Wednesday, February 11, 2015

Sao Paulo Drought Compounds Brasil's Problems

Last updated: February 11, 2015 1:53 pm

São Paulo drought raises fears of Brazil energy crisis

With Brazil’s economy in a slump, there are few companies in São Paulo that can boast they are doing a roaring trade.
But water tanker operator Gota de Cristal Água Potável, or Crystal Drop Drinking Water, cannot keep up with orders thanks to the worst drought on record to have hit South America’s largest metropolis.
“We are working nonstop,” said Gota de Cristal driver Emerson Prado, whose water truck is supplying a laundry near Vila Sônia in São Paulo’s west.
“The way things are going, the water will run out altogether,” said the driver, who says the company draws its water from its own wells.
Mr Prado’s apocalyptic prognosis is not far-fetched. With a population of more than 20m people in the greater metropolitan region, parts of São Paulo — Brazil’s economic powerhouse — are running out of water.
São Paulo’s troubles are part of a wider drought afflicting the country’s south and central states that is drying up hydropower dams. In a country that depends on hydropower for about 70 per cent of its electricity, this is threatening to create an even bigger problem for Brazil’s economy — energy rationing.
While São Paulo’s water shortage is a headache for powerful state governor Geraldo Alckmin of the opposition PSDB party, energy rationing would hurt the federal government of President Dilma Rousseffand her left-leaning Workers’ Party.
“If we continue with these low levels of water in the reservoirs, it will be really difficult to avoid rationing in Brazil,” said Mauro Storino, senior director at Fitch Ratings.
The worst hit São Paulo reservoir system is Cantareira. Set in hills near the city’s international airport, this serves 6.2m people in the metropolis’s central and surrounding areas. But it is operating at just 6.1 per cent of its capacity — including reserves that usually are not tapped.
Poor rainy seasons, which traditionally run between November and April, over the past couple of years have meant inflows into Cantareira in January were less than one-sixth of historical averages, Vicente Andreu Guillo, president of the ANA, the government’s national water regulator, wrote in an article on the body’s website.
Chart: Brazilian reservoir levels
“The operation of Cantareira is continuing on the expectation that there will be abundant rains,” Mr Guillo wrote. He said that efforts to economise had so far been inadequate “in the face of a drought that continues to surprise”.
José Carlos Mierzwa, associate professor at the University of São Paulo, said that unless it rained heavily during the second half of the wet season, severe rationing would be unavoidable.
He said that although São Paulo’s population growth had slowed, the rise of a new middle class meant that water consumption was still increasing.
To meet this demand, the city was importing water through subterranean tunnels from regions ever farther away. But while finding new sources was important, the city was missing opportunities to recycle existing water supplies. São Paulo treated only 30 per cent of its sewage, turning its rivers into open sewers that in turn limited the water available to regions downstream.
“This pollution stretches a distance of about 100 kilometres,” said Prof Mierzwa.
More worrying for policy makers in Brasília is that the drought will spark an energy crisis. In Brazil’s southeast and central economic heartlands, the principal hydropower reservoirs are at just 17 per cent capacity.
Brazil’s last drought in 2001 forced energy rationing and helped end the rule of the centrist PSDB party. Since then the government has doubled the participation of thermal plants in power generation to compensate for any lack of hydroelectricity during droughts.
Fitch’s Mr Storino said in a note that the increased thermal power and a better electricity transmission grid “partially mitigate the rationing risk”. But even this safeguard would reach its limits if it did not rain.
Rationing would be a disaster for President Rousseff, a former energy minister whose approval ratings fell sharply this month on a weak economy and a corruption scandal at state-owned oil producer Petrobras.
“We expect negative gross domestic product growth in 2015,” Ilan Goldfajn, economist at Itaú-Unibanco, wrote in a research note. He said that the degree of decline would depend partly on rationing and the corruption investigation.
Business is worried. Santiago Chamorro, president of General Motors do Brasil, said that the carmaker had studied bringing water in by truck for its plants in São Paulo.

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“We are preparing for the worst and hoping for the best,” Mr Chamorro said.
The public, meanwhile, is stocking up on water. Leroy Merlin, a home-improvement store, said that demand for new water tanks for residential use rose 352 per cent last year.
Some fear that the crisis could degenerate into street warfare in São Paulo once the scarcity starts to bite later this year.
“In a little while it will be dangerous for us,” predicted Gota de Cristal driver Mr Prado. He said he feared that people would start randomly stopping water trucks and “ordering us to go to their houses”.
Additional reporting by Samantha Pearson
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