Drought sparks fears of energy shortages

Low Recent rainfall has raised the spectre of water rationing for homes and businesses

By Joe Leahy – Sao Paulo

With Brazil’s economy in a slump, there are few companies in Sao Paulo that can boast they are doing a roaring trade.

But water tanker operation Gota de Cristal Agua Potavel, or Crystal Drop Drinking Water, cannot keep up with orders since the worst drought on record to have hit South America’s largest metropolis.

“We are working nonstop,” said Gota de Cristal driver Emerson Prado, who was supplying a laundry near Vila Sonia in Sao Paulo’s west. “The way things are going, the water will run out altogether,” said the driver, who says the company draws its water from its own wells.

Mr Prado’s pessimism is not farfetched. With a population of more than 20m in the greater metropolitan region, parts of Sao Paulo – Brazil’s economic powerhouse – are running out of water.

The city’s troubles are part of a drought afflicting the country’s southern and central states that is drying up hydropower dams. In a country that depends on hydropower for about 70 percent of its electricity, this is threatening to create an even bigger problem for Brazil’s economy—energy rationing.

While the water shortage is a headache for the state governor, Geraldo Alckmin of the opposition PSDB party, energy rationing would hurt the federal government of President Dilma Rousseff and her left-leaning Workers’ party.

“If we continue w2ith these low levels of water in the reservoirs, it will be really difficult to avoid rationing in Brazil,” said Maruro Storino, senior director at Fitch Ratings.

The worst-hit reservoir system is Cantareira. Set in hills near Sao Paulo’s international airport, this serves 6.2m people in the metropolis’s central and surrounding areas. But it is operating at just 6.1 percent of its capacity – including reserves that are not usually tapped.

Poor rainy seasons, which run between November and April, have in recent years mean that inflows to Cantareira in January were less than one-sixth of historical averages, pointed out Vince Andreu Guillo, president of ANA, that national water regulator, on the organization’s website. “The operation of Cantareira is continuing on the expectation that there will be abundant rains,” Mr Guillo wrote.

He said that efforts to economize had so far been inadequate “in the face of a drought that continues to surprise.”

Jose Carlos Mierzwa, an academic at the University of Sao Paulo, said that unless it rained heavily in the second half of the wet season, severe rationing was unavoidable.  He said that although Sao Paulo’s population growth had slowed, the rise of a new middle class meant consumption was rising.

To meet this demand, the city was importing water though subterranean tunnels from regions farther away.

However, while finding new sources was important, the city was missing opportunities to recycle water supplies. Sao Paulo treated only 30 percent of its sewage, turning its rivers into open sewers that in turn limited the amount of water available downstream. “This pollution stretches a distance of about 100km,” said Mierzwa.

More worrying for policy makes in Brazilia is that the drought will spark an energy crisis. IN Brazil’s southeast and central economic heartlands, the main hydropower reservoirs are at just 17 percent capacity.

Brazil’s last drought in 2001 forced energy rationing and helped end the rule of the centrist PSDB party. Since then the government has doubled the participation of thermal plants in power generation to compensate for any lack of hydroelectricity in future droughts.

Mr Storino said the increased thermal power and a better electricity transmission grid “partially mitigate the rationing risk.” But even this safeguard would reach its limits if it did not rain.

Rationing would be a disaster for Ms Rousseff, a former energy minister, whose approval ratings fell sharply this month on a weak economy and corruption scandal at state-owned oil producer Petrobras.

“We expect negative gross domestic product growth in 2015,” said Ilan Godfajn, an economist at Itau-Unibanco.  He said that the degree of decline would depend partly on rationing and the corruption investigation.

Business is worried. Santiago Chamorro, president of General Motors do Brazil, said the carmaker had studied bringing water in by truck for Sao Paulo plants. “We are preparing for the worst and hoping for the best,” he added.

The public, meanwhile, is stocking up on water. Leroy Merlin, a home improvement store, said demand for water tanks for residential use rose 352 percent last year. Some fear the crisis could degenerate into street warfare in Sao Paulo once the scarcity starts to bite later in the year.

“In a little while it will be dangerous for us,” predicted Gota de Cristal’s driver Mr Prado. He said he feared people would start randomly stopping water trucks and then “ordering us to go to their houses.”