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5 Risk management (Tables)
 12 Months Ended
Dec. 31, 2020
Risk Management  
Schedule of exposure to exchange risk

Below, the Company’s exposure to exchange risk:

 

  December 31, 2020 December 31, 2019
  Foreign currency R$ Foreign currency R$
         
Borrowings and financing – US$ 167,479 870,338 1,051,881 4,239,817
Borrowings and financing – Yen 52,969,560 2,671,255 56,452,885 2,097,225
Interest and charges from borrowings and financing – US$   5,540   32,242
Interest and charges from borrowings and financing – Yen   16,037   12,725
Total exposure   3,563,170   6,382,009
Borrowing cost – US$   (12,342)   (20,173)
Borrowing cost – Yen   (2,966)   (3,038)
Total foreign-currency denominated borrowings (Note 17)   3,547,862   6,358,798
Schedule of increase/decrease in exchange rate

The decrease was partially offset by the appreciation of the US dollar and Yen against the Real, as shown in the following table:

 

  December 31, 2020 December 31, 2019 Variation
US$ R$ 5.1967 R$ 4.0307 28.9%
Iene R$ 0.05043 R$ 0.03715 35.7%
Schedule of currency exposure

The Company understands that scenarios 25% and 50% are reasonable, given the instability of the real against the U.S. dollar and the Yen. Depreciation came to 28.9% and 35.7%, respectively, in 2020.

 

  Scenario I (Probable) Scenario II (+25%) Scenario III (+50%)
  (*)    
Net currency exposure as of December 31, 2020 in US$ - Liabilities 167,479 167,479 167,479
       
US$ rate as of December 31, 2020 5.1967 5.1967 5.1967
Exchange rate estimated according to the scenario 5.0000 6.2500 7.5000
Differences between the rates 0.1967 (1.0533) (2.3033)
       
Effect on net financial result R$ - gain/(loss) 32,943 (176,406) (385,754)
       
Net currency exposure as of December 31, 2020 in Yen - Liabilities 52,969,560 52,969,560 52,969,560
       
Yen rate as of December 31, 2020 0.05043 0.05043 0.05043
Exchange rate estimated according to the scenario 0.05125 0.06406 0.07687
Differences between the rates (0.00082) (0.01363) (0.02644)
       
Effect on net financial result R$ - gain/(loss) (43,435) (721,975) (1,400,515)
       
Total effect on net financial result in R$ - gain/(loss) (10,492) (898,381) (1,786,269)
       
(*) For the probable scenario in US dollar, the exchange rate estimated for December 31, 2021 was used, pursuant to the BACEN Focus Report of December 31, 2020. For the Yen, the exchange estimated for December 31, 2021 was used, according to B3’s Reference Rates report of December 31, 2020.
Schedule of borrowing and financing variable interest rate

The table below provides the Company's borrowings and financing subject to variable interest rate:

 

  December 31, 2020 December 31, 2019
CDI(i) 7,836,988 1,866,755
TR(ii) 1,619,416 1,675,203
IPCA(iii) 2,176,547 1,366,134
TJLP(iv) 1,517,657 1,381,342
LIBOR(v) 870,337 2,829,073
Interest and charges 164,439 105,667
Total 14,185,384 9,224,174

 

(i) CDI – (Certificado de Depósito Interbancário), an interbank deposit certificate

(ii) TR – Interest Benchmark Rate

(iii) IPCA – (Índice Nacional de Preços ao Consumidor Amplo), a consumer price index

(iv) TJLP – (Taxa de Juros a Longo Prazo), a long-term interest rate index

(v) LIBOR – London Interbank Offered Rate
Schedule of credit information of banks

For the credit quality of the banks, such as deposits and financial investments, the Company considers the lower rating published by three main international rating agencies (Fitch, Moody's and S&P), according to internal policy of market risk management:

 

Banks Fitch Moody's Standard Poor's
Banco do Brasil S/A AA(bra) Aa1.br -
Banco Santander Brasil S/A - Aaa.br brAAA
Brazilian Federal Savings Bank AA(bra) Aa1.br brAAA
Banco Bradesco S/A AAA(bra) Aa1.br brAAA
Itaú Unibanco Holding S/A AAA(bra) Aa1.br brAAA
Banco BV - Aa3.br brAAA
Banco BTG Pactual S/A AA(bra) Aa2.br brAA+
Schedule of credit rating

The table below shows the rating assessment released by the Fitch agency, for deposit transactions and financial investments in local currency (R$ - domestic rating):

 

  December 31, 2020 December 31, 2019
Cash and cash equivalents and financial investments    
AA(bra) 2,662,685 2,193,725
AAA(bra) 891,243 41,992
Other (*) 253,619 17,493
  3,807,547 2,253,210

 

(*) This category includes current accounts and investment funds in banks whose balances were not significant in 2019. The amount of R$ 253,066 referring to Banco BV (no classification) was recorded in 2020.
Schedule of liquidity risk

For agreements with floating interest rate, the interest rates used correspond to the base dates above.

 

  2021 2022 2023 2024 2025 2026 onwards Total
As of December 31, 2020              
               
Liabilities              
Borrowings and financing 3,439,199 1,994,506 2,019,520 2,177,923 1,672,201 9,828,487 21,131,836
Accounts payables to suppliers and contractors 263,741 - - - - - 263,741
Services payable 453,750 - - - - - 453,750
Public-Private Partnership – PPP 404,800 405,132 405,444 350,342 333,148 4,256,084 6,154,950
Program Contract Commitments 163,798 33,287 33,287 1,045 1,045 13,133 245,595
Schedule of sensitivity analysis on interest rate risk

The purpose of the sensitivity analysis is to measure the impact of changes in the market over the financial instruments, considering constant all other variables. In the time of settlement the amounts can be different from those presented, due to the estimates used in the measurement.

 

December 31, 2020
Indicators   Exposure  

Scenario I

(Probable) (i)

  

Scenario II

25%

  

Scenario III 

50% 

                 
Assets                
CDI   3,778,252   3.0000%(*)   3.7500%   4.5000%
Financial income       113,348   141,684   170,021
                 
Liabilities                
CDI   (7,836,988)   3.0000%(*)   3.7500%   4.5000%
Interest to be incurred       (235,110)   (293,887)   (352,664)
                 
CDI net exposure   (4,058,736)   (121,762)   (152,203)   (182,643)
                 
Liabilities                
TR   (1,619,416)   0.0001%(***)   0.0001%   0.0002%
Expenses to be incurred       (2)   (2)   (3)
                 
IPCA   (2,176,547)   3.3200%(*)   4.1500%   4.9800%
Expenses to be incurred       (72,261)   (90,327)   (108,392)
                 
TJLP   (1,517,657)   4.5500%(*)   5.6875%   6.8250%
Interest to be incurred       (69,053)   (86,317)   (103,580)
                 
LIBOR   (870,337)   0.1900%(**)   0.2375%   0.2850%
Interest to be incurred       (1,654)   (2,067)   (2,480)
                 
Total expenses to be incurred, net       (264,732)   (330,916)   (397,098)
                 
(*) Source: CDI and IPCA (BACEN Focus Report, December 31, 2020) and long-term interest rate as of December 31, 2020 (BACEN).
(**)   Source: Bloomberg.
(***) Source: B3.
Schedule of capital management

Total capital is calculated as total equity as shown in the statement of the financial position plus net debt.

 

  December 31, 2020 December 31, 2019
     
Total borrowings and financing (Note 17) 17,258,624 13,244,709
(-) Cash and cash equivalents (Note 7) (396,401) (2,253,210)
(-) Financial investments (Note 8) (3,411,146) -
     
Net debt 13,451,077 10,991,499
Total equity 22,793,704 21,635,783
     
Total capital (shareholders + providers of capital) 36,244,781 32,627,282
     
Leverage ratio 37% 34%
Schedule of fair value of financial instruments

The estimated fair values of financial instruments are as follows:

 

Financial assets

 

  December 31, 2020 December 31, 2019
  Carrying amount Fair value Carrying amount Fair value
Cash and cash equivalents 396,401 396,401 2,253,210 2,253,210
Financial investments 3,411,146 3,411,146 - -
Restricted cash 35,742 35,742 26,018 26,018
Trade receivables 2,450,986 2,450,986 2,353,027 2,353,027
Water National Agency – ANA 26,463 26,463 32,466 32,466
Other receivables 246,110 246,110 194,178 194,178
Schedule of financial liabilities

Financial liabilities

 

  December 31, 2020 December 31, 2019
  Carrying amount Fair value Carrying amount Fair value
Borrowings and financing 17,258,624  17,702,649 13,244,709 13,937,611
Accounts payables to suppliers and contractors 263,741 263,741 369,631 369,631
Services payable 453,750 453,750 474,078 474,078
Program contract commitments 231,480 231,480 377,253 377,253
Public-Private Partnership - PPP 3,175,273 3,175,273 3,293,980 3,293,980