Good morning, everyone. Welcome to Sabesp's conference to discuss our results for the first quarter of 2023. I'm Luiz Roberto Tibério. I am fundraising and investor relations director. Today we have André Salcedo, Sabesp president. Catia Pereira, economic director. Marcelo Miyagui, who is accounting director. Before I pass the floor on to André to begin the conference, I'd like to give some disclaimers. This video conference, which has simultaneous interpreting into English, is being recorded. The video will be available for download at the Sabesp portal, where you can already find the results press release. Remember that questions will be accepted for the Q&A session. Please use the chat here on Zoom. Our conference is scheduled to last for approximately 60-90 minutes, and we have set aside 30 minutes for questions from investors and 15 minutes for questions from journalists.
Just to complete our opening remarks, I'd like to mention that any potential comment that may be made during this conference with regard to forward-looking statements, projections, and forecasts, both operational and financial, are subject to risks and uncertainties as they depend on the information that is currently available to Sabesp. They do not constitute any kind of promise or guarantee. They involve risks, uncertainties, and assumptions because they pertain to forward-looking statements, and as such, may or may not come to pass. Investors do understand that general economic conditions and other operating factors may have an impact on the company's future results and may lead to results that are materially different financially from those that we forecast here. Before I pass the floor on to Andres, I'd like to run a short video that we've prepared for you.
Hello, everyone, good morning to everyone. Thanks, Tiberio.
I apologize for the technical hiccup in the beginning of the video. It is available and in the material that we posted to the CVM. This video quite succinctly describes this new chapter that we are beginning as we build a company that is more agile, more innovative, that is closer to its clients, that pays attention to compliance, to leveraging and value, and that is more significant to all stakeholders. That obviously includes all of our investors and long-term partners. After all, we've been at this for over 50 years, and we hope we will continue to be even more successful as we move into the future, especially given this extremely robust platform that we've built over so many years here at Sabesp. I'd like to thank all of you for your time. We are finishing out the first cycle of adjustments here in our Q1 2023.
Just as a reminder, if you don't know me, I am André Salcedo. I am CEO of Sabesp. I formally joined the company in mid-January. Tarcísio gave me all the leeway I needed to assemble the company and its board. As I understood, this is focused on efficiency and provision of service. That's exactly what we're doing here at the company. We've had some very intense days at the company. The company is spectacular. The staff here at the company are amazing. They are truly committed to quality of service. This is what has allowed us to be so successful during these first 100 days as we create a platform that we believe will be the winning platform for the company and for the sector as a whole.
As you can see here in this diagram, our focus is on clients first and foremost, as well as operations and maintenance. We collect sewage and provide water, and we manage all of these services as well. With that end, we have created some specific competencies. If you've had any contact with me already, then you know that my goal is to simplify the management structure, to improve decision-making, to improve and streamline our services and our centers, and to make all manner of changes that will be of benefit to our clients and investors, so that we can be efficient, so that we can work smoothly, and now, so that we can be more efficient and have a more centralized decision-making strategy. We have formally approved in the latest meeting of shareholders, we have formalized our strategic view.
Namely, to focus on our clients and the regulatory schedule with integrated clients. Starting here on the left on this diagram, we have a strong position in new business and regulations. Our main focus there is to bring perspectives within the company and with our partners even closer to focus on compliance and regulatory and cost control. Within our field of work, this is something we're already doing, and we're also working on bridging gaps between our company and regulators. This is something we will continue to deliver over the coming fiscal year. We have merged the 2 boards. Previously, we had 1 for the metropolitan and 1 for regional, but all were under certain other administrative and back office departments. We have unified everything, and we have removed from the business unit every task that is not pertinent to their actual provision of service.
Here we see on the right, the economic and financial board and investor relations as well. This department will still handle HR and our employee relations as a whole, as well as compliance, strategic requests and white papers and similar assignments. The CFO is Katya, who has been assigned this role because of her outstanding qualities and skills, and we are now integrating her into the new processes that are being designed. Furthermore, we have the engineering and innovation board on the top left, where we analyze and build solutions for expansion and planned CapEx.
We have one board, one VP that takes care of the OPEX, and we also have the engineering and innovation VP who designs the most innovative solutions to allow us to have the most modern activities and services that we provide, so that we can help everyone with as much efficiency as possible. Additionally, we have created a new VP department dedicated exclusively to clients, a VP structure. This means that our client relations cycle is now going to be even better managed. This includes billing services, reconnections, and any kind of service that any of our clients need. My role within this whole structure is to ensure that this whole machinery works as smoothly as possible and to ensure that we have strategic guidance.
Therefore, linked to the CEO structure, we will have data analytics and other strategies that are designed to capture intelligence using sensors and system automation, as well as looking around the client environment to detect any kind of fraud or similar activity. We have a strategic view with clear targets, and the minute they're ready, we will be very pleased to share with all of you. Basically, from the organization standpoint, that's what we have. We are an integrated company. We are one single Sabesp, and we work in integration between our different departments so that we can deliver the best services for everyone. We've also begun the Integra Tietê project. That is the fruit of many of the lessons we learned during the Pinheiros River project.
We are confident that we will be able to restore this additional river as well, and that includes the location where the two rivers join and come together. The Phase 1 starts at Rio Pinheiros and goes all the way to the source of the two rivers. Phase 2 will go downstream toward Barueri and the mid to lower Tietê River region. We have a number of other initiatives linked to environmental concerns as well. To give another example, in January, we broke ground on a new project, the PCJ Cantareira project. This is aimed at restoring river shorelines. It is in partnership with the environmental agency that looks after the PCJ region. We'd like to thank the entire staff for their engagement and for being so readily available to us every time we had to ask for help.
When we saw the rain in the northern shore, Litoral Norte, there was so much destruction that occurred during a three-day period, and our public commitment to restore this region was very quickly undertaken. We brought water to the Peruíbe region, and we will have completed this project by the end of the year. Namely, we will be adding approximately 6,000 new residences to our fresh water provision service. Those are quite a few million people who will now start receiving drinking water, clean drinking water from Sabesp. I'd like to thank all of you for being with us. I think you can see we are truly committed to delivering results that are appropriate, that are suited to the powerhouse that this company represents. This is just the beginning. We are truly committed.
The company is responding very, very well to our challenges, and the team is amazing and thoroughly engaged. We're very confident that our plans to generate value, which includes the state government's initiatives, will be very successful over the next few months and the coming future. I'd like to thank all of you and wish all of you a great call. Thanks, Catia.
Good morning. Good morning, everyone. All right. Well, good morning, everyone. I'm Catia Pereira, and thank you, André, for the introduction, and thanks for the retro. Looking back over these past 100 days has been very, very interesting. I love seeing what this board has been accomplishing over the past few months. I'll now share some results. The main operation that we have that gives us revenue is volume.
In the first quarter, we had a 1.1% increase in the volume of revenue from the provision of water. Essentially, we saw an increase in industrial and public water. What we are witnessing here is truly, it can be confirmed as a return to normal after the pandemic as more and more people leave their homes and go back to industry. This is great for us because the distinctive fees that we charge industries is very good for our revenue. Basically for commercial and residential, these results are very in line with what we had forecast. We have connections with new economies, new residential homes. This is already linked to the Novo Rio Pinheiros project. Just as in the volume of water, for the residential, we also see for commercial, industrial, and public.
We can see an overall increase in 1.4%, and this has a very positive result in our revenue, especially due to the mix between the different categories in addition to residential. Next slide, please. All right, that was volume. Now let's talk about revenue. During Q1 2022, our revenue was BRL 3.9 billion, and now in Q1 2023, our revenue was BRL 4.5 billion. This is a 13.5% increase. This increase is basically composed of 12.8% due to a fee increase in May 2022, and also the 1.4% increase in volume. As we can see, the fee increase that was approved by our regulator and the increase in volume both contributed to this overall 13.5% increase in revenue.
Looking at EBITDA, we see an 18.2% increase. If we reduce revenues and cost of construction, our margin essentially changes to 45%. This truly shows that we have not only grown, but added value to the company. Our net profit is down by 23.4%. This drop is essentially due to foreign exchange variance. We saw a considerable difference in the foreign exchange rates between Q1 2022 and Q2 2023. The BRL has devalued significantly compared to the US dollar, which is where we hold our foreign currency assets. This is why our net profit has dropped. If we look at our financial performance. On this bridge, we can see our net profit in Q1 2022 on the left and our net profit in Q1 2023. We started with BRL 976.
We added BRL 537 million in revenue. Just as a reminder that these 13.5%, this increase is partly due to fees and partly due to organic growth of volume. We have BRL 6 million in construction. We had a BRL 297 million drop due to costs and expenses. Other revenues and expenses bring us up by BRL 12 million. Looking at net financials, which is basically expenses on interest and foreign exchange, this represents a BRL 600 million drop. For income tax and CSLL, we have BRL 113 million up overall this puts us at BRL 747 million in net profit for Q1 2023. I'll give more details later on. Let's look at costs and expenses. As I mentioned, we went from...
As I mentioned, we had a 10.3% increase in costs and expenses. This is broken down into staff, 11.4%, as well as financial recovery due to inflation, and also due to the change in load that was assigned to the company in 2022. There was also a change in our hired staff. Globally, this all adds up to 11.4% more in staff cost. Just as a reminder that if we compare this with 2022, most of this was already forecast if we look at the 2nd, 3rd and 4th quarters of 2022. Let's look at the 2nd column, general materials. This is up 21.7%, which is essentially due to upkeep for our network. This is what we've seen in terms of material growth.
The growth of material also brings with it the growth of services, so that we can provide our job, so we can do our job and provide services to the clients that we serve. When we look at our prices, we are still suffering from the high cost of chemical products. We saw this last year, and we still see the cost of chemical products and inputs higher. We're not yet back to levels that we were at before the war in Ukraine. We use many of those products for our water treatment services. Another portion comes from volume. On the one hand, we have higher costs in treatment material, but on the other hand, we also have more revenue.
In order to treat the higher volume that we've had as a result of the heavy rain, we also have, we need to spend more in order to provide these services. Again, half of that comes from volume, organic volume, and the other half comes from the Forex rates. Essentially what we see in looking now at services, a 22% increase, and most of that is due to IT. We have invested heavily in computer systems designed to help improve the company do its job better. We are trying to create an interaction frame to allow us to provide services, and that includes customer service, as we put clients front and center and aim to restore our PECLD rates to what we had before the pandemic.
Essentially, to summarize, we are investing on strategies that will improve our revenue, our provision of service to clients, and guaranteeing our services so that there will be no more outages in the future. As we provide more materials, again, we also have to spend more money to provide these services. Looking at the middle, we have electric power, and we saw that in the last quarter of 2022 we already had a drop, and we continue to see that drop. We had a change in our mix, our product mix. We see now in Q1 that 50% of our services are used by the open market. This means that there is a lower fee for the open market. Conversely, consumption has dropped, but so have fees. Ultimately, we've stayed at stable prices.
This means that we are not forecasting any kind of water supply crisis like we had last year and the year before. There's also the ICMS Teto that was updated by the federal government. This is a benefit brought by the regulated market. To recap, we have improved mix as we migrate more of our energy to free market pricing. In the regulated market, there was a drop in the price. For general expenses, still in the center, we had a 12.8% increase. This is from BRL 279 million-BRL 315 million. One reason is that we have increased our revenue. As a result, we will also see an increase in our expenses because these expenses do include city taxes, and most of this increase is explainable by municipal taxes. Next, depreciation and amortization.
We have increased our asset base. As we increase our assets, so too will we see an increase in depreciation. Next, we have a drop in PECLD. This has been occurring over many different quarters now. We have an 8.4% drop in PECLD cost. This is due mainly to a strong investment and commitment by all of our teams. We have strong suppression that is already occurring the first quarter as a result. This also has an impact on services. Additionally, we have some partners whose services we have contracted and who help us bill our clients. What we see here is a combination, a composure of many different initiatives that ultimately aim to reduce PECLD costs. As Andre mentioned, we are working to create a number of different programs.
For instance, we're going to have an open day where we will receive many different visitors and investors, so we can talk to all of them and explain everything about our accounts. This is probably going to be even more important in July as we see the addition of Pix payments. This is going to be very convenient for many of our customers. That's the facility. We also had a drop in tax expenses, fiscal expenses. A 14.7% drop even though it is a smaller level. Next, please. For financial results and net debt, as I mentioned, we benefited in Q1 '22 from a very positive foreign exchange rate, this brought us BRL 512 million. This is no longer the case. As we can see, the greatest change did come from foreign exchange variance.
Let me just check my data. The US dollar to BRL was BRL 4.75, it's now at BRL 5.08. Our IA didn't have very much variance, the major impact was revenue that we had last year that was due to foreign exchange variation. This revenue, this forex revenue, is no longer the case anymore. As we see, most of our debt is in yen and dollar. We control very closely the level of debt that we have in yen and in dollars. We had JPY 1.861 billion compared to $743. As we look at our financing portfolio, we have 28% debentures. Our infra debentures at 14%. BID is at 12%.
As you can see, our portfolio is very diverse, and this supports our investments. This is a great aspect of Sabesp because we tap into a strong multilateral market with projects that support our strategy to deliver our services. This is a very powerful value multiplier. This allows us to bring improvements from our CapEx multilateral projects, our own projects, which are thoroughly connected to these different agencies' goals. Looking at costs, and we'll also see why our financial expenses are up. 50% of our debt is linked to CDI, the interbank rate here in Brazil. This went up considerably if we consider the first quarter of 2022 with the first quarter of 2023. This also explains why we saw an increase in our financial matching between income and expenses.
In addition to the high in the CDI rate, we also had our 30th debenture that was issued. As a result, we accordingly had a number of different movements in the indebtedness field. Next slide, please. I'd like to mention one more thing. I don't have a slide for it, but I do want to bring it up. The latest fee structure review is now in effect from 13.6. This has come into effect on May 10th. Starting in the next monthly cycle, starting now in May, we had a 9.56 correction. Part of this result comes from an amazing review, 156. We can see, and we can close part of the regulatory gap that we had. We have found a number of different strategies, and ultimately, we have gotten approval from them.
Now in May, we are going to have very much more resilient finances. Well, we are now open to any questions you may have.
Thank you, Catia. Thank you, André. All right, now let's move to the Q&A session. Just as a reminder, I'd like to mention that we will first answer questions from investors and analysts, and secondly, we will have a space dedicated to questions from journalists. As you know, we have the Q&A feature here on Zoom. Please use that mode, and we will answer all your questions. We have three questions. The first two are very similar from Henrique Peretti and Rafael Nagano. I'll read them out, and then André and Catia can answer. Good morning, thanks for the conference. Could you give more details about PDI, including the program's cost, the forecast for savings and payback?
What is the estimated cost for the announced PDV, and what is the expected payback time?
Yes. Thank you, Rafael and Henrique, for your questions. Of course, we did have internal forecasts for the total cost of PDV, but we'll limit ourselves to only posting the adoption rate because there could be some fluctuations due to adoption rate. But specifically for Sabesp, the transparency portal shows salaries for every single employee. So I think it's much easier for people who want to study and analyze the company to see our specific values there. The payback can vary, but we do expect it to be somewhere between 12-15 months. This is a very typical payback time for a program like this one.
For our projections, we will announce these to the internal, our internal public, our employees, and the unions as well. We'll publish that later today. Our union relations are very strong now. As soon as we finish the cycle of talks with our internal public and unions, we will discuss with the market. we'll talk to them first.
All right. Thank you, André. We have a question from Guilherme Lima. He says, "Considering that the new, the new governor of the Japanese central bank is reviewing his monetary policy, this administration will not consider any possibility of acquiring derivatives. Will this administration not consider acquiring derivative to keep foreign exchange rates and interest rates as they currently are?"
Thanks, Guilherme. Yes, we are looking at derivative.
Our goal is to never miss any potentially interesting or attractive strategies to keep these rates at good levels for us. Yes, we are studying these possibilities.
The next question also comes from Guilherme Lima: "The summary of accounts receivable from clients that are over 360 days old is near record levels posted in Q4 2022. Could you please give some information about how this number will be reduced over time? Should we expect that a great percentage of these accounts receivable that have already expired, that have already been defaulted on, will drop during some point in 2023? If so, when will this happen?"
Well, this is exactly the purpose of that open day, as I mentioned. This is exactly what we hope to accomplish. We hope to have good adoption rates from these defaulted clients.
I can't say exactly how much we will recover over this year, but the company is focused on reduction. That means reducing this type of inventory that has been defaulted on for over 360 days, as well as new accounts receivable. And for those, we do have a strategy to keep them stale for as short a time as possible. So these are the targets we've been working on, and across many different departments here at the company, we are aiming to secure an improvement there. Looking at our forecast now, we hope to continue improving even the accounts that have been provisioned for. So these numbers, they are accounted for in our reports, so they will not have any impact in addition to their accounts.
Thank you, Catia. The next question comes from Guilherme Lima.
He asks, "Have you ever had any interactions with the IFC about modeling studies? When do you expect these studies to be completed? Do you believe that there will be an impact to the fee structure?"
Thanks, Guilherme. Yes. We have been speaking with the state government and have been participating in meetings with the IFC, especially to give our opinion about the company's contracts and to give information about these contracts, as well as to give our opinion about a number of different value levers that the privatization process could potentially give the company, clients and city. Within the scope of this analysis, this project, this is going to be a very broad analysis, going to look at the company profile as well as investments that will need to be made and other topics.
This will give us a strong regulatory forecast and also a forecast about the scenario, namely what regulatory models could be adopted and so on, as well as the benefits and challenges for each one. I don't have a detailed calendar yet. This hasn't been mapped out or scheduled in that degree of minutiae, but it has begun. What I can answer about your question is that we are working in that direction.
Thanks, André. The next question also comes from Guilherme Lima, who asks, "With regard to the gap between realized and regulatory revenue, could you please comment about where you see this difference and what you're thinking about in terms of strategies to reduce the gap? Do you believe that in 2023 you are likely to reach the required revenue? Where are the inefficiencies you aim to improve during this year?
I'll start answering, and then Marcelo and Katya, you can add your thoughts. The main goals of our regulatory agenda is to tackle these gaps. A significant part of this has been addressed when we published in December the real updates, and we have another update now in May. This is aimed at ensuring that the designs that the ARCESD made will be met. We do not want to have any kind of issues owing to formatting or information completeness. There are some other initiatives too. For instance, the ARCESD does not consider bills that need to be reissued. Because every utility issues 10 million bills per month, and some percentage of those 10 million will incur some kind of printing or reading error. This has an impact on revenue.
As well as other factors like the mix between billing and consumption, the mid-pandemic and post-pandemic changes as well, the return, the gradual return to normal, as we mentioned, and also the fee tables for the vulnerable clients and standard clients. We are working with many fee professionals here at the company to create this. We will discuss with agencies as well, and if there are a few points that have not been explained that are more complex, we will work on them with a specific deadline. We also, as far as operations, we have a number of concerns that the ARCESD has not truly understood. Our goal is to open up a technical discussion with that agency and show them that our cost strategy is very appropriate. It's very fit for purpose.
We will aim to help them see things from our perspective. This is a very complex agenda. Many of our players are very anxious, and they want to have their needs met. We believe that this review phase will start seeing results next year.
Thank you, Andre. I don't have anything to add. You taught me very well. No, that was 10 out of 10. All right. The next question comes from João Pimentel. It's also about the same topic of revenue. He's asked: Good morning. As you approved the RTE, you mentioned that you see the gap closing for regulatory revenue. Therefore, what is the size of the gap that you estimate that will still remain, the gap being between revenue and regulatory revenue? How do you hope to finish closing that gap?
I hope we answered that question in the last question, and if not, João, please add to your question, and we will answer in just a few moments. Is that okay?
All right. Next question now. André Sampaio asks: Good morning. What is the status of discussions with regulatory agencies about applying the new fee structure?
Well, André, this is included in the regulatory schedule that we've begun. The discussions about the fee structure are included there, and we hope that by simplifying the concept of our provision of service, we will see more improvements to our revenue. There is some work that we need to do there, but the different levers, specifically for the standard and vulnerable fees, we understand. It makes sense.
If we can guarantee that the company's financial balance is protected, we will be happy to work with the regulatory agencies there.
The regulatory agency says it's going to happen during the first semester of 2024, right?
Yes. This is on the ARCESD website.
A question from Caio Gama now. Good morning, everyone. I have two questions. First, could you explain a bit more about Sabesp's investment plan in this new administration? If possible, could you tell us where we stand in renegotiating contracts with city government? Thank you.
I have a hard time unmuting myself, sorry. Good morning, Caio. Okay, they are two different questions, but I can answer them both with different degrees of depth. Well, our CapEx was published last year, and we did not see a significant need to change that. Now in the first quarter.
What we did do is review our CapEx prioritization. We are focusing particularly on making investments that bring the company more money, more value. That means investments in modernization, which can either reduce costs or increase revenue. We are investing in increasing our network and reducing our losses. They also have a positive impact. The other investments, which are desirable investments, but which can wait, and which do move toward a universal unification. They are being perfected before we can actually start investing on them, because we're going to invest a lot of time and effort to make sure that mayors and city governments understand us and if possible, even can anticipate some targets, some contract targets. This is our number 1 priority.
We must ensure that the company complies with utility programs, also with any type of commitment linked to the environment or labor security. After that point, you know, other than those two aspects, we are prioritizing all projects based on the perceived value that they stand to bring us. Based on that analysis, we are prioritizing them, all based around CapEx. Secondly, where do we stand in renegotiating contracts with municipal governments? We believe that the state government has already has standing agreements with city governments. Actually, let me take a step back. Talking about privatization, we can potentially generate value in a number of different ways as we renegotiate contracts as well. Therefore, the best way for us to share those gains with the public sector are... There are many.
They include anticipating or reducing fees, anticipating or increasing investments, and paying concessions in a number of different manners, in a variable or fixed manner. Some of these conversations have begun, we are not taking part in these conversations yet, we understand during our discussions with the state government that this is a political agenda, at some point they will complete their technical analysis, the FC. When that occurs, we will have numbers, concrete numbers. As soon as we have those, we will share the best as the executor of the contract, the city government and the state government as well. The state creates the infrastructure the municipal governments bring value to their residents.
Thank you, Andre. The next question comes from Miguel Rodrigues.
He asks, "Good morning. Could you talk about the process to normalize PCLD initiatives and timing? Although it's better than in the last quarter, it is still higher than the normalized levels.
Thanks for your question. I think I have answered a great deal of them. We've begun many initiatives to reduce our indebtedness level. Remember that during the pandemic, we were not allowed to cut any water supply or reduce it in any way, or even to strike their credit. After the return to normal, we did receive authorization to start cutting the supply of water to outstanding defaulted clients. We have begun suppressing and cutting provision.
We also have the open day, as I mentioned, in the middle of the year, and improving the repayment schedule for clients, ultimately to ensure that a greater percentage of the defaulted clients will start paying their payables. I think we will see a recovery, strong recovery. This is not going to happen this year, but it will happen. We... Before the pandemic, our default rate was very low, and we are working on every opportunity with our peers as well to make sure that we get there. We'll have more details about how strong our recovery is based on each of those initiatives. As André mentioned, we are looking at our data. We are using data analytics. We're also studying the efficiency and effectiveness of each of these initiatives.
We are implementing many actions, many interventions, and we're going to have a detailed analysis of all of them.
Thank you, Katya. The next question comes from João Pimentel.
Yeah. Actually, he thanked us for answering his previous question, and now he has another one. Given the importance of the city of São Paulo for the success of potential privatization, is this conversation between Sabesp and the city government already going on?
I'm very glad, João, that we answered your previous question. Yes, we do have these discussions, at the very highest level. We have the mayor and governor who are discussing, and they are talking about the potential of privatizing Sabesp. We are scheduling and attempting some contact with them.
We have a number of different procedures to onboard the city government. The first of those is joining the ORI. I and a number of my colleagues are working on that. The ORI has a specific structure. We understand that it is not the most appropriate structure for giving a proportional representation to all the different cities. We're working on that. From there, we do have a roadmap, sequence of steps that involves other city governments as well. That's designed to ensure that everyone is on the same page as the discussions about privatization go on.
Thank you, Andre. We now have a question from Gustavo Fabricio. He says, "Good morning." He suggests allowing questions to be made verbally. He says, "Recently, some meetings, we received announcements that the company hopes to cut BRL 1.8 billion in OpEx.
Could you give more details about how you arrived at this number?"
Good morning, Gustavo. Just to give you some context, this announcement occurred in the during a governor's speech here in New York during a CEO conference that was promoted by a bank. This is certainly something we desire. We want to improve the company's performance as much as possible. Now, as a state-owned company, we do have some limits. There is room for improvement, but it would be premature to give a number right now, and it would probably be the wrong number. We can't give a precise number yet. Now, for a non-state company, those numbers can be given more confidently because our margins and the benchmarks that I've seen in my experience in privately owned companies has a particularly strong fee lever. So these numbers are more relevant.
EBITDA margins tend to rise compared to revenue. They would go from a high level to an even higher level, the company's profitability really takes off, as we can see in other private companies. Today, Sabesp cannot reach them because we are tied down due to a number of different factors: hiring and workforce, services, service structure, the outsourcing of services. Basically, we work at the highest possible level. Now, if you wanna know whether we will reach the BRL 1.8 billion level, I certainly hope so. As we become privatized, that is certainly going to occur.
Thank you for your previous questions. I have a number of questions. I understand that solid waste is a very relevant field. What could you tell us about Sabesp's plan in that business line?
Absolutely.
Not just solid waste, but sanitation as a whole has long been looked at from the stance of how much value it could provide. For instance, the creation of biogas or bioethane, which we can use as fuel even. We have been using it in the city of Franca, biomethane in all our vehicles. We have reclaimed water, reuse water. This is a sector that is very sensitive to capital because the water network needs to be improved over time, over the long term. We believe that the metropolis here in São Paulo has a huge potential. The sewage treatment system in the ABC region has a lot of potential, not just there, but in many different regions. There are many different strategies that we can employ. For instance, fertilizers.
I was recently at a talk in Germany where we were looking at sludge as a source of revenue and no longer something that is sent to waste and dumped effectively. For each aspect, for each segment, we have specific analysis. For solid waste, we do have studies that we are starting in Barueri. This is a waste to energy project that is beginning. Sanitation is a segment that is poorly addressed right now. If we are given leeway to do so, we will certainly start working as we have been, for instance, by charging trash collection fees. Why could we not add this new service to the company structure?
I certainly agree with you, but I can't give a definitive answer now because our analyses and studies are still ongoing. When they are complete, I will be very happy to share with you.
We still have more questions. They keep coming in. Daniel Travitzky asks, "Hello. Do you see any impact on the company coming from the changes to the legal landmark for the sanitation that have been proposed by the federal government?"
Excellent question. The impact is positive if we look at the margin, the adjustments that were made to the legal landmark. Some of these discussions are setbacks. They include a new deadline for proving our financial capacity. Other than those, overall, they are very positive. Our targets for the year 23, we currently have 24 cities in that category.
As a company that is committed to our society, we plan to propose to those 24 cities that we review the contract such that we can deliver a contract that is strongly beneficial to all parties involved. Rest assured that Sabesp will give as much attention as we always do to all of our services.
Atos Nolasco asks, "Good morning. I have a question about the PDI. Is there any outlook about replacing employees who left through the PDI? Do you believe that this is ideal headcount level for the company? Also, could you give a little bit more texture about the average wages for the employees that are expected to join the PDV?"
Well, we will not. We do have an estimate, but we will not publish those.
You will likely be more creative than we can in terms of possible scenarios. I want to make something very clear. First, we reviewed our strategy. As we did so, we redesigned the company's corporate structure. When we did that, we found a strong opportunity to improve our processes. This developed into a need to reduce the company's fixed payroll. Those 2,000 employees came from our first assessment, the first wave, where we looked for a CSD and transferred some of them and made our payroll more efficient. These numbers are not final, we could certainly potentially increase the number of staff over the next 12 months.
Thanks, Andre. We have approximately 20 minutes left here in the call. There are a few different questions still to answer. The first comes from Gabriel Francisco. Do you see a change in efficiency for the services being provided as a state government? Or alternatively, if the PDV is held, could we expect this line to increase?
Certainly. Our vision is very clear with regard to our staff as well as with regard to energy. We are not only migrating to the open market, but we also hope to have an ASP, an RFP during the second semester to generate our own energy. This should be completed by 2026, and this will have a significant positive impact in reducing our expenses. We believe that centralizing contracts and establishing better relationship with our suppliers, namely to understand what their pain points are and improve our ability to meet fluctuations in demand as well as... That includes both water and sewage, and also continuous use.
Those products, they varied significantly because of global supply, the war in Ukraine, the energy issue, oil derivatives, oil products. All of this had a huge impact, and we're going to keep working to be more efficient. As a supply staker, there are certain limits to our efficiency. With regard to our employees, yes, we're going to have more outsourcing, but as we look at unit prices, there is room for growth as well. We might increase our outsourcing while we see a drop in prices. This is certainly possible. In some cases, we can reduce without having any kind of drop in the quality of our service. This is something we are starting to look at now.
Thank you, André. Romulo Brett, first, thank you and congratulations for your results and the presentation. With regard to the covenant renewal in a privatization scenario, do you have any interest in changing the fee model to become closer to regulatory TAR?
I think as the company looks at the privatization structure, if we focus on value and the fees and pricing, it's clearer than if we look at the other extreme, which is regulation. If we look at regulations, there are specific parameters. This is going to be included in the analysis that the IFC will undertake with support from regulatory. This will be submitted to the state government and to ourselves, so that we can all debate what is the best solution and what are possible solutions. To be very, very practical, I think that's the easiest way.
Yes, if we were to migrate to a parametric regime fee table, we certainly would have an easier time of generating value. I don't know if we'll get there, but we're working with the public sector to reduce the subjectivity that is present every time we look at these structures. Something of along those lines will occur, but to what degree? That's something that I cannot give you a definitive answer about today.
Thank you. Antonio Junqueira has two questions. The first is, in addition to the fee issue, which this earnings call helps to address, does the company believe there is an important gap in revenue due to measurement flaws, old meters, and as a result, on under-billing? What's the best way to work on that?
A second question, from an administrative standpoint, what management positions can the company use to draw more people in to be more attractive on the market? Is there a specific number of seats that need to be filled?
Thanks for your questions. We do have a cycle. We change the water meterings regularly. The simpler ones have a five-year shelf life or useful life, product life, so to speak. After 5 years, we change those meters, and there are many different types of meters, including the ultrasound-based meters. They are more expensive, but also much more precise, and they last 10 years. Now, this is a significant, more expensive meter. The cheaper ones are 50-100 BRL each, and the ultrasound meters can cost as much as 1,000 BRL.
For the greatest number of our clients, we use the simpler water meters because we believe that it is not economically viable for the vast majority of our clients to keep investing in more advanced meters. We use mathematical formulas to compensate for the expected inefficiency. We measure the amount that is provided to the network and the amount that is measured and keep track of that. The current fee structure, currently, the usage that is measured is usually less than the service or the volume that is provided. As we change and update the fee structure, it will become more important to have more modern water meters. To your earlier question, I think the first answer has been addressed.
For your second question, Sabesp has fixed hires and freely provided hires. That includes the, at the superintendent level, advisors and assistants to the boards and directors. In total, this is something like 150 for different positions. Thank you.
Marcelo Sandri says, "Congratulations for the results. I'd like to ask if the Novo Rio Pinheiros program has been completed and if the DBO metrics have been reached as well as the sewage connection completed and the CapEx." Thanks.
As far as I know, it is very far advanced, very far into completion, has not yet been fully completed. We can potentially follow up on this question with the operations team because I don't want to run the risk of giving you an answer that is not precise. I don't have those numbers available right now.
I apologize, but please send an email to our IR team, and they will be happy to answer. Lastly, I think we've completed all the questions from analysts.
And now let's move on to questions from journalists. Taís Hirata has three questions. First, about the investment plan, what investments are being postponed? Second, in the scope of Integrity, what is the value that Sabesp will invest? Third, about the discussion around the sanitation landmark, how can this discussion impact Sabesp?
Well, Taís please, if we haven't fully answered the question, please do feel free to add to them. I do believe that I did answer your first question previously. We are prioritizing investment with regulatory and environmental commitments and therefore, an agenda that focuses on creating value. This is spread out around the state. We don't have anything specific that will be postponed.
We are just rearranging the normal flow of investments here at the company. Emergency investments, I should mention, this is important. This is all within the concept of planned CapEx. CapEx is earmarked for meeting emergencies, and this could be at zero. We would operate normally. This is not included in the reprioritization pipeline. To answer your next question, it's a complex situation. What we've agreed to and what we've committed to with the environmental secretaries, I believe this is 980 million BRL, but I'm not positive. They do include all the different deliveries. Pardon, the volume is 4 billion BRL. We will, at some point, need to speed up some deliveries that haven't been matched to our schedule, and that's where we'll invest the most of those funds.
As for your third question, I think I've answered it. If not, please add to it. It's essentially positive, ultimately with thanks to the possibility of postponing certain contracts. That's what we're interested in as a service provider.
Andre, that was the last question. No other journalists asked other questions after her. This call has now been running for 80 minutes. If you'd like to give some final thoughts?
Of course. Thank you, Tiberio. Firstly, of course...
Sorry to interrupt. A new question has just arrived from Alberto Alarigi. Hello. I understand that Sabesp is intensifying billing action. I understand that Sabesp is intensifying billing and supply cuts for defaulted clients. Could you give some more details about what sectors are the main focuses there?
Well, to answer your question, we are not prioritizing any specific sector.
We are looking at our volume overall, and we are following our goals. We are allowed to cut service after 90 days. That starts counting after our notice, and we are going to do that for all defaulted clients where we can.
All right. Thank you, André. Now, your final thoughts.
Thanks. I think this first quarter has been able to show a little bit of what we can do here at the company. Our goal is efficient management. We want to work toward the company's goals and results, and to make sure the company provides its service with an extremely efficient manner. We want to improve our company profile and positioning to be closer to clients and employees. We have a very intensive internal communication channel. It's a simple administration. It doesn't have a huge hierarchy.
It's more flattened than before. We have fewer people between the lowest employees on the hierarchy and the C-levels. We have a commitment with the state government that is fully aligned with the privatization program. This creates a lot of value for our society, for our employees. Sabesp has the potential to improve its efficiency level, its service provision, as every company does, and we're working on that. If Sabesp can be freed from its chains that it has because of being a state-owned company, there are a number of resources that today are limited, and we hope to become a company that is a player, not just in Brazil, but even more powerful. This is a journey that I certainly hope we can complete within deadline, and our deadline is next year.
This transformation will be strongly positive for society, for everyone who is involved in this process, and especially for our employees. The amount of opportunities we will gain with this expansion is unparalleled in the company's history. That's where we're working toward. We are striving to simplify and modernize the company, to integrate it, to improve our processes. This will happen, and we will empower any impact of a potential privatization, assuming the public sector decides to move ahead with that. We believe that that will be strongly beneficial for everyone who has any dealings or interactions with Sabesp. That's it. I'd like to congratulate the team. We will deliver more and more. Congratulations to all company employees and outsourced employees, third parties as well. This is a very enriching journey. We have the potential to transform the Brazilian sanitation sector. Thank you.