The municipalities of Diadema and Mauá withdrew the Company’s concession for water and sewage services in the beginning of 1995.

In December 1996, SABESP filed a claim seeking compensation for the amounts due by the municipality of Diadema. In first instance, the judge pronounced a sentence against SABESP. The Company has filed an appeal in November, 2000. On December 1^st, 2005, partial acceptance to the SABESP appeal was given in order to declare the validation of the agreement with the Municipality of Diadema.

The net book value of items of property, plant and equipment items relating to the municipality of Diadema, which was written-off in December 1996, was R$ 75,231, and the balance of indemnity and other receivables from the local government is R$ 62,876, and is recorded in long-term assets, under “Indemnities receivable”.

SABESP signed a protocol of intentions with the municipality of Mauá when the concession was terminated, by means of which it would agree to pay amounts to the Company referring to the water and sewage systems. However, the municipality of Mauá has never performed the payment of any amount whatsoever. SABESP filed the collecting proceeding in December, 1996 against the municipality. On indemnification title, the sentence pronounced in 2004 has condemned the municipality and the Basic Sanitation of the Municipality of Mauá – SAMA to pay the amount of R$ 153.2 million with monetary restatement by the practice of the Court of Justice of the State of Sao Paulo, from March 2000, legal interests since the summoning, costs, judicial expenses and legal fees in the amount of 20% over the amount of condemnation. This sentence is subject to the double jurisdiction degree, by means of interlocutory appeal by the municipality of Maua and by the Basic Sanitation of the Municipality of Mauá – SAMA, which has recently responded by SABESP. Such appeal is expecting sentence by the Court of Justice of São Paulo.

The net book value of property, plant and equipment items relating to the municipality of Mauá, which was written-off in fiscal year 1999, was R$ 103,763, and the balance of indemnity, in the amount of R$ 85,918, is recorded in long-term assets, under “Indemnities receivable”.

Both cases are the subject matter of court claims (Mauá and Diadema), and the legal counsel in charge of the proceedings believe that a favorable judgement is likely to be rendered to the Company.