By Brazil Stock Guide – A São Paulo state appeals court has voided a contractual clause that allowed Cia de Saneamento Básico do Estado de São Paulo (Sabesp, B3: SBSP3) to unilaterally and without justification terminate water and sewage contracts with large users, a practice that led to tariff increases of about 150% following the company’s privatization. The decision strengthens judicial scrutiny over pricing practices in essential public services operated outside a competitive market.
The ruling was issued by the 22nd Private Law Chamber of the São Paulo Court of Justice in a case involving a long-term “firm demand” contract signed with Serramar Parque Shopping. After Sabesp’s privatization, the utility rescinded the agreement and migrated the client to standard tariffs, more than doubling the cost of water supply and wastewater treatment without prior technical studies or specific regulatory approval.
Reporting judge Roberto Mac Cracken said the company’s change in ownership structure does not alter the public and essential nature of the service it provides. Even under private control, Sabesp remains a concessionaire operating a public utility that is indispensable to economic activity and delivered outside a competitive framework, with no alternative supplier available to users.
In that context, the court found that the termination clause was purely discretionary, effectively allowing the utility to redefine the price of an essential service by a unilateral declaration of intent. Although the contract formally granted both parties the right to terminate without cause, the judges concluded that the provision was materially unequal, as the customer cannot realistically walk away from a monopoly supplier.
The panel stressed that sanitation services constitute a natural monopoly, a condition that requires stricter limits on contractual autonomy and heightened respect for principles such as tariff affordability, continuity of service and economic balance. A sudden and substantial price increase, triggered solely by unilateral termination, was deemed incompatible with those principles.
The court invalidated the specific clause while preserving the remaining terms of the firm-demand contract, ordering that the differentiated tariff conditions remain in force as originally agreed and subject to existing regulatory rules. It also instructed that a full copy of the case be forwarded to Arsesp, São Paulo’s sanitation regulator, for potential regulatory action.
The decision was unanimous, with judges Nuncio Theophilo Neto and João Carlos Calmon Ribeiro joining the ruling. The outcome signals tighter judicial oversight of Sabesp’s post-privatization tariff strategy and may set a reference point for other large consumers affected by abrupt contract revisions in Brazil’s sanitation sector.