October 2014. Latin America’s biggest metropolis may, again, run out of water. For some of the 20 million residents across Sao Paulo, taps are already running dry. Dilma Pena, chief executive officer of the state-run water utility Cia. de Saneamento Basico do Estado de Sao Paulo (Sabesp), told the city council that supplies are only guaranteed until mid-November unless it can tap the last of the water in its Cantareira reservoir. This four-lake complex that supplies half of Sao Paulo has already been drained of 96 percent of its water capacity amid Brazil’s worst drought in eight decades. Meanwhile, Sao Paulo recorded heat of 36.7 degrees Celsius, the highest since 1933, and an increasing need for water is expected.
The combination of high consumption and limits on withdrawn causes serious governance conflicts. Regulators of the National Water Agency (ANA) have so far refused to allow Sabesp to use the rest as they fear mismanagement of supplies. Sabesp said it would as part of a contingency plan it delivered to ANA. ANA wanted to see Sabesp’s contingency plan to reduce withdrawals of water from Cantareira before agreeing to grant permission to tap the last of the sediment-filled pools in the center of the reservoir (the so-called “dead reserves”). To help Cantareira recover would take twice the historical average rainfall, according to Climatempo meteorologist Bianca Lobo.
There is a financial and economic aspect to the water stories around the world – and in Sao Paulo. The United Nations estimates that by 2050 more than 2 billion people in 48 countries will be short of water. The water industry generates as much as $450 billion in revenue each year, trailing only electricity and oil. According to a 2006 report to various investors, the lack of usable water worldwide has made it more valuable than oil. The Bloomberg World Water Index (BWWI) of 11 utilities returned 35%/year since 2003. The world’s biggest investors are choosing water as the commodity that may appreciate the most in the next several decades. “There is only one direction for water prices at the moment, and that’s up,” said Hans Peter Portner, who manages a $2.9 billion Water Fund. Water is becoming big, and profitable, business.
But can and should water be supplied by private commercial companies? Historically, most water supplies are owned by governments and the cost of water is usually set by government agencies and local regulators. But there is a growing need for capital: investment in water infrastructure (supply, transport, distribution, purification) in developing countries such as China and India will require an estimated 180 billion $/year, double the amount that’s being spent now (http://www.worldwatercouncil.org). Who else can provide it but the international capital markets? Water thus becomes linked to the global financial system, which indebts countries in order to arrange the loans for the multinational corporations – such as General Electric and Veolia – who will make the investments. The proponents argue that only in this way water systems will get the capital and technology that is needed and be disciplined by the market. Sabesp, Latin America’s biggest publicly traded water utility, feels this logic already, as its stock value has plunged 26% this year according to the BWWI. The opponents think it utterly undesirable that the provision of water, a basic commodity and common pool resource, comes in the hands of profit-oriented business. They see water as a basic right (see e.g. Jean Robert, Water is a commons. Habitat International Coalition 1994; www.hic-al.org).
Everything is linked to everything else… On the source side, there is some evidence that the erratic water supply is at least partly caused by Amazonian deforestation. On the use side, the water scarcity has serious consequences for electricity generation, as Brazil gets its electricity for three-quarters from hydropower. On the sink side, the low water levels aggravate the impact of pollutants, as has already been experiences in the Californian drought.
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