Brazil's Biggest City Is Running Dry

Sao Paulo's water shortage prompts a larger Brazilian debate about waste. 
Water, water, though not everywhere.

God, the natives like to say, is Brazilian. So with the country weathering its worst drought in decades, it's no surprise that officials in the worst-hit regions are pleading force majeure. Geraldo Alckmin, governor of water-stressed Sao Paulo, chalked up the emptying reservoirs to "exceptional" and "unimaginable" drought.

But Saint Peter, the national patron saint of rain, gets a bum rap. The great Brazilian dry spell is as predictable as Sunday mass, and this year's is no exception. Sao Paulo owes its skyline in large part to the hands of men and women who fled the parched backlands of the northeast to become bricklayers and steelworkers in the country's biggest metropolis. One of them was Luiz Inacio Lula da Silva, who wet his whistle with politics and became a rebel union leader and then president.

Now the problem has migrated, too. Sao Paulo, the nation's most prosperous state, is facing its worst dry snap in four generations. Last week, the water level in the region's biggest reservoir, the Cantareira complex, dropped to just 8 percent. The state sanitation authority, Sabesp, is offering fat discounts to consumers who slash their yearly water use by at least 20 percent. Dozens of cities are already rationing water.

Absent a miracle, Alckmin is talking about diverting the flow of the Jaguari river. However, since the Jaguari is an affluent of Paraiba do Sul, which flows across the border into Rio de Janeiro state, that is a recipe for a water war.

With almost three-quarters of Brazil's electricity drawn from hydroelectric dams, a water crisis is also a power crisis. In 2000, critically low reservoirs forced then-President Fernando Henrique Cardoso to impose nationwide energy rationing, which subtracted a point from gross domestic product in 2001 and fueled voter dissatisfaction.

The lesson wasn't lost on Lula, who won the 2002 election partly by vowing to rescue Brazil from a "policy blackout." Now his successor, Dilma Rousseff, campaigning for re-election, is scrambling to avoid her own power outage on the eve of the Oct. 5 vote.

As rains dwindled last year, Rousseff leaned on utilities to ease power bills. Offering to renegotiate concessions due to expire between 2015 and 2017, she awarded new contracts on the condition that distributors deliver electricity to households and small businesses at up to 20 percent discounts.

That only encouraged consumers to leave lights blazing and air conditioners blasting. It also weighed on balance sheets of electrical companies, which had to buy extra capacity from diesel-burning generation plants on the volatile spot market, where the prices rose four-fold earlier this year, according to Marcos Casarin of Oxford Economics.

The 12 largest electric companies in Brazil saw profits fall 20 percent in the second quarter of this year, compared with the same period a year before, according to a report by Valor Economico.

While Sao Paulo desiccates, Africa cheers. Ethiopia is looking to increase revenue by 25 percent for Arabica coffee that drought-strafed Brazilian growers can no longer deliver.

The upside of the water emergency is that Brazilians are beginning to debate a culture of waste. That doesn't come easy in a continental country, blessed, as the national anthem has it, by "a splendid cradle." Timber, topsoil, minerals and now water: Brazilians spent their bounty freely, knowing that the next mother lode was over the next hill.

In fact, Brazil is facing scarcity in the midst of abundance. Some four in 10 Brazilian municipalities squander at least 45 percent of the metered water distributed to consumers, according to a study by the Instituto Trata Brasil, which monitors water. Most is lost to leaky and obsolete pipes (51 percent of which are at least 34 years old), theft and faulty meters.

Oddly, those who have their hands on the tap don't seem to be the objects of popular anger. If the polls are correct, the incumbent Alckmin is touted to easily win re-election next month. Of course, if the drought worsens and rationing spreads, the mood could change -- and that's something Saint Peter might choose not to fix.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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