COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO SABESP TECHNICAL REPORT EMAE AGREEMENT

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1 COMPANHIA DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO SABESP TECHNICAL REPORT EMAE AGREEMENT 1) On April 10, 2014, in accordance with CVM Instruction No. 358 of January 3, 2002, Companhia de Saneamento Básico do Estado de São Paulo Sabesp, issued a notice to the market confirming that Sabesp and EMAE had started talks aimed at a future settlement of their disputes over the offtake of water from the Guarapiranga and Billings reservoirs. 2) These disputes are the basis for the following claims: (a) Action Requesting Arbitration Submission (Ação de Instituição de Compromisso Arbitral) Case No , which was heard by the 5 th Lower Civil Court of the Central Jurisdiction of São Paulo (5ª Vara Cível do Foro Central da Comarca de São Paulo), now under appeal, in which EMAE proposed that the dispute should go to arbitration (the Arbitration Action ); (b) Arbitration Proceeding (Procedimento Arbitral) No. 069/2013, in progress in the Arbitration Center of the American Chamber of Commerce for Brazil, São Paulo (Amcham), instated to seek financial compensation for alleged past and future losses of electricity generation due to the offtake of water, and compensation for costs incurred and to be incurred on maintenance and monitoring of the Guarapiranga Reservoir (the Guarapiranga Arbitration ); (c) Lawsuit (Ação Ordinária) No , in progress in the 6 th Lower Civil Court of the Central Jurisdiction of São Paulo, brought by EMAE to seek financial compensation for alleged past and future losses of electricity generation due to the offtake of water, and sharing of costs incurred and to be incurred on the operation, maintenance, management and monitoring of the Billings Reser-

2 voir by SABESP (the Billings Lawsuit ); and (d) Provisional Remedy for the Presentation of Documents (Ação Cautelar de Exibição de Documentos) No , brought by SABESP against EMAE in progress in the 9 th Public Treasury Trial of the Central Jurisdiction of São Paulo, to apply for the presentation of documents which preceded the Agreement (the Presentation of Documents ). 3) Sabesp s argument is that the water in these reservoirs has always been public property, that it cannot be considered as private and that its use for supplying the public cannot be paid for. Moreover, the offtake of water from these reservoirs is supported by concessions whose terms do not specify any charge payable by Sabesp. Similarly, in the concession agreements between the federal government and EMAE for the generation of electricity, there is no mention to any financial compensation for the offtake of water by third parties. 4) However, recent developments in the litigation between the two companies indicate: i) that Sabesp s arguments in court are not being taken into account in the arbitration proceeding with the American Chamber of Commerce in São Paulo (Amcham); ii) that this proceeding is in the hands of a single arbitrator and an expert appointed by him; iii) that the arbitrator has made it very clear that the arbitration proceeding is limited to calculating the indemnity owed. 5) Since the offtake of water from these reservoirs is authorized by the competent authorities under grants free of any costs, the Company holds that no payment is due. However, since: (i) recent developments in the arbitration proceedings have gone against Sabesp; (ii) these reservoirs are essential for the supply of water to the Metropolitan Region of São Paulo; and (iii) water would have to be taken from more distant locations at a high cost if these reservoirs were not available for the Company, Sabesp considers that it is reasonable to use the sharing of costs for the maintenance and operation of these reservoirs as a parameter to eliminate the risk of possible condemnation in the arbitration proceeding and in the other cases being heard by the courts.

3 6) Accordingly, the agreement executed was based on the following premises: i) payments by Sabesp must not exceed the amount necessary to reimburse EMAE for the costs of maintaining and operating the Guarapiranga and Billings reservoirs, in proportion to its offtake from the natural flow of each of them; ii) payment should continue to be made as long as the Sabesp and EMAE concessions remain in force, and for as long as Sabesp continues to take water from these reservoirs, subject to the period of prescription of the purpose of the actions; iii) Sabesp shall apply to ARSESP for these expenses to be included in the tariff review now in progress. 7) To estimate the cost of maintaining and conserving hydraulic facilities and property at the Billings and Guarapiranga Reservoirs, the technical area involved in water production made the following assumptions: (i) costs of the Guarapiranga Reservoir, whose water is used exclusively to supply the population of the Metropolitan Region of São Paulo, would be borne in full by Sabesp; (ii) the Billings Reservoir is used for multiple purposes - flood control, electricity generation and public water supply and the costs of its maintenance and operation should be shared in proportion to the use of its water for each of these functions; (iii) SABESP holds grants for the use of the water at various locations in the Billings dam, which together add up to an available flow of 10.0 m³/s, representing 61.7% of the long-term average flow (16.2 m³/s); and (iv) taking the percentages of usage of the water volumes - 100% Guarapiranga and 61.7% Billings an annual amount of R$6,610, was obtained for the purposes of cost-sharing under the agreement. See Technical Report attached hereto. 8) The Company has assumed the sum of R$6,610, per year for the period 2010 to 2042, taking into account the prescription period and the year when the EMAE concession expires.

4 9) For these reasons, the Company has concluded that it is in its interests to sign the Agreement, because; (i) it eliminates future risk by extinguishing all the litigations; (ii) the amount is limited to a figure considered reasonable for sharing the operating and maintenance costs of the Guarapiranga and Billings reservoirs; and (iii) the method of payment proposed is in line with the Company s financial situation.

5 Companhia de Saneamento Básico do Estado de São Paulo Rua Costa Carvalho, 300 Pinheiros São Paulo SP Tel.: (11) Fax: (11) sabesp TECHNICAL REPORT Estimated Costs and Expenses for Maintenance and Conservation of the Billings and Guarapiranga Reservoirs The purpose of this technical report is to prepare a cost estimate for the maintenance and conservation of the hydraulic facilities and property at the Billings and Guarapiranga Reservoirs, in respect of the offtake of water for public supply. The water from the Guarapiranga Reservoir is used exclusively for supplying part of the population of the São Paulo Metropolitan Region, and accordingly the maintenance and conservation expenses should be the sole responsibility of Sabesp. The water of the Billings Reservoir is used for several purposes, namely: flood control, electricity generation and public water supplies. SABESP has grants for the use of water at three locations on the Billings dam, with a total flow available for use of 10.0 m³/s (5.5 m³/s from the Rio Grande, 2.2 m³/s from the arm of the Taquacetuba and 2.3 m³/s from the arm of the Rio Pequeno). This flow represents 61.7% of the long-term average flow of the Billings dam, which is 16.2 m³/s. To prepare a cost estimate for maintaining and conserving the hydraulic facilities and property at the reservoirs, we prepared worksheets with a breakdown of the percentages of use of water from the reservoirs, i.e.: 100% Guarapiranga and 61.7% Billings, in the following amounts: R$6,610,000.00, in respect of: Billings Reservoir: R$ 4,244, Guarapiranga Reservoir: R$2,365, As of October 2016, as per attached worksheet.

6 Companhia de Saneamento Básico do Estado de São Paulo Rua Costa Carvalho, 300 Pinheiros São Paulo SP Tel.: (11) Fax: (11) sabesp To ensure that the amounts estimated are compatible with the figures actually paid by Sabesp, in a Production System of equivalent volume, we compared the costs of maintenance and conservation for the hydraulic facilities and property at the reservoirs of the Alto Tietê System, under Contract 6.651/2016 (the purpose of which is: Public-Private Partnership Concession Agreement, of administrative type, for the supply of services for the maintenance of dams, inspection and maintenance of tunnels and channels interlinking dams, civil and electromechanical maintenance of units comprising the system; treatment and final disposal of mud generated by water treatment; ancillary services; enlargement of the capacity of the Water Treatment Station of Taiaçupeba; construction of water mains and other services - Alto Tietê Production System (SPAT) ), which gave a total of R$7,247,540.13, as of October Our conclusion, therefore, is that the estimate is compatible with the costs of an agreement executed by Sabesp and currently in force.

7 Companhia de Saneamento Básico do Estado de São Paulo Rua Costa Carvalho, 300 Pinheiros São Paulo SP Tel.: (11) Fax: (11) sabesp ATTACHMENT

8 ANNUAL OPERATION AND MAINTENANCE COSTS - ESTIMATES (R$) RESERVOIR GUARAPIRANGA BILLINGS Type of service Cost per item Cost of service Cost per item Cost of Service (61.7%) 1. Operation and maintenance 875, ,167, Own workforce 637, ,012, Outsourced services (hoeing, cleaning etc) 223, , Materials 14, , Dam inspection and security 197, , Instrument reading and analysis 178, , Inspection and maintenance of dam and structures 19, , Monitoring and guard duty 803, ,779, Guard duty 313, ,892, Monitoring of property 105, , Property analysis, expert and topographical services 383, , Supervision and control of operations 95, , Legal services 172, , Administrative costs 220, , Total Annual Cost 2,365, ,244, TOTAL 6,610, Base date: October 2016

9 ALTO TIETÊ SYSTEM ANNUAL OPERATION AND MAINTENANCE COSTS (R$) Maintenance and Other Services Personnel 390,000 Maintenance Materials 79,000 of Dams Outsourced services 176,000 General Expenses 147,000 Guard Personnel 0 Services and Materials 0 Property Outsourced services 3,162,000 Security General Expenses 63,000 Green Area Personnel 0 Conservation Materials 0 Services Outsourced services 552,000 General Expenses 17,000 Total Expenses 4,586, Adjusted values (*) 7,247, (*) values adjusted to October 2016