Companhia de Saneamento Basico do Estado de Sao Paulo (SBS) Q4 2020 Earnings Call Transcript

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Companhia de Saneamento Basico do Estado de Sao Paulo (SBS -2.29%)
Q4 2020 Earnings Call
Mar 30, 2021, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Mario Azevedo de Arruda Sampaio -- Head of Capital Markets and Investor Relations

Good afternoon, everybody. Welcome to the SABESP Video Conference to Discuss the Results for the 2020 Results. My name is Mario Sampaio. I am 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 video cast platform. Our conference will take approximately 1 hour and 30 minutes and we will serve 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 constitute the beliefs and assumptions of SABESP's 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 [Phonetic] or may not recur. 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 my colleagues. Okay, so, today we have with us Mr. Rui de 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. I'd like to start saying that 2020 was marked by a number of unprecedented events that are essential to understand in order to try analyze the results of any company in any sector of the economy. These events take on a particularly mentioned 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 when the World Health Organization declared COVID-19 a pandemic in early March. The global spread of the virus created the double crises, one in public health, marked by efforts to reduce the contamination rates of the virus and adapt 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 recession and widespread deflate [Phonetic] generic pressures. The combined effect of these double crises began to perceived as of the second quarter of 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 the 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 private credit impacted the Company's business which faced the situation from its particular condition as a supplier of an essential service in the fight against COVID-19 pandemic that is the water. But not overlooking regular water supply to the population, SABESP 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 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 own debt instalments, and furthermore, directed by SABESP, by ARSESP, the Company also postponed tariff readjustment, which was scheduled originally to occur in the first half of the year but was implemented in the second half.

Second, SABESP boosted [Indecipherable] in its reused 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 the areas lacking infrastructure and distributed food baskets to reinforce food availability to the population in these locations. The financial index brought by the crisis affected the Company revenues as the second quarter -- as of the second quarter of 2020 in which build volumes for non-residential categories fell roughly while volumes in the residential category increased, 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 aimed at adapting the Company's expenses to the new scenario, express budgets reductions in the amount of BRL450 millions were implemented, and the program to reduce its staff by 8% was maintained. This effort resulted in a 2% reduction in costs, administrative and selling expenses, excluding construction costs, depreciation and amortization, an 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 BRL4.5 billion by issuing three debentures. We added BRL3.5 billion and complemented our funding requirements with a BRL550 million loan from the IDB Invest. In addition, we signed a standstill operation with the BNDES to postpone the payment of BRL131 million of debt servicing due in 2020 and used the instrument of guarantee insurance to avoid a cash outflow of BRL223 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 one $494 million IDB-denominated dollar-denominated debt. We exchanged it for real-denominated debt in an amounts resulting in an amount of BRL2.8 billion. And in September, we prepaid with reals a $350 million Eurobond that was to mature in December 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 good 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 Maua, 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 a 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 billed volume for the year of '20 -- for the year of which 2.2% was for water and 4.1% for sewage. Excluding Maua, Santo Andre, 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. On Slide 4, let's overview some financials and highlights and 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 depth of green with the city of Santo Andre in 2019 in the amount of BRL1.261 million compared to the debt agreement with the city of Maua in '20 in the amount of BRL193 million. This resulted in a negative variation of BRL1,068 million [Phonetic] 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 non-recurring events, including the drop in the average tariff arising from the change in consumption profile as already mentioned.

If we exclude construction costs, the Company's administrative and selling expenses increased by 4.5%, which is in line with inflation. If we also exclude 247% debt [Phonetic] -- 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 BRL152 billion, 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 non-recurring effects of '20, in this case the agreement with Maua, and the other non-recurring events in '19 which includes the reversal of the provision with the retired tax and agreements with Santo Andre, Guaruja and Sao Bernardo do Campo, the variation in EBITDA actually be positive by 1.1%. Finally, the net profit for the period of BRL973 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 BRL658 million in the first quarter, mainly due to the devaluation of the real of 29% against the dollar, we ended the year with almost BRL1 billion in net profit, which means that the Company generated BRL1.6 billion of profit in the last nine months of the year. Although below the value obtained -- the profit obtained in 2019, the profit in '20 can be considered a very good, given the adverse impacts brought about economic and health crisis. In addition also, 2019 represents specifically high basis of comparison due to the difference in the one-off effects of the debt agreements that we mentioned related to Santo Andre and Maua.

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 BRL360 million, product of the economic framework already described by us. Depreciation and amortization also increased by 14.4% or BRL256 million. Treatment materials increased 9.1% or BRL28.4 million. Electricity rose by 6.5% or BRL74 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 BRL179 million, personnel of 1.2% -- sorry, 1.3% or BRL34 million, services of 2% or BRL36 million and general materials of 3.3% or BRL9.1 million. The details, I'm sure you can find them in other variations and discussions in our earnings release.

Let's now go to next slide. Here, we show our financial performance summarized which summarizes all that we have explained so far. We started with a net income of BRL3.3 billion in 2019, which was greatly impacted by the one-off effect from the Santo Andre agreement plus the pre-pandemic economic context. Net operating revenue decreased by BRL186 million due to non-recurring effects in '19 and the drop in the average tariff in '20 which was partly offset by the construction revenue, cost and expenses, including cost -- construction cost increased by BRL1.2 billion [Phonetic], other operating revenues and expenses including equity result was positive by BRL136 million. Our financial results fell by BRL2.1 billion, mainly due to the depreciation of the real. Income tax and social contribution increased by BRL957 million due to the lower taxable income, which partly offset losses in the results. And finally, net income totaled BRL973 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 Group's 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 non-recurrent and relevant events that would distort the result and the comparison. In order also to maintain the index as of the period, with the same price base, all the indicators were calculated in average values for fourth quarter '20 and adjusted by the IPCA 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's still below '19. Operating expenses per cubic meter billed has been stable in the 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 billed 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 experienced 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 BRL4.4 billion. If we disregard from this value the extraordinary effect of the agreement with Maua, the value reduces to BRL4.1 billion. Now, 2019 capex book value was BRL5.1 billion. If we disregard the BRL1.3 billion value of the agreement with Santo Andre, this value drops to BRL3.7 billion. In such, comparing this value with that of 2020 of BRL4.1 billion we just commented, we can see that the amounts invested actually in 2020 increased in relation to 2019. Also, comparing the forecast capex value, for the year of 2020, last year, on a cash basis of BRL3.5 billion, with the actual value of BRL3.3 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 disbursal with capex adds to BRL21 billion, of which 61% is sewage or BRL12.8 billion and 39% or BRL8.2 billion in water. Considering that the investments forecasted for the expansion of the water security during the 2014-2015 water crisis are concluded with only the reversal of the Itapanhau River remaining that 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 than water and this already starts this year of '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 prowess. On February 8, two preliminary technical notes were released, one addressing the proposed calculations for the P0, the maximum average tariff and the 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 in the amount of BRL4.8413 per cubic meter was calculated over the measured volume and not to build 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, calculated results a little more difficult. Although everyone here 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 tariffs until the end of the cycle. We also understand that you have already hopefully read our contributions on those 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 Sao Paulo is still very much under control. The construction of the Sao Lourenco water production system and the Jaguari-Atibainha water interconnection increased overall Sao Paulo metro region water security and systems, precisely to cope with these periods of water stress.

To give you an idea, were it 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 by you when analyzing the situation of water availability and the production systems in the metro region of Sao 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 Tiete system of 17%, both alone covered more than 65% of the demand. As you can see at 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 makes it possible to phase dry period periods as well as the one we saw last year.

Last -- a 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 vetoes 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 a accelerated mode. As we have mentioned several times, the approval of the vetoes 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 eight 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 Sao Paulo that is valid until 2040, almost 20 years. For this region, we must continue to carefully and actively monitor the discussion and definitions of decrees and regulations that must arise as a result of the approval of the law. Pending the definition for example are: the transition rule from municipalities that have precarious contracts; definition on regional block formations; rules for the indemnification 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?

Questions and Answers:

Mario Azevedo de Arruda Sampaio -- Head of Capital Markets and Investor Relations

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. Hey, guys? Okay, we have one 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 ramp? Rui?

Rui de Britto Alvares Affonso -- Chief Financial Officer and Investor Relations Officer

The first one could be answered by Mr. Miyagui. And then the question applied to the ramp, I guess, by Mr. Tiberio. Right?

Marcelo Miyagui -- Head of Accounting

Okay. Good afternoon, everybody. Talking 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 these borrowing costs. So, this is one of big difference. Also, some, like, contracts -- performance contracts are also recognizing the accounting numbers, but we do not expend money while it's in progress. Tiberio, you can talk about...

Luiz Roberto Tiberio -- Head of Economic Regulation (Tariffs and Costs Superintendent)

Yeah, OK. So let me take from there. Actually, it's very likely that your question is associated with what should I consider for the regulatory asset base, I suppose, right? The main answer to that is -- the regulatory body will consider an increase on the regulatory asset base once the construction in progress moves to an asset service, right, so when it gets operated. So it's neither cash or accounting wise -- it's -- when it moves from construction progress, it should -- operating assets accounts. That's the moment when it triggers an increase in the regulatory asset base.

Mario Azevedo de Arruda Sampaio -- Head of Capital Markets and Investor Relations

Okay. Juanjuan, is that clear? Any other questions? Okay. We have one more question coming in. Let's see. It's from Hasan Doza from 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 tariffs and P0? Rui?

Rui de Britto Alvares Affonso -- Chief Financial Officer and Investor Relations Officer

[Technical Issues] 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 on 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 revenues for SABESP, in our view, should be applied very, very closely to the financials and the preliminary tariff hike.

I mean, we can even agree with the growth number for the tariff hike needed to achieve the required revenue for the whole period of the next four years tariff cycle, but we would attention -- 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 hype. That is our first and I believe more comprehensive difference between what we propose and what ARSESP is proposing in its preliminary note, technical note. We have some others. Maybe we can choose one or two, Tiberio, and share with Mr. Hasan Doza.

Luiz Roberto Tiberio -- Head of Economic Regulation (Tariffs and Costs Superintendent)

Okay, I can do that. Actually, our document, commenting on the preliminary note, has more than 100 pages and they're obviously -- it's quite a long document, but really, you could summarize the content in last year I would say five or six 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 made a comment on that. That's quite important we renew once the regulated to consider this amount that is almost BRL3 billion that is recognizing right now, we asked the regulator to consider that backwards and not from this point forward. So that's one of the main request we have made.

And obviously, as we mentioned, even though 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 calculated BRL4.84 per cubic meter for us, but has to forward the application of this adjustment over the years, giving the new tariff structure. Obviously, we are balanced in economical terms, but we are not exactly balanced in a financial year-by-year basis. So, we added a comment to our stat as well. And then, another few minor items giving adjustment from compensation in regards to execution of prior plans as well as impacts on our sales mix, given the COVID-19 pandemic year. I would say those are the main ones, obviously, summarizing it very, very short.

Mario Azevedo de Arruda Sampaio -- Head of Capital Markets and Investor Relations

Sorry I was on mute. So, we have one more question here from Lilyanna Yang from HSBC. Question is, what are the chances of the delay in the rate review tariffs 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 Sao Paulo state at a time, year, when you're still undergoing a change in the tariff structure and when you seem to be getting a relatively low one digit tariff increase this May '21. Thanks.

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

Rui de Britto Alvares Affonso -- Chief Financial Officer and Investor Relations Officer

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

Luiz Roberto Tiberio -- Head of Economic Regulation (Tariffs and Costs Superintendent)

Okay. Yeah, I can do that. Yeah, indeed your reading of the technical notes are right. I mean we should be getting a tariff hike of mid two digits and the tariffs or the proposed tariff adjustment for the first year of the cycle, which kind of translates back to that -- which are just phased 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 one 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. So our capex program for the next four 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 most of the tariff hike 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 is we're moving from one tariff structure to another one, which should bring more competitive -- a more competitive environment for SABESP to the non-residential customers, someone is going to pay that. And obviously, if someone is spending less tariff on one side of the equation, someone else should be paying more so that you still match this equilibrium. You really -- I mean, it doesn't make a lot of science 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. Rather this transition period is four years, six years, 10 years. One year wouldn't indicate [Phonetic], 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 -- we shouldn't be having this portion that is not being achieved capitalized and included in the next years of the cycle. That's kind of how we look at it. I don't feel -- Mario is a very smart guy. He is going to access the financing market. 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 use that word, and obviously we shouldn't compromise capex for that. That's the view at this point in time.

Mario Azevedo de Arruda Sampaio -- Head of Capital Markets and Investor Relations

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

Rui de Britto Alvares Affonso -- Chief Financial Officer and Investor Relations Officer

All right. All right. First, Lilyanna, I'd like to remind everybody that SABESP actually is being very active -- proactive in maintain and expanding the market the last three years. During the discussion of the new regulatory framework for sanitation in Brazil, we have been able to expand big municipalities spend -- big municipalities ensuring contracts like, remember Guarulhos, [Indecipherable], Santo Andre and lastly Maua but those we have been able to ensure contracts with dozens and dozens of medium size municipalities during this period and to say we are not [Technical Issues] close attention in our [Technical Issues] our neighborhood in Sao Paulo.

We are now approaching the municipalities outside Sao Paulo like we did in [Technical Issues]. We are analyzing very carefully like our CEO mentioned during our conference call this morning, but with conscience. We are a big company. We have not just to expand, we also will 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 Sao Paulo market share.

Of course, we will take, as Mr. Braga had said, careful look at new opportunities, but they have to be profitable and looks not uncertain, because we are not desperate to expand and deteriorate somehow our good position in the market that's between these two markets as strong as we have to take our decisions.

Mario Azevedo de Arruda Sampaio -- Head of Capital Markets and Investor Relations

Sorry, again. I just want to make sure I don't miss any questions here. I think there is one more from Juanjuan. Let me make sure I get it here. Just a second please. Okay. There is a first one 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 ones goes to the ramp? That's the one I -- yeah, I don't seem to find.

Rui de Britto Alvares Affonso -- Chief Financial Officer and Investor Relations Officer

It's the same.

Mario Azevedo de Arruda Sampaio -- Head of Capital Markets and Investor Relations

Yeah, I don't seem to find any. Okay. Yeah, the question continues. Over the long term, are the numbers that are close to the accounting capex that go to the ramp? There is a big difference between accounting and cash. I think that 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 a call, however the best for you. Okay, let me check -- are there any more questions? No more questions? Okay. Let's do this. Let's -- Rui, let's finalize our call. So the word is with you -- for Rui. Seems to be one more question. Yes, there's one from Lily. Let's work on that one.

Okay. Yeah, 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 a risk of underperformance. If your actual revenue comes -- sorry, very small. If you're 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?

Luiz Roberto Tiberio -- Head of Economic Regulation (Tariffs and Costs Superintendent)

You wanted me to take that, Rui or do you want to make any comment before?

Rui de Britto Alvares Affonso -- Chief Financial Officer and Investor Relations Officer

No, please, your time.

Luiz Roberto Tiberio -- Head of Economic Regulation (Tariffs and Costs Superintendent)

Okay. So that's a great question actually. The regulator has defined the rent 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, sorry. 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 should -- there is no new tax structure in that -- in the first year. We are actually going to still be billing our customers a set 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 OK, so, if you are not getting the entire revenue for the first year, then the range should be 0%. So everything that is off -- I mean below it or above it, everything that is off, the BRL16.5 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 on economical calculation underpinning that choice, we didn't find it. So our consideration is to go for 2.5% for the second year, third year and fourth year, 0% for the first year.

Mario Azevedo de Arruda Sampaio -- Head of Capital Markets and Investor Relations

Okay. We don't have any other questions on the pipeline. Let me give you guys 10 seconds, 15 seconds, 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 back up team. No other questions? Confirmed right? So, Rui, the word is with you for the final remarks.

Rui de Britto Alvares Affonso -- Chief Financial Officer and Investor Relations Officer

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, with Brazil, with the whole world. We hope we see you soon, not only through Internet, but also in person and in our one-on-one meetings and investors conferences very soon. Stay safe. Thank you very much. See you soon.

Duration: 56 minutes

Call participants:

Mario Azevedo de Arruda Sampaio -- Head of Capital Markets and Investor Relations

Rui de Britto Alvares Affonso -- Chief Financial Officer and Investor Relations Officer

Marcelo Miyagui -- Head of Accounting

Luiz Roberto Tiberio -- Head of Economic Regulation (Tariffs and Costs Superintendent)

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