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Provisions for Contingences| 2005 | 2004 | |
| Disputes taxes – Finsocial (i) | - | 7,872 |
| Customer claims (ii) | 279,509 | 219,042 |
| Contractor claims (iii) | 194,357 | 174,354 |
| Civil and tax claims (iv) | 74,510 | 34,590 |
| Labor claims(v) | 28,576 | 25,854 |
| Environmental claims (vi) | 24,198 | 17,884 |
| Other claims | 11,247 | 11,008 |
| Total | 612,397 | 490,604 |
| Current portion | 31,557 | 30,373 |
| Long-term portion | 580,840 | 460,231 |
(b) Lawsuits with possible risk of loss
In 2005, new lawsuits were filed by customers in the estimated amount of R$ 103 million, with monetary adjustment, interests and attorney’s fees in the approximate amount of R$ 32 million.
In relation to contractor, new actions were filed in the approximate amount of R$ 117 million, with monetary adjustment to the lawsuits in course of approximately R$ 59 million.
Following are lawsuits in course against the Company at administrative and judicial levels, in different courts, for which legal counsel has assessed the likelihood of loss as possible and therefore, no provision has been recorded based on this legal counsel’s assessment:
| 2005 | 2004 | |
| Customers claims(ii) | 728,900 | 594,200 |
| Contractor claims (iii) | 178,700 | 178,300 |
| Civil and tax claims(iv) | 324,400 | 148,500 |
| Labor claims (v) | 11,500 | 9,600 |
| Environmental claims (vi) | 202,600 | 200,300 |
| Other claims | 7,900 | 15,900 |
| Total | 1,454,000 | 1,146,800 |
(i) Disputed taxes – Finsocial
In July 1991, the Company filed an Annulment and Declaratory Action (No. 91.0663460-5), seeking FINSOCIAL debts to be declared null and void and the Company’s liability to contribute to FINSOCIAL to be extinguished. Deposits were made in court, at the 2% rate, referring to the period from April 1991 until April 1992. On August 30, 2004, the Company was authorized to withdraw 75% of these deposits. The remaining 25% of the amount, corresponding to the rate of 0.5%, was held as escrow deposit and a provision was posted for such purpose. Upon the ruling of the Federal Supreme Court – “STF” of the constitutionality of the FINSOCIAL on gross revenues of service providers, wich in the understanding of our legal counsel has effects over the discussion on the merit by the Company, the Company settled the amount of R$ 57,016 on July 26, 2002, corresponding to 1.5% of the total amount due, and requested the conversion into income, to the benefit of the Federal Revenue Service, of the total amount deposited in court, that has been formalized in 2005, terminating the judicial litigation.
(ii) Customer claims
Approximatly 930 customer claims were filed by business customers claiming that their tariffs should be equal to those of other categories of consumers and, consequently, claim the refund of amounts imposed and charged by the Company. The Company has obtained final decisions, both favorable and adverse, in several different court levels, and has recorded provisions for cases with probable risk of loss.
(iii) Contractor claims
Certain construction service contractors have filled claims in cort alleging underpayment of monetary adjustments, withholding of amounts relating to the effects of the Real Plan and economic-financial unbalance of the contract. These lawsuits are in progress in several different court levels, and provisions are recorded for cases with probable chance of loss.
(iv) Civil and Tax claims
Civil claims refer to indemnities for material damages, pain and suffering and loss of profits caused to third parties and which were brought before different court levels. Provisions have been recorded for cases with probable chance of defeat.
In November, 2004, the Company filed a petition of writ of mandamus against the assessment and collection, by the Local Government of Bragança Paulista, of a fee for use of streets for implementation and passage of urban equipment intended for providing urban infrastructure services, seeking to obtain a judgment declaring the unconstitutionality and illegality of the local law that established and enacted the referred fee. On February 16, 2005, the preliminary injunction was granted on the Company’s behalf, suspending liability for the tax credits and for the fee for use of the areas until a final decision on the merit is rendered and ordering the Local Government of Bragança Paulista to suspend and refrain itself from demanding overdue or outstanding amounts allegedly due in conformity with the local law under judgment. On June 24, 2005, SABESP was notified of the acceptance of its request. The City Hall of Bragança Paulista has filed an appeal, which is still pending sentence up to the present date. On December 31, 2005 and 2004, no amount has been accrued.
(v) Labor claims
The Company is party to a number of labor proceedings, such as matters referring to overtime, health hazard, premium claims, prior notice period, job deviation, salary parity and others, with a major portion of the amounts claimed under provisional or final execution stage, in several different court levels, and thus are classified as probable loss, and duly provisioned for.
On January 09, 1990, the Water, Sewage and Environment Workers Union of São Paulo – “SINTAEMA” filed an lawsuit against the Company, alleging that it failed to pay certain benefits, and that it would be liable for the payment of fine to the “SINTAEMA” under the terms of a collective bargaining agreement in effect at that time. On July 31, 1992, the Labor Court rendered an adverse judgment against the Company, however did not award losses and damages on behalf of the labor union at such time. Presently, the Company is negotiating the amount to be paid with the labor union. In addition, the Company filed a petition for writ of mandamus seeking a relief determining that the labor union is imposing an excessive fine, since it exceeds, by far, the principal amount of the debt. The request has been denied by the trial court and the case is currently pending an affirmative judgment from the Superior Labor Court – “TST”.
(vi) Environment claims
Environment claims refer to several administrative proceedings brought by public agencies, including Companhia de Tecnologia de Saneamento Ambiental – “CETESB” (Environment Sanitation Technology Company), seeking to impose fine for environmental damages allegedly caused by the Company.
Among other matters involving the State of São Paulo Public Attorney’s Office, the following are worthy of mention: (A) On April 4, 2002, the Company was served process in a public action filed by the District Attorney´s Office of the Municipality of São Bernardo do Campo, aiming at repairing damages caused by reason of the mud discharge arising from the waste treatment facilities of the Company in current waters, as well as requesting the interruption of such discharge. An injunction has been granted determining that the Company suspended the mud discharge and assessing a daily fine in the amount of R$ 50,000.00 in case the Company does not comply with the provision of such injunction; however, such injunction was withdrawn. The trial court rendered an affirmative judgment to the Company, against which an appeal has been filed. The Company is presently unable to estimate the extent or amounts involved in connection with the compliance with eventual measures it may be required to adopt by virtue of a judgment rendered in this case classified as possible risk of loss; (B) on October 21, 2004, a trial court judgment was rendered in a public lawsuit brought by the Office of the Public Prosecutor of the Judicial District of Paraguaçu Paulista on February 17, 2003, at the first Civil Court of Paraguaçu Paulista against the Company, which partially granted the civil public lawsuit and sentenced the Company to (i) refrain itself from disposing of “in natura” sewage into any river in the Municipality of Paraguaçu Paulista; (ii) invest in a water and sewage treatment system in this municipality; (iii) pay an indemnity for environmental damages awarded in the amount of R$ 116,934, which was classified as possible risk of loss. The court decision determined, further, that the non-compliance with items (i) and/or (ii) above will subject the Company to the payment of daily fines. The Company filed an appeal against the trial court decision; (C) on February 25, 2003, a request for a preliminary injunction was filed for the Company to immediately refrain itself from disposing of sewage without due treatment, in the municipality of Lutécia, as well as for the purpose of determining that payments for water and sewage services by users thereof be deposited in court until the Company has fulfilled the necessary plan of investments in the water and sewage system of the municipality, in addition to daily fine in the amount of one thousand (1,000) minimum salaries in case of non-compliance with the award-making decision. After submission of an expert report, the Public Prosecutor Office requested the Company to be sentenced to pay the amount of R$ 82,779. The Company, considering the possibility of an eventual settlement with the Public Prosecutor Office, condemned the area and requested the respective environment licenses.
Other Proceedings related to the Concession
On December 02, 1997, the Municipality of Santos enacted a law expropriating the Company’s water and sewage systems in that municipality. In response, the Company filed a petition for writ of mandamus added by a preliminary injunction against the enactment of the referred law, seeking the annulment thereof. The preliminary injunction was denied by the trial court. Such decision was further reversed by the State of São Paulo Court of Appeals, which granted the writ of mandamus suspending the effects of the referred law. The trial court judge rendered an affirmative judgment to the Company, against which an appeal was filed by the municipality of Santos. No final decision has been rendered up to this date about the matter by the Court of Appeals.
The Municipality of Sandovalina brought a lawsuit seeking to terminate the concession agreement entered into with the Company and to sentence the Company to pay contractual penalty as well as losses and damages for the supposed losses suffered by the Municipality on account of the absence of sewage treatment and for damages caused to streets. The preliminary injunction for immediate reversal of the treatment of water in the municipality was denied. The Company challenged the case and filed a counterclaim seeking the plaintiff to be sentenced to pay R$ 115 relating to water supply in the period from December 1999 to August 2003, as well as to pay liquidated damages, without prejudice to losses and damages arising out of the Municipality having resumed the services. The Company presently continues to operate the water and sewage systems in the Municipality of Sandovalina and the case is in the discovery stage of the proceeding.
The Municipality of Itapira has declared the voidance of the concession contract and filed a repossession lawsuit.
The action has been sentenced as precedent. SABESP has filed an appeal, which is pending sentence.
The Municipality of Salto de Pirapora has obtained injunction to regain control of the basic sanitation. SABESP has filed a lawsuit, aiming at suspending the effects of the injunction granted, which has been accepted.
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