Good morning, everyone, and welcome to this webinar. On behalf of Credicorp Capital, I would like to thank for your attendance in today's webinar with the Aguas Andinas company after the results reports during the first semester this year.
The format of this webinar will include a presentation on the part of the Aguas Andinas team, and then we'll have some space for a Q&A. In this sense, during the webinar, please feel free to type in your questions in the Q&A chat. Let me also tell you that we do have simultaneous translation into English. Now, a brief introduction to today's speakers. Dídac Borràs, CFO.
He has a bachelor's in Economic and Business Sciences at Universitat de Barcelona with an MBA of IESE Business School. He has over 19 years of experience leading financial services companies and also the comprehensive water cycle in Spain, France, Mexico, and Chile.
José Luis Murillo, he is a civil hydraulics engineer at the Universidad Técnica Federico Santa María, master's in comprehensive water management at Universidad Adolfo Ibáñez, with postgraduate studies in law and water management at Pontificia Universidad Católica de Chile.
He has over eight years of experience in different companies in the countries as operational planning and engineering departments, and currently, he's in charge of the Water Resources Management of Grupo Aguas Andinas. Cristian Torres Rojas, he's a control and accounting manager. He's CPA and auditor at Universidad de Santiago de Chile with an MBA in finance.
Over 20-year experience in the group, performing responsibilities mainly in finance, control, and financial projects areas. Erika Sandoval, she is an engineer in civil in industrial. She is an Industrial Civil Engineer and a Master's in Engineering Sciences.
Over two years in Aguas Andinas and over nine years of experience in utilities and human resources, continuous improvement projects, digital transformation, business intelligence, and investor relations. With no further ado, we will continue now with Dídac.
Good morning, everyone. Nice to greet you all in this call for the results of the second semester for Aguas Andinas. I would like, first of all, to make a briefing of this various focus on three big blocks. We will begin with the climate change block.
The company, as we've been saying already, every month is focusing on facing the consequences of climate change, and this is translated into a deep drought that hit the country in the last 14 years, more prominent in the last four years. Now, the situation's a little bit better, especially after the rainfall during this last few days, but we need to continue to face this situation of a drought.
This is not a structural problem, not a temporary problem, so we need to continue to face this situation. Climate change does not only hit us as drought, but also in turbidity effects. In this case, a very clear example are the atmospheric rivers that we've suffered during the last few days, both in June as well as during the last week, where the turbidity, high turbidity phenomena are much more long-lasting and more steep.
Thanks to our resilience, we've been able to confront this event, ensuring operational continuity, which is great success for the company. This ratifies the big effort of this company in order to face and overcome this type of event. That's why José Luis later on will be focusing on this specific management and what it represents for the company to having to face this sort of events.
The second part that I would like to highlight is the transformation plan that had lots of axes: economic sustainability, operational sustainability, and also change in the company's way of working. At an operational level, it's clear that it's ripping its fruits. Our resilience has been improved. We've proven that in such phenomena, we can be resilient, and we need to continue in line with that.
Continue to strengthen our structures in order to ensure operational continuity. That's why our investment plan is always strategic, and we need to continue developing that financial sustainability. As you can see, the company moves on, picking up in terms of the pre-pandemic results. We continue to show performance in the second quarter that is growing.
This is very much in line with what we've observed in observing previous periods. Financial record that is very much supported in our growth, both in terms of rates as in terms of consumption. Cristian Torres will later on make a more detailed brief in this case. Sorry, detailed summary in this case. But we also have some operational costs that are also affecting us significantly, and we will mention them.
Some other non-recurrent effects that we will also comment in detail, very much linked to the effects of climate change of these atmospheric rivers that we've observed. We will also talk about the inflation period. Of course, it has significant impacts both in terms our revenues as well as costs, as well as financial costs and the evolution of debt.
This moderation of inflation is causing our financial costs to be more moderate, more stable levels, more comparable to previous periods. We see an positive impact in the net result line, also aligned with inflation. With no further ado, I will now give the floor to the rest of the team. My colleagues will be focusing on how to face climate change as well as other things.
Let me also say that today is my last result presentation as CFO of Aguas Andinas. In a short time, I will become CFO of Eolia. I will be replaced by Miquel Sans, current Financial Director of Aigües de Barcelona with a Barcelona contract.
Miquel has long experience in the group, long experience in this sector, therefore, he will have a continuity with the management in the last few years of our company. Let me also greet you all. It's been a pleasure to work with each and every one of you, and I hope we can meet again in the future. Thank you very much. José Luis, you have the floor.
Good afternoon, everyone. Let's move on to the next slide. Here, we're going to talk about the challenge of climate change and what it means for the company, mainly focusing on two aspects. First of all, the water scarcity, and then we'll also talk about the turbidity phenomena that during 2020 we had to overcome. In terms of water scarcity, in this slide, we can see the level of the El Yeso Dam that closed in 177 cubic hectometers in our reservoir.
These are completely healthy volumes for the company that allow us to face the second quarter in 2023 and the beginning of 2024. Another important parameter that we can see when seeing the hydrology of the basin are the accumulated precipitation in the El Yeso Reservoir. What you can see here in the left, down there on the left, you can also see the statistics of the last five years in terms of rainfall and accumulated snow height in El Yeso Reservoir in 2023.
When reviewing the accumulated snow height and the rainfall in the reservoir, you can see that this is another year of scarcity, except for the fact that by the end of July, we had an atmospheric river, high rainfall that went over the central area of Chile. Particularly, it had 266 millimeters of rainfall in the case of El Yeso Reservoir. We will be talking about this further on.
Before that, I would also like to show you the last indicators regarding the flow, the river flow. We have two sources that are mainly feeding Gran Santiago. One is Maipo River flow. In June, and in the last quarter, it showed an increase, as compared to 2022, a slight increase.
Comparing it with the historical data, we still have very important deficits. That's why we are still in water scarcity. If we check the Mapocho River flow statistically in June, we observe flows that have been lower vis-à-vis 2022 and vis-à-vis the historical data. They are also quite lower. Therefore, we confirm this scarcity trend in the metropolitan area.
In the next slide, we can check another parameter, which is also important, especially thinking about the second semester this year and the beginning of 2024, which is this coverage that you can see on the graph, which is influenced by the rainfall phenomena during the winter. In the red box here, you can see the effect of the intense rainfall event in June in 2023.
When analyzing statistics and comparing it with 2022, we see that this rainfall event, even though it was positive, allowed to increase the accumulated snow in the basin, and it took us to similar levels compared to last year. This event was characterized for having a zero-degree isotherm, very high one, over 3,000 meters high.
We had snow, and under it, we had liquid rainfall, and it went downstream in the Mapocho and Maipo basins, increasing the flow, but not allowing the accumulation of snow in the mountain range, which allows us to project an increase in the flow. In the next slide, we can see how this rainfall phenomena that had 266 millimeters in the mountain range had an impact on El Yeso Reservoir.
We began this event in June 2023 with 174 cubic hectometers approximately, and we finished the event with 177 cubic hectometers approximately. That is the rainfall phenomena that had a positive impact and allowed us to increase three million meters in El Yeso Reservoir. We had quite an important increase. The rainfall also had some other impacts beyond the accumulated snow.
As I said before, this event was characterized for having a very high zero-degree isotherm. The water that precipitated went downwards, and the flow in the rivers increased. You can see the images how this all ended up. Aguas Andinas started the contingency plan in order to face this event with the early alerts and stages that were started.
Here you can see how the June rainfall impacted on Maipo River in terms of turbidity and also in terms of flow. The normal situation during the winter we've been having was flows close to 23 cubic meters per second, and the turbidity around 600. These are absolutely normal parameters.
We've been working with these during the winter, and they were adequate for the different plants, the productive plants that the company has. However, this event, since it was so intense and with a zero-degree isotherm, such a high one, it made flows increase very rapidly, very violently, reaching over 110 cubic meters per second in the Maipo River, a situation that we've not observed since the 1990s, and turbidities that went beyond 60,000 NTUs.
This would not allow a treatment of waters in our plant, our drinking water treatment, and we had to resort to our crude water reserves. In the next slide, and to conclude, you can see a summary of the atmospheric event in June.
For 45 hours, we used 78% of the volume stored in our Pirque reservoirs, equivalent to 1.2 million cubic meters. On June 24th, when you could already see that conditions were improving, and we reached a reservoir level around 400,000 cubic meters, which allowed us to keep a security of the supply for eight more hours.
To summarize this event, which was really very intense, was very prolonged in time, and it also brought about an important amount of water in the basin due to the zero-degree isotherm level, could be overcome by our company, thanks to all, first of all, to the investment that we have done in the last few years.
This has been fundamental in order to supply the southern area of Santiago, the tanks in Pirque, the reservoir that allowed us to overcome this. It was fundamental in order to mix it with the Maipo River. When the Maipo River improved their conditions, we had waters from Pirque in order to enter the waters in the treatment process and so as to improve everything.
We also had highly specialized personnel, very skilled personnel that were able to make decisions in such times of crisis and allowed us to keep the continuity of the service. Finally, once the event was over and without affecting the continuity of the service, we quickly recovered our reserves.
At the beginning of July, we could already say that our company was absolutely normal, going back to 100% crude water stored in our tanks. Let's move on to the next slide and the next part of the presentation.
Thank you very much, José Luis. Good morning, everyone. In José Luis's explanation, we saw a picture of the Mapocho River previous years. If we do analogy with the financial result, we've been saying that the company starts picking up the levels that we've observed in previous years, the pre-pandemic levels, and now we're going to show why.
First of all, our EBITDA is growing by 12.6% vis-à-vis the same period of the previous year, leveraged by new revenues. We have two components here. One, rate indexations. We've already seen the previous quarters, the indexations that we had last years. There were four indexations during 2022, and these are part of the basis for growth in terms of tariffs.
Traditionally, this year, we've also observed a change in consumption trends, and we've already said that in 2020 due to the pandemic and the next year due to the water scarcity in the area of Santiago, we've observed an important change in terms of lower consumption.
During the first semester, that trend reverses, and we already observe growth of consumption of 1.8% and 4.9 million cubic meters. Most of that higher consumption responds, and it's also leveraged by a plan, a management plan, which is oriented to renewing older meters that have some problems in its operation in order to improve the indicator of a measurement. That is also part of the growth base of consumption that we observed during the first semester. Additionally, the non-sanitary...
In terms of non-sanitary income, we've also have quite a positive activity level, mainly in what has to do with new services and everything that has to do with engineering services associated to modification of the infrastructure and also due to a better performance in the activity of our non-sanitary branches. That also explains the growth of 18.5% that we see in the income by the end of the first semester.
In terms of costs, the company continues to work very hard, as was previously said, on various fronts. One of those fronts is related to climate change events, as was already said, and that also has a financial impact. During the first semester, we have three extraordinary events associated to the dams. As we've seen in the images, this was very much affected.
Ruptures of mains, in this case in Recoleta in the month of March, and also associated to rainfalls in June. These non-recurrent costs are representing a bit more than CLP 3.8 billion by the end of the period. In parallel, the company already started the management process with the corresponding insurance policies, for physical benefits and risks, and this is moving forward normally.
In the next few months, we hope to partially recover, the cost associated to contingencies. Within the structural part of cost evolution, we know that most of our cost structure is also related to, all of this. This explains the more than CLP 9.6 million. The non-sanitary area is also associated to these costs.
In terms of operations, let me also highlight three things that have an impact in our costs. First of all, energy costs, and this is mainly explained by the power consumption. The situation of extreme drought gradually made the company use underground sources of drinking water. This, we mentioned, Cerro Negro wells before, but also in the northern area.
We have an intensive use of these wells that has higher power consumption, and also that added to the increase in the regulated rates mainly, and also the costs of transmission at a national level. That also has an impact and has greater energy costs.
In terms of network maintenance, especially in household connections of drinking water, we've also had a greater requirement, a greater corrective work of this sort of networks. Let me remind you that there are more than 14,000 kilometers of drinking water networks in the city.
This is something we are permanently working on. We need to add to that an increase in activities in what has to do with leaks, detection, so that in the future, we're also able to improve this area of the business as well.
To conclude, within operational costs, all of this, turbidity forces the company to have a more intensive use of the water resources in order to better maintain and treat the turbidity and everything that has to do with its flow. Increase in income also added to costs explains the growth of 12.6% in the EBITDA. If we consider these non-recurrent events, as I previously mentioned, operating contingencies, the EBITDA would be 51.3%.
In terms of the last line under the operational result and also focusing on the financial result, our financial debt is about 80% related to the different units, which is a currency which is indexed as per the inflation. As we said, the lower growth of inflation during the period has favored our financial results, and that mainly explains why at the level of net income compared to the previous semester, we are growing over 70%.
On the one hand, summarizing, the operating growth of the business is maintained stable in continuity with our projections. Also going back to both consumption and reaching our pre-pandemic levels and in terms of financial results, favored by this variation of inflation, net income growth.
Another focus we can see here in the next slides, a point that is important is the strong cash flow. We have several indicators there to meet, and cash generation is one of our objectives to stay aligned with our financial indicators. Cash flow has increased 24% compared to last year's same period, and in cash flow, we've had a 40% increase.
This is also seen in the following slides. Where you also see how this has an impact in the net debt ratio, which is stable compared to December last year. Our debt composition, our debt share is 80% linked to the UF locally and issued abroad too. This is a reimbursable unit. We will later get an explanation of the composition of the green funds and the rest. The net debt increases with UF variation.
We have a positive cash flow of CLP 17 million, and this explains the variation in our net debt, which is a variation of less than 1% in this period. In the following slide, we can see our investment plan. As we said earlier on, this is a great leverage that the company has, thanks to investments carried out lately, so we can manage all climate change events better.
Our investment also aims at increasing efficiency at the close of the first quarter. We've invested almost CLP 50 million, and this is part of our commitment to the water authority of the country. This is also linked to strategic projects we have for electric support of regular water supply, and this is linked to that connection between El Manzano and Las Vizcachas that will increase our autonomy. Digitalization of projects to increase profitability in the company are important matters.
We also have corrective CapEx measures, and we also put the focus on risk mitigation. This is linked to our management plan, risk management, and a business plan with a short-term and long-term view. We develop projects to strengthen our operational resilience. To conclude, our financial indicators are still stable and sound.
I wanna point out DSCR, which by last year was 1.34, and now it shows we have a positive management of the financial situation. The EBITDA, the net debt at the closing of this semester is 3.6 times. This is in keeping with our forecasts, and we expect this to remain stable throughout the 2023 fiscal year. Now Erika Sandoval will be telling you in detail about ESG.
Thank you. Thank you, Cristian. Good morning, everyone. Yes, indeed. I want to tell you about our fit on Standard & Poor's still rates us as AA+ and A- internationally. This is because of the financial continuity efforts of the country. We have faced short-term challenges with a long-term perspective of maintaining our financial soundness. This is linked to cash flow generation that Cristian explained.
Aguas Andinas at ESG has a green and sustainable approach with excellence credentials like excellence corporate and ESG, Dow Jones Sustainability Indices. This is reflected in [audio distortion] , in investor relations and sustainability. You will see here that they recognize our excellence on public information, on our sustainable practices, corporate governance, and responsible investment. Aguas Andinas is a pioneer of issuance of green bonds in Chile, and we have a short- and long-term view. This is a journey of no return, you know.
We know that investments, green investments in particular in Europe and Asia, are currently a must. In Latin America, we've made a giant leap forward, but there's still a long journey to cover. Our company is a pioneer in the issuance of green and social bonds. We are a benchmark in this type of green financing in the market. That's why we were invited to the event, Green Finance in Latin America, organized by the Santiago Stock Exchange.
Santiago attended to talk about what the company's progress has been and what the plans for the future are. We want all investors listening to us today to realize how important these type of investments are, not just in Chile, but in the region, because you're leading the way for the next generations with these endeavors. Now on this next slide, I wanna tell you what experts say.
If we don't do any change globally, the temperature of the Earth will increase up to three degrees Celsius by the end of the century. In the Paris Agreement, this increase, we attempted to limit it to 1.5 Celsius. Aguas Andinas has planned a strategy to lead this climate action, aligning to this global goal to limit temperature increase.
We wanna do this through implementing the Decarbonization 2030 program, waste management plan, and developing a strategy which is carbon neutral. For all this, we have issued green and social bonds. As pioneers, as I said, we started in 2018, and we continued up to 2022 with issuing the green bond in Asia last year, for example. In parallel, we have a linked green credit. It is linked to goals that we have set for us some years ago.
Aguas Andinas, as I said, is one of the companies that started with this type of green strategy much earlier than it became trendy. What are the benefits of having these strategies and this type of mission and type of financing too? Well, it provides us with acknowledgment.
The UN, during COP 24, gave us an award on a health category to Gran Santiago Biofactory of Aguas Andinas, the generators of organic fertilizers for agricultural use. Several awards were received thanks to that. That's the end of my presentation and the end of the presentation by Aguas Andinas.
Thank you so much, Erika and the team. It's been a very thorough presentation, and now we can proceed to the Q&A session. Several questions have already been posed in the Q&A panel at the Zoom platform. Let's start with questions there.
They say they thank the details shared on the water metric events of June, but what can you comment on what has just happened now in August, when again we have more than 150 millimeters of rain in the area of Embalse El Yeso, the reservoir.
Now we have an accumulation of snow too. Can you please refer in detail to the consequences of these later climate events, and can you comment on your view on the view of climate advisors on the new events of the weeks and months to come as a result of the El Niño phenomenon, which is much powerful now? José Luis, do you wanna answer that question?
Yes. Thank you so much for the question. I've been taking down notes, so I don't miss any point. Yes, we recently had a strong event in the central area of the country. This climate phenomenon also produced turbidity. The Maipo had 350 of water flow. We had to use the wells at Cerro Negro.
We are currently back to normal levels, recovering our reserves. In Embalse El Yeso, this phenomenon, 200 millimeters of rainfall were received. This event in particular happened at a zero-degree isotherm that was much lower. We had a meter of snow accumulating at El Yeso, which is positive.
However, we are waiting to see how El Niño phenomenon develops in the coming weeks. This event of El Niño can bring greater precipitations in spring. The summer precipitations with a zero-degree isotherm, which may be higher or lower, will change the setting.
In the short term, we don't foresee any relevant events as the events seen in June 2023 or August. For the spring, we expect to have more climate events, strong climate events because of El Niño, but we will attempt to foresee what the flow rate will be in our rivers in the 2023/2024 season.
Another question: How much more expensive is it to produce water from a deeper water well? It refers to electricity costs compared to a normal case. What's the cost difference?
Thank you, Andrew. A deep water well, like in Cerro Negro and Lo Mena, those are 300 meters deep. So we can compare it to Costanera Center. These are very deep, but a normal well, the ones we operate before the water scarcity, they are only 40-50 meters deep. The difference is in the extraction cost. CLP 30-CLP 35 is the additional cost paid per cubic meter of water.
Thank you very much, José Luis. A couple of questions now about rate reduction and financial performance of the company. The rate for 2024, and what material effect will it have on the new works and the indexation rates?
And if there is inflation normalizing around 3%, how much will the profitability of the company be and the EBITDA of the company will be? Thanks for the question. In 2024, we need to see the development of the polynomial. We have three indicators. 60% is linked to inflation. 20% reports to the imported goods index, and the rest to the manufacturing index. It is the addition of the three indicators that sets the indexing rhythm.
The reality is that we currently see that inflation is stabilizing. It doesn't mean that. We don't know. We'll just have to check out how it evolves in the coming months. It's out of our control, and the indexing is linked to the evolution of these three parameters I mentioned.
Currently, we cannot estimate beyond what we know internally, but we monitor the evolution of the three indicators. In terms of rates and indexing under a normalized inflation, well, we always say that our formula gathers a natural coverage against inflation.
Based on the evolution of the inflation, we'll see how we index. As Cristian said, there are several works that have an associated rate that can be linked to it in 2024. These are minor works. They won't have an impact on the rates, but there will be minor adjustments on the rate. We will see how inflation goes, and we can index in the coming months. Again, it all depends on how inflation moves on.
Perfect. Moving on, the financial space. The first semester of the year, the over costs due to events in the semester. Out of the CLP 3.8 billion, how much does that have to do with the climate events of the end of June?
Cristian can answer that.
Yes. Of that CLP 3.8 billion, they are associated to the June events. The costs are estimated CLP 1.8 billion. The rest come from events by the end of the first quarter associated to turbidity of the Maipo River and a breakage in Recoleta.
Perfect, Cristian. Thanks for your answer. Now, with regards to. There's here a question: what's the water transparency cost of the second quarter? Can you comment on that? Oh, no.
Transfer cost. That is purchasing from third parties. I misread it. We always privilege water transfer for resilience of our reservoir. The purchasing was in line with our forecasts. There were no additional purchases and no reductions either.
In the second half of the year when we close the hydrological year, which runs from September to September, once the winter rains are done and we see the status of our basins then, and we forecast purchases, that is transferences, for next year. In the second quarter, we continued the same as on the first one without going on surplus or deficit.
A question here comes in on the expected margins of the second semester. During the second semester, due to rain, there will be less need for water transfer. Can you comment on that?
The evolution depends on many factors, not only on cost. We also need to see about income. As we've already said in previous results conferences, indexation in February was 1.6, linked to the evolution of the polynomial, not only inflation, but also the other two factors.
As we've said, we need to see how the hydrological year closes in September after the winter rainfalls. We will do all estimations. It's true that there is an improvement vis-à-vis previous years in terms of water situation, so it would be possible to see any streamlining in that sense. But we need to still define this in the next few weeks in relation to the evolution of bases and the rainfall that we may have in the next few days.
Great. Thank you, Dídac. Going back to resilience that we have here in Santiago, there is a question, what is the autonomy in days or in hours compared to Chile? Are we too far away and want to increase the resilience? What's the level of CapEx that we need?
That is a question very difficult to answer because every city and area has very local characteristics. The characteristics in our situation, we are next to the mountain range that historically had some glaciers and snow reservoirs that were quite abundant, and this was good for water during drought periods or non-rainfall periods. The situation of course changes, so there's no city that could be exactly compared to Santiago.
We do believe that given the level of service and our operational continuity, our 24/7 service with 100% drinking water, it's difficult to find similarities in similar cities. Therefore, we do believe we have made great improvement in the last few years. We went from 3 to 37 hours of autonomy.
The idea is to expand this a little bit more to 48 in the next few years, so we would already have an autonomy level in view of such episodes of turbidity, which affects the operational continuity nowadays at the level of outages due to atmospheric events, where we could already have security or certainty and feel comfortable with our resilience structures. We will continue to work in this regard because what we also observe is that the turbidity effects or atmospheric rivers are coming more frequently, and they last longer.
We need to see the evolution of climate change. This is not something static, and it shows us that the behavior changes, that there are some effects upon rivers and basins and waters that also change. We need to adapt the city's resilience to the evolution of climate change.
That's why it's also important to keep supporting the strategic investment plan and the development plan in order to continue to adapt the city to a constant change linked to climate change that we have to face.
Perfect. Thank you, Dídac. Now, change it a little bit to a regulatory matter. There are several questions, in fact. I will try to combine a couple of them. First of all, can you talk about the process of the next tariff rate, and what will be the main discussions?
Have you talked with the authorities in relation to a review in the regulatory minimum rate that is currently in 7%? On the other hand, another question. There have been conversations with authorities in order to migrate to a block-based rate model. Do you have any specific plan or any schedule or anything?
First of all, in relation to the next rate process, which is the eighth one for the company, remember that this is a very regulated process defined under the law where you have specific dates. Normally, this process could start in October with the publication by the Superintendencia de Servicios Sanitarios of the bases ruling the process.
I say that it may start in October because we do have a term for doing this, so it will run from October to the beginning of next year. There are three, four months in order to release the publication. Based on that, we're ready to find a more specific schedule that has to do with the information given by the company and also the correspondent studies.
Consequently, everything that has to do with the development of this rate process and topics that will be discussed and highlighted, that will occur either at the end of this year or during next year. Remember that Aguas Andinas rates last five years and they will be enforced as from March 2025.
As for block-based rates, this is something that is already being analyzed and is associated with the industry, not only Aguas Andinas, but also through National Association of Sanitation Services, and this as one of the measures that could be taken in order to promote a good use of the water resource, which is so scarce in current times.
We take international experience and see how to set these block-based differences that align incentives in order to have a more efficient and responsible use of water resources. This is not only part of the Aguas Andinas agenda, but as I said before, as a sanitation industry. There's no more than that in that regard.
Perfect. Thank you, Cristian. There's also another question related to that, and it also has to do with the CapEx of the company and capital cost, et cetera.
Given the evolution of the UF since the last rate review, the total long-term cost only for this effect is considerably higher. The same thing happens with expenses. Should these lead to a strong growth of rates in the next revision, assuming reasonable demand growth, how will you avoid this with the regulatory agency?
Could we think about an agreement with the authority in order to adjust rates? I know that this is a very early stage of the process, but as Cristian was saying, I don't know what can you tell us about this very interesting comment.
Of saying that the evolution of rates have been quite linked to the evolution of the UF, I mean, this is the polinomio structure of the company, and this is how it was designed in order to absorb that. It has been proven during the last few years with very much higher inflations compared to previous years. The company has had the capacity or the resilience to adjust the rates to the evolution of inflation.
As we've always said, the company should always add natural coverage to the evolution of inflation. In terms of the next rate process, as we've said before, the basis will be published by the end of this year. Next year will be a year to prepare all the process, and the company, of course, will try to reflect as best as it can in the model all costs that are being endured currently, not just financial costs, but also costs in terms of droughts, et cetera, also cost in terms of adaptation to the new situation of the city.
Therefore, the idea is that all of this is also included in the model, and we will have to face the regulatory entity and see the final result, and this will be approximately by the end of 2024, beginning of 2025, and we will be setting the new rate. That's all I can say because this is a negotiation process. It's being analyzed and studied. This is the phase we're in right now, so we need to continue to work on that and see the final results.
Great. Thank you so much for your answer, Dídac. Going back to the results of the second quarter, an interesting question in this case. What can you say about supply accounts? The second quarter, the bad debts, I mean, because there was a slight increase that was observed.
Exactly. In relation to the behavior and evolution and talking specifically about bad debts during the first quarter, there is a slight increase. There are several factors explaining this, but there's also seasonalities that we need to consider. It also has to do with the shares of customers' portfolio.
Third, all of the agreements associated to Basic Services Law that as you know, this was implemented after the pandemic in order to alleviate the financial burden of people who no longer paid their expenses during the pandemic.
The company continues to develop an active management in commercial terms. Currently, our level of bad debts when we measure it as a percentage over income is in 2.4%. This is slightly lower to the same period last year. If we observe this on a quarterly basis, first was better than the third quarter, but our analysis and evolution is that there will continue to be this trend, and we expect in the midterm to reach the pre-pandemic level.
Great. Thank you very much for your answer, Cristian. In fact, we are now reaching the end of the webinar with Aguas Andinas. Just to remind you all to please answer a brief survey that you will have here, that you have it here on the chat. On behalf of Credicorp Capital, I would like to thank all the Aguas Andinas team and all of the attendees as well. Thank you so much. Have a nice Friday and weekend. Thank you so much. Thank you.