Sao Paulo Trails Los Angeles in Handling Drought, Moody's Says

  • Brazilian city has 5 months of water; U.S. metropolis has 18
  • Moody's downgraded Sao Paulo utility to junk rating last week

Better planning, more of an effort to conserve water and the authority to set price increases left Los Angeles in a better position to handle its record drought than Sao Paulo, according to Moody’s Investors Service.

While California’s four-year, record-setting drought squeezed the state’s $43 billion agriculture industry and led to mandatory, statewide water restrictions for the first time, the Los Angeles Department of Water and Power has managed to reduce leakage and pursue more aggressive conservation strategies, the ratings company wrote in a research note. Cia. de Saneamento Basico do Estado de Sao Paulo, the utility that supplies the state and is majority-owned by the state government of Sao Paulo, has shown “less independence to set rates,” Moody’s said.

South America’s largest city has also seen reservoirs run dry after years of below-average rain, and access to new reserves is limited by pollution, the ratings company said. Sabesp, which has offered discounts to customers who reduce consumption, has about five months of stored water supply, compared with 18 months for Los Angeles, according to Moody’s.

“Sao Paulo’s population has grown much more rapidly than that of Los Angeles, but its infrastructure spending has not kept pace, leaving the state unable to increase its water storage capacity," Moody’s Michael Wertz wrote in a research note.

The ratings company cut Sabesp to junk with a negative outlook Friday, saying the worst drought in decades weakened the company and eroded its liquidity.

Levels at Sabesp’s main reservoir were at 15.3 percent Thursday, down from 18.7 percent at the end of July. The Cantareira, as the reservoir is known, supplies water to 5.3 million people in the Sao Paulo metropolitan area, down from about 9 million before the start of the drought.

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