Fishing for answers, but not finding any.

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Brazil Dries Up and Blacks Out

Mac Margolis writes about Latin America for Bloomberg View. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”
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Water is to Brazilian politicians what oil is to Latin American petrocrats -- just a pipeline away, too abundant to fret over. Except when it's not.

Despite a summer storm over the weekend, Rio de Janeiro is parched, and its reservoirs are depleted. Sao Paulo is worse: the Cantareira System of interconnected lakes that supplies water to 8 million people is dipping into its "dead volume," roughly the equivalent of the red zone on your car's gas gauge.

January rains were enough to cause flash floods and craters in the streets, including one that swallowed a motorcycle in Sao Paulo, but not to top up the nation's depleted reservoirs and hydroelectric dams.

For months now, specialists have been waving the windsock over the gathering weather emergency -- not least because some 68 percent of the nation's power is hydroelectric. In Brazil, water supply is power supply. Power cuts on Jan. 19 darkened Rio, Sao Paulo and seven other Brazilian states for several hours.

Climate scientists blame forest-cutting in the Amazon basin, which damages the rainforest's capacity to pump humidity back into the atmosphere. The official response has been that this crisis is a one-off, an unseasonable conspiracy of spiking temperatures and scant rains. Mines and Energy Minister Eduardo Braga recently dismissed rationed power cuts, allowing that Brazil had technical glitches but no dearth of grid capacity. Because God is not always Brazilian, Braga also announced a rate hike plus incentives for consumers who conserve water. "Sincerely, I see no risks," he said.

Seeing no risks is part of the problem. Brazilians have always taken pride in their bounty. School children warble about their "splendid cradle" in the national anthem and recite lessons about the mighty Amazon, the world's largest river basin. Brazilianistas gush about the country's potential as "the Saudi Arabia of water."

Greenwashing hasn't helped. Pressured by environmentalists, indigenous rights groups and the odd rock star, Brasilia drastically scaled back its energy plan. Out went big hydroelectric dams, which flooded forests and villages. In came run-of-river plants, which instead of trapping water, tapped the downstream current to turn turbines. But treading lightly came with a cost: Power surged when the rivers were flush, but ebbed in dry season. "Dams store up energy that can tide the country through a drought," said Omar Abbud, an energy expert and consultant at the Brazilian Senate. "We sacrificed cheap, clean energy for ideology."

Severe drought has strafed Brazil nearly 40 times since 1583. A dry snap in 2001-2002 led to a nationwide blackout and power rationing that erased nearly 1.5 percent of gross domestic product in 2001. In January 2001, the country's main reservoirs were at about 31 percent capacity. Now they're down to 17 percent, Fitch Ratings said in a client note on Feb. 3.

To appreciate the problem, go back to 2012, when water supply was already critically low. Instead of raising utility rates to conserve power, President Dilma Rousseff, powered up for reelection, announced an "historic" household rate cut to goose growth even as the world economy slowed. "Prepare for another leap forward," she announced on Brazilian Independence Day. This was a green light for Brazil's new consumers to switch on air conditioners and leave their lights blazing.

The surge pushed the grid to the brink, forcing government to switch on expensive, fossil-fuel burning thermoelectric plants to avoid blackouts, and then to bail out power companies barred from raising their rates. Adriano Pires of the Brazilian Center for Infrastructure reckons that the over-leveraged power sector is now 114 billion reais ($42 billion) in the red.

To keep the lights on and taps running, Brazil will have to scrap its hydropopulism and end the game of chicken between federal and state policymakers. Rousseff, safely reelected, has finally signed onto a hefty utility rate increase but balks at energy rationing. It's much the same in Sao Paulo, the driest state, where Rousseff's staunchest rival, Governor Geraldo Alckmin, has warned of drastic cuts in water supply but has yet to ration power. "You get the impression that each is waiting for the other to blink," said Pires.

Depending on the severity of cuts, nationwide energy rationing could shave up to 1.5 percent off gross domestic product in an economy that's already flat. Even with a big glass of water, Brazilians may find that hard to swallow.

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

To contact the author on this story:
Mac Margolis at mmargolis14@bloomberg.net

To contact the editor on this story:
James Gibney at jgibney5@bloomberg.net