in this BRL 10 billion of revenue that you should be allowed to collect as opposed to a 1.94% tariff increase or whatever percentage tariff increase or for the matter, whatever real per cubic meter new tariff that you have been set. So if you could please help us understand that, it will be very helpful for trying to model revenue and the [indiscernible] .

Francisco, let me see if I understand what you said. We just said on a fairly first approach, we understand that the best way to see and look the 1.94% is buy it to the total revenue and move on from the accounting numbers as they are and do your analysis. This is what we said in the Portuguese and we just reiterated with Mr. Hasan now. But let me understand you, you mentioned that the regulator has just made a comment that we should consider the BRL 10 billion payout revenue, is that it?

Correct, after the Portuguese call, we're kind of understand as you mentioned, a very complex technical note. And there's a lot of confusion by the market by analyst. Arguably, even you guys were kind of how deal with the new information that they're proposing to you. So we want to understand what is the revenue or how we should think about revenue for SABESP after the review is implemented in February 1? And his comment, the regulator's comment is that what we should focus on in Page 51 of the technical note is not the BRL 2.92 per cubic meter, not the 1.94% tariff increase that it represents, but what the technical note points to is that SABESP being allowed to collect the revenue amount of BRL 9.9 billion beginning 2013 once the regulation is implemented. So this is and I don't really know how the technical note maybe kind of relates to that or not, but clearly, if this is a statement by the regulator, then maybe we should think that the 1.94% written in the note doesn't really converge to the intention of the regulator which is allowed BRL 10 billion revenue for a new beginning next year? And this is just our thoughts based on a discussion with the regulator and we want to try to connect the dots here. Rui de Britto Álvares Affonso: Okay. Francisco, truly speaking. We're not aware and we have had no information from the regulator. If you have it, that's great. That what should be considered is the revenue is proposing to start in February. I mean, in fact, the way we read it and I'm trying to find it here in the technical note, we're trying -- so if you have this information, we don't have that information, okay? But the way we look at it is that on Page 51, we actually see that -- let me see if it's on Page 51 -- on items. No, no, it's not that. We're saying what we're looking at is on Page 42 on Item 10.10, last paragraph, what he's basically saying that this new tariff level corresponds to a linear increase in tariff of 1.94% given that the tariff, the start base tariff that he estimated is 2.87%, okay? So that's the only thing we can understand, we cannot understand from what he just he put out that our revenue starting next year will be BRL 9.9 billion, BRL 9,994,000,000. Maybe we don't have the same information. But again, Francisco, the way we're looking at it, maybe too much simplistic. But we cannot start inferring unless he has made any public statement that all of us are aware of it. We don't know.

Yes, I understand the confusion. It's really difficult for us to come up to a final conclusion, and I understand where you're coming from because it's in a way poorly written and there's a big disconnect that we're trying to fill in the blanks.

We will be working on this and hopefully, we'll be getting better and we can review all this as we move on, okay?

[Operator Instructions] We appear to have no further questions. Now I'll turn the conference back to SABESP for their final remarks.

Okay. Thank you, everybody, for your time. I know this is a -- we have fairly good results on one side. On the other side, we do believe we have a fairly good results with the process of establishing the methodology. But nonetheless, as we can all see very complex. We will be working to understand and bring more clarity to ourselves and to the market, and feel free to call us, myself, Angela and the IR team. We will be fully available. Thank you and goodbye.