SBS Companhia Sanea

COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO - SABESP

PUBLICLY-HELD COMPANY
Corporate Taxpayer’s ID (CNPJ) 43.776.517/0001 -80
State Registry (NIRE) 35300016831

MATERIAL FACT

Companhia de Saneamento Básico do Estado de São Paulo – Sabesp (“Company” or “Sabesp”), pursuant to the provisions of Article 157, Paragraph 4 of Law 6404/76 and to the provisions of CVM Instruction No. 358/02, hereby announces to its shareholders and to the market in general that on this date it has notified the City of Guarujá of its intention to discontinue the provision of the public services of water supply and sewage system in this City.

The Company has been working with the City, with the consent of the State of São Paulo, to regularize the service provision and sign a contract, pursuant to the law regulating the sanitation sector, specifically Federal Law 11.455/07, being prohibited, in the meantime, of carrying out major new investments in the City of Guarujá, given the contractual uncertainty.

Sabesp is also facing difficulties to advance the negotiations with the City of Guarujá due to the municipal sanctioning public policy of the City Department of Environment - SEMAM (Secretaria Municipal de Meio Ambiente). The Company has been charged sometimes by this city for alleged infractions, which are being administratively and judicially challenged, with no final rulings to date, which have resulted in fines of unreasonable amounts that, according to Sabesp, were misapplied in the course of operating activities, directly and indirectly hindering the provision of the services.

Sabesp is entitled to request an indemnification from the City of Guarujá for investments not amortized, without impairing the other amounts established in the process of administrative termination of the services provision. The assets shared with other cities will not be part of the lawsuit.

The transfer of the provision of public services of water supply and sewage system will be carried out within a schedule to be established together with the City of Guarujá, in order to maintain the provision of services, safeguarding the collection of tariffs in favor of Sabesp until the effective reversal date.

The Company also announces that water production and treatment will continue to be provided to the Metropolitan Region of the Baixada Santista, due to being integrated services, and will not be part of the reversal. The supply of drinking water will be provided through wholesale service using the future price of the cubic meter determined by the Regulatory Agency of the State of São Paulo - ARSESP.

The City of Guarujá will have 30 days to state if it intends to maintain the contract and the continuity of the provision of the respective services, and if it states itself in favor of it, it will be necessary to sign an agreement in the form of a convênio between the State of São Paulo and the City of Guarujá to regulate the contractual relationship between the parties.

The Company will keep the market informed of further developments regarding this material fact.

São Paulo, June 7, 2017.

Rui de Britto Álvares Affonso
Chief Financial Officer and Investor Relations Officer