Sao Paulo Facing Water Shutoffs If Sabesp Withdrawals Cut

Sao Paulo residents may be left without water for hours each day if Sabesp, the largest water company in Latin America, accedes to demands from regulators to reduce withdrawals from its biggest reservoir, a former company executive said.

Cantareira, the four-lake complex that supplies half of South America’s biggest metropolis, has been drained of 95 percent of its water capacity amid Brazil’s worst drought in eight decades. The National Water Agency, or ANA, said last week that Sabesp won’t be allowed to use the last of the water unless the state-run utility can prove it has a plan to manage reservoir supplies better.

“All else being equal, reducing the amount of water being used from Cantareira will make it more difficult to balance supply and demand,” said Gesner Oliveira, a consultant who was Sabesp president from 2007 to 2010. “If that decision is made, it’s implicit that the company will need to take compensatory measure such as economic stimulus to reduce water consumption.”

Sabesp’s superintendent of water production, Marco Antonio Lopez Barros, said in a CBN radio interview this week that the utility will deliver a plan soon that may include cuts to water withdrawals from Cantareira. Any reduction would mean supply disruptions to 6.5 million people served by the reservoir, ranging from lower water pressure to rolling water shutoffs, said Joao Simanke, a hydrogeologist and owner of CHS Consulting.

‘No Water’

“The decision will affect water supply,” said Simanke, who worked for Sabesp for two decades until 2006. “It means that Sabesp will have to publicly admit that Sao Paulo will probably have periods of no water supply.”

Sabesp was supposed to deliver its contingency plan for Cantareira to ANA on Oct. 6. It’s finalizing some details and will deliver that instead in the coming days, said a press official who didn’t want to be named, citing Sabesp policies.

“The greater the reduction of water use, the greater the chance of Cantareira’s recovery with the rains to come,” Barros said in the interview.

The water company has already tapped the “dead reserves” at the reservoir, deep pools it previously couldn’t reach until it added 3 kilometers (1.9 miles) of new pipes. It’s now completed the installation of additional pipeline to withdraw water from a second section of the reserves.

With Brazil’s rainy season approaching, the chances that Sabesp will need to access it is “remote,” Barros said.

Analysts Worried

Analysts have cut their ratings on Sabesp. Five of the 14 analysts who evaluate the company rate it a sell, five recommend investors hold shares and four have it as a buy, according to data compiled by Bloomberg. That compares with the start of the year, when there were no sell ratings and seven buy recommendations.

Sabesp, formally called Cia de Saneamento Basico do Estado de Sao Paulo, was 1.5 percent lower at 19.78 reais at noon today in Sao Paulo. The stock has fallen 25 percent this year compared with a 10 percent gain over the same period by Veolia Environnement SA, Europe’s largest water company.

Brazil’s biggest water utility has been giving discounts to clients who cut consumption and is using water from other reservoirs to try to avoid rationing.

“Sabesp sells water, and there is not so much water to sell anymore,” said Alexandre Montes, an analyst at Lopes Filho Investment Consulting. “I don’t think this problem will be solved soon.” He recommends selling the shares.

Lower Flows

With falling supplies and rising costs to pump water from deeper ground, analysts have reduced estimates for the company. Earnings will slide 29 percent this year to 1.4 billion reais and revenue slump by 12 percent, according to the average of nine estimates compiled by Bloomberg.

Thousands of residents across Sao Paulo, a city twice the size of Los Angeles, are already complaining of lower flows from water faucets in the past three months.

Sabesp invested about 80 million reais ($33.2 million) for the pipes to reach the dead reserves. The Sao Paulo-based utility is now proposing a second phase to tap the last of the reserves. For that, it needs ANA approval.

The company is also investing in equipment to secure supplies from other reservoirs to reduce its dependence on Cantareira.

“With these works, Sabesp can overcome the water flow in some areas of the basin,” said Antonio Carlos Zuffo, a professor of hydrology and water resources at the University of Campinas. “But the decision to reduce withdrawals from the reservoir will inevitably lead to shortages in some areas, even if it is not yet possible to know the extent.”

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