Thirsty River Threatens Brazil's Plan to Privatize Utility

Updated on
  • Sao Francisco River is crucial for power generation, farmers
  • Lawmakers fear water will be mismanaged in private hands
Sao Francisco river

Photographer: Paulo Fridman/Corbis via Getty Images

The battle over privatizing Latin America’s largest utility hinges on a parched river winding through the dusty highlands of northeast Brazil.

The 1,800-mile (2,900-kilometer) Sao Francisco River has for centuries been the lifeblood of cattle ranchers and farmers. Now the river, crisscrossed by eight hydroelectric dams operated by Brazil’s state-owned utility Eletrobras, is drying up as years of drought have taken their toll.

Lawmakers representing the region warn the problem may become worse if private investors take control of Eletrobras. They’re threatening to block a bill to privatize the utility unless the measure calls for more money to restore the river. Otherwise, they say, private owners may try to squeeze every drop of water to boost power generation, leaving little for crops and drinking in one of Brazil’s most impoverished regions.

“Rio Sao Francisco has been wiped out,” Congressman Jose Carlos Aleluia, whose home state of Bahia is traversed by the river, said in an interview. “A significant part of the resources raised through the privatization must be directed to its recovery.”

The Sao Francisco River runs through some of Brazil’s poorest regions.

Selling the Brazilian government’s majority stake in Eletrobras is at the heart of President Michel Temer’s plan to solve a budget crisis by privatizing state-owned assets. Last year, officials said the effort could pump as much as 40 billion reais ($12.3 billion) into the national budget by the end of 2018, reducing a deficit after the deepest recession on record.

Eletrobras shares are publicly traded, but the government holds a controlling stake. Temer, who is pushing to complete the deal before Brazil’s presidential elections in October, signed a bill last month outlining a plan to issue enough new shares to dilute Brazil’s 67 percent stake to less than 50 percent.

The plan faces stiff opposition. Five parliamentary groups holding more than 400 of Brazil’s 513 congressional seats are questioning the move. The say privatizing Eletrobras could drive up power prices and threaten Brazil’s sovereignty. One of the biggest concerns, they say, is the Sao Francisco River.

The river, which originates on the slopes of the Canastra Mountains, has grown perilously low, with reservoirs less than 30 percent full after months without rain. Lawmakers say the problem extends beyond Mother Nature. The river, they say, has suffered from years of mismanagement at the hands of power companies.

Eletrobras declined to comment.

The bill before Congress calls for Eletrobras to spend 9 billion reais over 30 years to restore the river. Lawmakers from the northeast say that’s not enough.

“This is a very low amount of money, considering the importance of the river for the region,” said Congressman Danilo Cabral, a member of the Brazilian Socialist Party from Pernambuco.

The push to privatize Eletrobras comes as the utility is undergoing a massive restructuring that calls for slashing the workforce and shedding assets. The company has scheduled a shareholder’s meeting Thursday to decide whether to sell six power distribution companies.

Lawmakers are also concerned that selling Eletrobras to private investors will disrupt a long-running effort to refurbish reservoirs, aqueducts and pumping stations along the Sao Francisco and its tributaries. The project is intended to bring reliable access to water to more than 390 municipalities.

“If you give Sao Francisco to private owners, who guarantees they will finish the project?” Cabral said.

There remains room to negotiate, officials said. Paulo Pedrosa, executive secretary of Brazil’s energy ministry, said Temer’s government is open to discussing increased protections for the river.

“The energy minister is an advocate of the river,” Pedrosa said. “I am confident that the government will be able, with the help of the congress, to have approval this year for the privatization project.”

— With assistance by Christiana Sciaudone

    Before it's here, it's on the Bloomberg Terminal.