BY UNA GALANI

A photo of a tanker doing the rounds in Mumbai covered with a long list of telephone numbers under the name Jesus prompts a telling response: It won’t be long before we need his number for water, quips one Indian financier. Indeed, in Maharashtra, a state home to the financial capital and almost one-tenth of the country’s 1.3 billion population, India’s water crisis is already stirring.

Almost one-third of the world’s population lives in countries experiencing high water stress, the United Nations reckons, but few are as exposed as India where warm temperatures, poverty, climate change and mismanagement collide. It has about one-fifth of the planet’s people and barely 3% of its fresh water, says Mridula Ramesh, founder of the Sundaram Climate Institute, making it shorter of water even than China, which has a richer and more efficient command economy to deal with the problem.

In total 21 major cities, including New Delhi and IT hubs Bengaluru and Hyderabad, will run out of groundwater by 2020, contributing to a water crisis that could eventually cost 6% of GDP, according to Niti Aayog, a think-tank set up by Prime Minister Narendra Modi’s government. Water scarcity threatens many sources of economic growth: The picturesque northern hill station of Shimla ran short of drinking water last year, prompting residents to ask tourists to stay away.

Camping out

Maharashtra, India’s largest state economy, is worth a closer look. Much of the state is suffering from severe drought. A seven-hour drive from Mumbai lies Mhaswad, where greenery gives way to dried-out orchards and a cattle camp offers free fodder and water. The aim is to protect livestock, a farmer’s most precious asset: 9,000 animals and 4,000 people from 70 villages live under the blistering sun in this temporary shelter spread across 140 acres. They came as early as January and will stay until it rains enough to return home, or donations run out. The camp’s monthly running cost is 20 million rupees, or $290,000, and will rise with the summer heat.

The area has long been water-scarce but overuse of groundwater, deforestation, changing rainfall patterns and rising temperatures are making it harder to survive, explains Chetna Sinha, the founder of Mann Deshi rural co-operative bank for women. The 2018 co-chair of the World Economic Forum in Davos is the force behind the camp, which operates in times of extreme stress. The initiative has spurred the government to set up similar, if more bureaucratic, sanctuaries.

It’s one vivid example how water woes feed a bigger crisis in agriculture, a sector accounting for half India’s workforce and guzzling most of its water. The government’s tankers supply villages but it is barely enough. Many farmers are ditching the profession and moving to cities. Asked why he had left his home in a village near Udaipur, Rajasthan’s “city of lakes”, one street-sleeper selling brightly coloured balloons in Mumbai blames dry land.

Water budgeting is desperately needed, says Amit Chandra, chairman of Bain Capital in India. His personal foundation works across Maharashtra with the local government to desilt dams, recharge ground water and boost farmers’ incomes. It’s one of many organisations trying to drought-proof the state and reduce people’s desperation. Around 37,000 agricultural workers and farmers in Maharashtra committed suicide over the decade to 2015, National Crime Records Bureau data show.

Across the country, India also needs to reset incentives. Farmers grow sugarcane, a water-intensive crop, because the government assures a price that generates high returns at a time when the market rates for other produce, like onions, have collapsed as inflation has also fallen. India now has a sugar surplus, and its official subsidies have prompted Australia and Brazil to complain to the World Trade Organization. There are similar issues with rice

India is the world’s largest exporter of rice, and occasionally exports sugar too. Effectively, though, it is exporting water. The country pumps out twice as much groundwater as China or the United States, according to India’s annual economic survey. Farmers can do so at low cost because they pay little or nothing for electricity. It means water levels are declining in more than half of wells in states surveyed by Niti Aayog, the think-tank.

Water refugees

Water scarcity, poor crop choice, and wasteful irrigation methods are a dangerous cocktail with employment precarious for many Indians and inequality rampant. One diplomat warned in 2008 that drought and other pressures would create a “perfect storm” to undermine stability in Syria, a water-hungry and now war-torn country. That’s the kind of pattern that India will not want to risk repeating.

Ramesh, the climate expert, points to some potential ways to tackle the problem. Israel, another country desperately short of water, is on a better track thanks to aggressive metering. Every office, home, and farm in the country is metered, often with a smart device, she says. Landowners have no right to the groundwater and don’t even own their sewage, she adds. Aggressive pricing is key too: In one year alone, Israel raised water costs for everyone by 40%. Such things are more easily done in Israel, of course, a much smaller, richer country than India.

There are signs New Delhi is getting serious. Since winning a landslide re-election last month, Modi has restructured various water ministries into a single portfolio to deal with related issues, including polluted rivers and the shortage of clean drinking water. The new ministry’s power may be limited as water is a state matter and already fought over, but it is a start. Water security is critical to ending poverty. India’s most impoverished districts largely match those where agriculture is reliant on rainfall, says Bain’s Chandra.

As well as averting a social crisis, investments to improve water supplies could pay off handsomely. Maharashtra asked New Delhi for about $1 billion for drought relief in November; in the year prior, the state announced a nearly $5 billion waiver of farm loans. Like Israel, India at least has the technological smarts to try and ensure it doesn’t become a source of water refugees. Now national and state governments need to pull together.

First published June 10, 2019

IMAGE: REUTERS/Amit Dave

BY ANTONY CURRIE

Britain’s image as a country obsessed with when it will next rain belies the growing threat of water scarcity. A mix of climate change and population growth could cause chronic shortages by 2050 at the latest, Environment Agency Chief Executive James Bevan said on Tuesday, dubbing the prospect the “jaws of death.”

His speech was timely: Friday is the U.N. World Water Day and this year’s theme is “Leaving no one behind.” That’s aimed at improving access to safe drinking water for the 4 billion people, mostly in developing countries, who lack it on a regular basis. But the UK is an apt example of the challenges rich states face.

Whitehall’s preferred solution, echoed by some water utilities and other groups, falls short. The plan laid out by Bevan targets cuts to individual consumption along with investment in desalination plants, new reservoirs and pipelines to bring water from wet Wales and Scotland to the dryer southeast of England. That, plus fixing leaking pipes, could cost 21 billion pounds, the National Infrastructure Commission estimated last year.

It’s part of the answer. English households siphon off perhaps a fifth of all water taken from rivers and groundwater, based on Breakingviews calculations using Environment Agency data. That proportion is higher in the Thames area, which includes London. So encouraging people to turn off the tap when brushing their teeth and install meters and efficient showerheads makes sense.

New ways to store, move and treat water might be necessary, too, if nationwide availability dips 15 percent in the next 25 years or so, as the Environment Agency expects.

But Bevan’s recommendations don’t really touch the biggest water users. The power industry last year accounted for pretty much half of all water abstracted in England – some for hydropower, but also for cooling thermal power stations. And industry in the UK, from food to white-collar business, soaks up around a quarter.

CDP, a nonprofit climate lobby group, has identified 271 public companies in the UK, with a combined market value north of 1.5 trillion pounds, which could play a meaningful role in reducing water consumption. Folding them into the equation could save time and water – and prevent pouring billions of pounds down the drain.

First published March 22, 2019

IMAGE: REUTERS/Luke MacGregor

BY KATRINA HAMLIN

India is deep in Asia’s $4 trillion water risk. That’s how much GDP is at stake if the region cannot better manage rivers that its economies depend on, according to China Water Risk. India looks most exposed.

It’s one of 16 countries that rely on a network of waterways flowing from the Himalayas. That’s a problem: its glaciers are melting fast due to climate change, altering the volume and reliability of river water.

Meanwhile regional populations and economies are growing, driving demand for water. And most of the basins cross international borders, complicating management of a dwindling resource.

India already suffers from water scarcity, exacerbated by recent low rainfall – last month was the driest October on record for 42 years. Shortages in the capital, New Delhi, have led to tussles, and even killings. With current patterns, demand for water is expected to be twice available supply by 2030 according to McKinsey and the Water Resources Group, as the economy is set to double in size, reckons PwC.

Meanwhile, almost 70 percent of the country’s water is contaminated, according to Niti Aayog, a government think tank. Urban residents report waterways choked with excrement and plastic.

The Indus and Ganges watersheds account for around $1 trillion in GDP and are home to around half India’s 1.3 billion population. Water stress threatens guzzlers like agriculture, which uses most of India’s water. It also endangers the electricity supply, much of which is dependent on water-cooled thermal generators.

China, meanwhile, is tackling its own severe water stress head-on. Beijing integrated water management into its five-year plans, capping consumption and assigning responsibility for tracts of water to individual officials. Private-sector quotas have been introduced, and there is a robust trade in water credits on Taobao, China’s eBay, according to CWR founder Debra Tan.

But India is different. Individual states covet control over resources; national and provincial borders split rivers, entangling multiple interests; and the thirsty agricultural sector is powerful. Efforts to coordinate from the centre have fallen flat: A 2016 draft bill aimed at tightening up controls languished, while a campaign to clean the Ganges faltered.

Other countries that are irrigating growth with Himalayan water face similar challenges – notably Vietnam, Cambodia, Thailand and Myanmar. A literal liquidity crunch is coming down the mountain.

First published Nov. 30, 2018

IMAGE: REUTERS/Danish Siddiqui

BY ANTONY CURRIE

Cape Town’s water crisis presents an opportunity, and a potential lesson for other arid areas around the world. As the United Nations’ 26th World Water Day approaches on Friday, the South African city’s taps are now unlikely to run dry this year. But the root causes of the problem persist. Creating water markets can bypass some of these, and help limit the social and economic pain that scarcity causes.

In February the capital city of South Africa’s Western Cape was just two months away from Day Zero, when residents would have to line up at government stations for a meager daily ration of water. The end of the province’s farming season and severe municipal restrictions on use – Capetonians get just 50 liters a day, a sixth as much as the average American uses – have averted that scenario for now.

Yet dams stand closer to empty than last year, so only a very wet winter or new supplies — or both — will do the trick next year.

Political dams

Cape Town ought not to be in such a state. The growing risk of water shortages has been clear for decades. Demand has been rising, not least because the city’s population has grown by 76 percent to some 4 million since 1990, and may add another 2 million by 2030. On top of that, rainfall is declining thanks to climate change.

South Africa has been addressing these trends. Pretoria passed laws to help prepare for water scarcity just before the millennium. It also proposed detailed recommendations for Cape Town a decade ago.

Businesses have stepped up too, according to a survey late last year by nonprofit investor lobby group CDP. Some 90 percent of respondents have completed a company-wide water assessment, integrate water management into overall strategy and have board members fully engaged.

But several years of plentiful rains lulled government planners into a false sense of security. They postponed a number of measures in a 2007 plan for Cape Town, such as tapping groundwater and building desalination plants. That left them unprepared for three of the driest years since records began almost a century ago.

Short-term decisions aren’t the only problem, though. Poor governance plays a large role. The best way to manage the resource is at the watershed level, ignoring political boundaries. South Africa does the opposite. Pretoria determines how water is allocated. It decided in 2016 to keep giving 40 percent of the Western Cape’s water to agriculture, and was slow to declare a drought emergency and release financial aid.

Cape Town, by contrast, has little or no jurisdiction over most potential solutions so is mostly a demand manager. City officials have made some progress: municipal pipes now lose just 15 percent of water to leaks, compared with a national average of 36 percent in 2016, according to the Department of Water and Sanitation.

Poor governance also impedes some obvious solutions from being adopted. Much of the Western Cape’s watershed, for example, is covered with non-native plants, like eucalyptus trees, that soak up some 38 billion liters more water than local foliage — enough to cover almost three months’ supply for Cape Town at current emergency usage rates. If allowed to spread, these invasive flora could siphon off as much as 130 billion liters, according to the Nature Conservancy, a global nonprofit.

Restoring the native shrubbery would take a year or two, but would be far quicker and cheaper than building major dams, water reuse facilities and desalination plants.

Contingent liability

Left unchecked, poor water governance will hinder investment and growth. Emergency measures forcing farmers to cut water use cost over 30,000 jobs last year. Foreign trade accounts for around a third of the Western Cape’s gross regional product, with water-intensive goods like food and wine contributing more than half of that. Lack of water could impact another major industry, tourism. And any pain is not limited to the immediate area: the Western Cape provides around a tenth of South Africa’s GDP.

It’s little wonder that authorities are scrambling to tap aquifers and build desalination plants to source new supplies. Acting smart is as important as acting fast, however: these engineering solutions come with their own risks. Overpumping aquifers, for example, can damage water quality, cause the ground to sink — or both — and render the supply unusable.

The market solution

Two key features of water markets could bring about big changes. First, major users — such as water authorities, agriculture and even other industries — would have the option to buy and sell water according to their needs. Setting a tradable price on a dwindling resource would help clarify its value to each constituent, and force decisions on how, and whether, to use it. They are already in operation, often in small scale, in parts of Australia, Latin American and parts of the western United States.

Water markets could unleash a virtuous cycle. Farmers might decide that it’s better to forgo planting certain crops some years and sell their water to another user. Or they may feel incentivized to upgrade irrigation technology so they use less water each year.

Tech has already helped farmers in the Western Cape cut water use by 10 percent in recent years, and could increase those savings to 40 percent – separate from any government-imposed restrictions. That could boost supply for residents and businesses by up to a fifth. If farmers could use recycled water for 70 percent of their needs, as happens in Israel, they’d save even more. Manufacturing and other industries can make similar calculations.

In areas like Cape Town, water utilities are likely to end up being the main buyers. That raises a major concern: won’t residents have to stump up more for their supplies?

The answer is a qualified no. The price for basic daily needs for drinking, washing and sanitation ought not to change much – unless it is heavily subsidized, which can encourage waste. Otherwise, only non-essential water uses ought to carry a higher tariff – and significantly so. Outdoor residential water consumption like tending gardens and filling swimming pools can soak up a huge amount. It accounted for more than half of Californians’ average use earlier this decade, according to the Pacific Institute.

Integrated watershed-level leadership is the ideal scenario for the Western Cape – and many other regions. The best way to achieve that is to call everyone to account. Setting a tradable price for water is a smart way for businesses and municipalities alike to manage what they’ve got.

First published March 19, 2018

IMAGE: REUTERS/Mike Hutchings

BY KATRINA HAMLIN

A dispute over water shut down India’s prized tech hub of Bengaluru. It is a sobering reminder that environmental crises are costly, and indiscriminate. Multinationals like Accenture, Samsung, and Thomson Reuters suffered disruption; India’s flagship IT giants including Infosys and Wipro closed their offices for an impromptu holiday. Although the city’s top industry is hardly water-intensive, it is nonetheless far from waterproof.

A century-long spat over supplies from the nearby Cauvery River escalated into violent protests this week in which at least one person died and hundreds were arrested: offices, transport systems and malls were all shuttered as the usually hectic hub was subject to a curfew. Some neighbourhoods remained in lock-down on Wednesday. The Associated Chambers of Commerce of India (ASSOCHAM) estimates that the disruption will cost as much as $3.7 billion in losses for the region’s business community.

Environmental risks are increasingly making themselves felt in the country. An earlier study by ASSOCHAM suggested that drought would cost the Indian economy as much as $100 billion in 2016. Meanwhile, air pollution cost the country the equivalent of 8.5 percent of GDP in forgone labour output and welfare losses in 2013, according to a World Bank report released last week.

A severe drought has certainly made the problem in Bengaluru worse. But higher water prices, tighter regulation and better management of natural resources could have averted the latest crisis. Global firms that have set up shop in the city will want to know that the government has a plan to address a problem that could significantly raise the cost and risks of doing business in the low-cost hub. Indeed, the fortunes of India’s $140 billion IT outsourcing sector depends on it.

First published Sept. 14, 2016

IMAGE: REUTERS/Sujay Wachasunder

BY KATRINA HAMLIN

India has long undervalued one of its most precious resources. Now the country’s chronic mismanagement of water is emerging as a threat to Make in India, Prime Minister Narendra Modi’s ambitious plan to create jobs and turn the world’s fastest growing large economy into a global manufacturing hub.

Modi has toured the world championing the initiative. Success is critical. Around 12 million Indians join the workforce every year. Factories, which can provide much-needed employment, account for just 16 percent of India’s gross domestic product, according to the World Bank. That is low, even for a developing country.

Make in India has big shortcomings when it comes to natural resources, however. Water intensive industries like construction, food processing, energy, textiles and leather works feature prominently amongst the sectors the scheme is targeting. And although most of the sites for planned industrial corridors are supposed to include water infrastructure, they are predominantly located in the parched western regions.

Poor demand management adds to the challenge of setting up in a dry country — India has 18 percent of the world’s population but only 4 percent of the usable water resources, and is currently recovering from two consecutive years of poor rainfall. That puts water worries at the front of a long list of concerns from land acquisition to labour laws that companies face when setting up.

Liquidity issues

The core issue is that water is undervalued and overused. Tariffs have not been revised for over a decade in many municipalities. Often there are no direct charges at all, or thirsty consumers simply help themselves. Metering is also rare – penetration is as low as 10 percent in some areas. India produced $2.7 of gross domestic product for every cubic metre of freshwater withdrawals, according to a Breakingviews calculation using World Bank data. By contrast, China added $18.7 of GDP for every cubic metre.

That leads to massive inefficiencies for companies too. Manufacturers tend to avoid placing factories in drier areas even when the location looks logical from a supply chain perspective.

Take Coca Cola: only around a quarter of the company’s Indian bottling plants source water from existing infrastructure; the rest have set up their own systems to access supplies. They must also coordinate with nearby farms and factories to be sure they won’t suck up resources before a facility reaches the end of its useful working life.

Meanwhile, U.S. technology giant Cisco Systems’ local unit says water is a “top five” issue to consider when establishing a factory in India. Swiss food giant Nestle, which also has manufacturing facilities in the country, assesses each new factory’s water risk using no fewer than three water stress indexes and India achieves the worst possible score in their system, which ranks countries’ on a scale of one to five, where five represents “extreme scarcity”.

Damp squib

Policymakers see the problem but lack the political capital to raise prices or tighten regulations. The biggest water users in the country are local farmers – agriculture soaks up some 90 percent of water withdrawals – and rural communities represent the majority of India’s voting constituencies. So when elections come around, candidates often promise to keep water cheap or free.

New Delhi plays lip service to the crisis. In June the Ministry of Water Resources, River Development and Ganga Rejuvenation released a draft bill calling for a new pricing system and stricter controls. But even if the bill passes through parliament, it is unclear that the central government will be able to implement the new rules – enforcement of current regulations is patchy at best, and local authorities aren’t always cooperative.

Make in India is not dead in the water. Modi’s fortune is that the country is home to a large thriving consumer market and a low-cost workforce. That makes it increasingly tempting as a location for manufacturers that want to sell in the country. But the inconveniences associated with setting up plants in low water regions, on top of other barriers to business, will scare away all but the most determined.

Until the government takes action to better manage its water resources, a booming manufacturing sector seems like a pipe dream.

First published July 26, 2016

IMAGE: REUTERS/Adnan Abidi

BY KATRINA HAMLIN AND ANTONY CURRIE

Singapore could use a fresh approach to water. An early focus on H2O management helped the city-state achieve economic success, and lessened its reliance on foreign sources. But water independence could become a distracting pipe dream.

After an acrimonious split from Malaysia, it made sense for Singapore’s leaders to lessen their near-total dependence on flows from the northern neighbour’s rivers, even if these were regulated by treaties.

So the Lion State learned to make a little go a long way. GDP per cubic metre of freshwater hit $1,065 in 2013, more than 35 times higher than the United States, the World Bank says. It helps that there is very little farming – leaving more for homes and thirsty factories.

And Singapore has also engineered some ingenious ways to top up reserves. The country has converted much of its limited land into a giant rainwater catchment. Treated seawater and recycled wastewater, which it calls NEWater, can now provide around half of supply if needed. Little is wasted: pipe leakage rates, below 5 percent, are among the lowest in the world.

Malaysia still provides a significant chunk of Singapore’s water supplies, but the final treaty will expire in 2061 and the Singaporean government does not plan to renew it. Instead, it wants to pump up desalinated and recycled stocks to satisfy as much as four-fifths of total consumption.

That will be no mean feat. Singapore’s current population of 5 million could jump by a third in the next 15 years, according to official estimates. It might even double by 2100, says the former chief planner.

First published Aug. 3, 2015

IMAGE: REUTERS/Edgar Su

BY KATRINA HAMLIN

China wants more than 90 percent of urban water to be drinkable by 2020. That sounds ambitious in a country where a third of rivers are toxic. But a government action plan released on April 16 is well crafted. Shoring up infrastructure and management of the country’s limited H20 could not only make supplies cleaner but more productive.

The situation today is dire. If demand for water continues to grow at its current rate, it could outstrip supply as soon as 2030, according to a recent report by China Water Risk. Only around a quarter of reserves are in the north, home to most of the country’s agriculture and much of its heavy industry. Yet 60 percent of China’s groundwater is heavily polluted, according to a government report released in 2014.

The new plan is suitably bold. It sets out to both plug holes in the existing system and speed up reforms. That means practical measures like better monitoring, fixing leaky pipes, cleaning up toxic sludge, and probably raising prices. At the same time, the Ministry of Environmental Protection will come down hard on polluters in industries such as steel, textiles, and coal. Repeat offenders will be shut down.

True, it’s a huge undertaking. The high targets are a stretch, and anyway China’s standards for drinking water are less rigorous than those used elsewhere. But at the very least, the new approach represents an encouraging step away from showy projects like the huge canal designed to transfer water from the south to the parched north. In the long run, that means there’s good reason to expect more sustainable improvements.

And even if it’s not possible to reach the plan’s lofty goals, taking steps to improve water quality will make the economy more efficient. China produced roughly $9 of GDP per cubic metre of fresh water used in 2013, according to Datastream. Even the inefficient United States does better, at $30 of output per cubic metre. Faced with a slowing economy, China can hardly take the risk of running short of water. A cleanup will make what it has work harder.

First published April 17, 2015

IMAGE: REUTERS/Stringer

BY KEVIN ALLISON

The risk of dry taps in Sao Paulo is emblematic of the rise in climate tail risks. The drought threatening Brazil’s financial capital stems in part from statistical hubris similar to the Wall Street models that failed to predict the 2008 financial crash. The consequences of environmental black swans, though, are likely to prove more pernicious.

The region’s main Cantareira reservoir system, which serves about 9 million people, stood below 12 percent of capacity on Monday, including an emergency reserve. That’s roughly double its lowest level a few weeks ago, thanks to rain finally returning to one of Latin America’s biggest cities.

But months, not weeks, of above-average precipitation are needed to replenish the reservoirs. That’s unlikely, though, as the skies only opened up close to the end of the rainy season. Without big cuts in water use by agriculture and businesses, there won’t be enough H2O to tide the city of 20 million over through the approaching dry season.

This situation was meant to be unthinkable. Sao Paulo has not had a drought this bad for at least 80 years, according to Reuters. The current water scarcity, though, is now three years old. Blame rapid population growth; culling the rain forests that seed the clouds; or bad resource management.

Whatever the causes, the impact from strained water supplies is growing – Sao Paulo state, after all, accounts for a third of Brazil’s GDP. There’s now more than a 50 percent chance, for example, that power from hydroelectric dams may have to be rationed, according to Credit Suisse analysts. A 10 percent reduction in electricity consumption would alone knock a percentage point off Brazil’s GDP forecast this year.

Responses to the global financial crisis usually had immediate as well as longer-term effects – whether popular or not. Proofing the world’s major population centers against environmental change has no quick fixes, though. Sao Paulo has teamed up with the Nature Conservancy to restore forests along river basins that feed some of the city’s reservoirs. That will take time to work, though.

Meanwhile, scientists expect more severe storms, droughts and floods as the planet’s climate changes. Yet convincing taxpayers and politicians to prepare for worst-case scenarios can be a fool’s errand. Sao Paulo may soon become the biggest modern city to be laid low by extreme weather. It is unlikely to be the last.

First published March 2, 2015

IMAGE: REUTERS/Nacho Doce

BY KEVIN ALLISON AND ANTONY CURRIE

One of the world’s biggest cities is running out of water. Sao Paulo, a city of 20 million people, could run dry within weeks. The humanitarian and economic cost would be immense. The fiasco should be a global wake-up call for other metropolises.

The immediate cause of the crisis is a year-long drought. The Cantareira reservoir system that supplies around a third of the city’s population is so low that Sabesp, the local utility, has to dip into and treat sediment-heavy supplies and pipe water in from other sources.

It’s the worst dry spell in the region since record-keeping began more than 80 years ago. Other parts of Sao Paulo state and Brazil have been hit, too, though not as harshly. It may look like an aberration, but the planning for the disaster has been poor – and offers important lessons.

Sabesp has not introduced any rationing – at least not formally. It has slashed reservoir extraction by a third, cut pump pressure at night and offered discounts to frugal customers. But, regrettably, the “R” word remains taboo.

The government, meanwhile, shied away from suggesting mandatory rationing during last month’s presidential elections. That turned the shortage into a political battleground, which is no way to solve a crisis.

Longer-term planning has fallen short, too. Some of the infrastructure is creaky. Leakage rates are between 30 percent and 40 percent. Compare that with Tokyo, which has shrunk losses to around 3 percent.

Meanwhile, Sao Paulo’s rapid growth has robbed much of its water sources of forest cover and exposed them to sedimentation and pollution. Restoring natural buffers on less than 2000 hectares would reduce sediment in water supplies by 10 percent, according to the Nature Conservancy.

Worse, the drought may not be temporary. Some scientists link it to the destruction of the Amazon rain forest thousands of miles away. That would call for more investment in alternative sources – from desalination to water from other river basins.

Those can be expensive and spark acrimony. But hoping for rain isn’t a strategy. Chronic shortages would bring social unrest and undermine the city that is responsible for more than a fifth of the country’s GDP and is the capital of a region that accounts for 40 percent of Brazil’s industrial production. An acute crisis could lead to riots, a mass exodus or worse.

First published Nov. 24, 2014

IMAGE: REUTERS/Nacho Doce

BY ANTONY CURRIE AND KEVIN ALLISON

San Antonio is plotting a $3.3 billion strike in the growing U.S. water wars. The drought-prone Texas city plans to spend about that much on a project for moving H20 140 miles. It’s the next leg of a strategy for securing enough water to keep people and businesses in the home of the Alamo. It’s also part of a national battle for economic survival.

The city faces a serious dilemma. Its population of 1.6 million is expected to almost double by 2070, but the San Antonio Water System, or SAWS, doesn’t supply enough water for even current residents. Shortages could threaten up to 135,000 jobs and reduce economic output $17 billion by 2040, according to a San Antonio Chamber of Commerce report. That’s about one-fifth of the city’s 2012 GDP.

Companies aren’t eager, of course, to base operations in drought-prone areas. Pharmaceutical firm Bristol-Myers Squibb mentioned water availability as a key factor in its choice of suppliers and locations for new facilities, a joint CDP and Deloitte & Touche report says. San Antonio may well worry what the healthcare companies it now hosts are thinking.

On the bright side, the city’s conservation efforts have been impressive. The average amount of water each resident uses daily has been cut from 225 gallons 30 years ago to 124 gallons today, barely one-quarter the national average. SAWS stores any excess supplies underground to avoid over-consumption and evaporation. It even uses treated waste water to keep the famous Riverwalk tourist spot flush, saving the 5 million gallons a day it used to take from its primary water source, the Edwards aquifer.

The new centerpiece of San Antonio’s strategy, though, is a 140-mile pipeline project that SAWS approved last week. It’s expected to carry 50,000 acre-feet of water each year – one-fifth the city’s current consumption – from private wells in the Carrizo-Wilcox aquifer, a vast underground reservoir in a part of Texas with permissive rules on pumping out supplies. The project is being built by the Vista Ridge Consortium, a partnership between Spanish infrastructure group Abengoa and investor BlueWater Systems, which owns the water rights.

The water will be expensive: around $2,000 per acre-foot, compared with $500 for Edwards aquifer water. The city is also building a plant to desalinate brackish groundwater that may cost some $2,100 per acre-foot. The new supplies could push rates up 16 percent over several years. Consumers won’t be happy, but pricing and rationing this scarce resource properly is essential. San Antonio may be able to limit the taxpayer hit by selling any extra water.

The project has taken nearly four years just to gain approval, in part because San Antonio has driven a hard bargain. Abengoa will be paid only for water it delivers, so will bear the risk of drought or any legal issues that interrupt supply. The city will pay a fixed rate for water and after 30 years will inherit the pipeline – and get first dibs on the water rights.

The extensive wrangling has made it difficult for Abengoa and its partners to determine their likely return on investment. Private capital usually wants a fair whack more than the 8 percent to 10 percent common in utility deals. In a possible nod to political sensitivities, Abengoa has said it is seeking a maximum 12 percent return, according to the San Antonio Express-News.

That may seem low, given the risks. But if successful, the San Antonio project could be a template for other water-strapped cities and states. California, for one, is still wrestling with how to pitch a water bond to voters while 95 percent of the state is in severe drought.

All in, the United States may need to spend almost $400 billion by 2030 on drinking water infrastructure, according to the Environmental Protection Agency. Even chambers of commerce in relatively water-rich states like Indiana are examining how to ensure they have enough to attract more businesses. Fortunately, unlike the battle for which the Texas city is famous, the fight for a secure water supply need not be a zero-sum game.

First published Oct. 7, 2014

IMAGE: REUTERS/Joshua Lott

BY KEVIN ALLISON AND ANTONY CURRIE

The withering drought afflicting California and the southwest United States could spark economic warfare over water. Scarce rains have left large swaths of the country dry for, in some areas, several years. That’s happening as industries from beverages to semiconductors grow concerned about whether they will have adequate access to water in the future. For cities and states situated around the Great Lakes, as well as water technology firms, it presents a flood of opportunities.

Access to water may have been overlooked by the Risky Business report on environmental threats to the U.S. economy launched earlier this week by, among others, former Goldman Sachs and U.S. Treasury boss Hank Paulson and ex-New York Mayor Michael Bloomberg. But executives at the annual World Economic Forum in Davos have ranked it one of the three biggest global risks for the past two years. The area encompassing Arizona, New Mexico and other states regularly tops surveys of regions at risk of water stress, along with sub-Saharan Africa and China.

Until recently, though, U.S. companies routinely relegated water scarcity to the fine print of risk factors in regulatory filings. Dealing with the issue has cost some companies $400 million, according to the Carbon Disclosure Project.

Just last week, the U.S. Chamber of Commerce Foundation hosted a webinar on the topic, highlighting recent research by environmental research group Pacific Institute and Vox Communications. They surveyed more than 50 U.S. companies and found almost 60 percent reckon problems with water will affect both their business growth and profitability by 2018. Some 90 percent expect water to be a board-level issue by then. More than three-fifths of respondents already factor availability into where to locate their facilities; some 85 percent expect to do so within four years.

Great Lakes states including Ohio and Illinois are hoping that will bring business flowing in. The basin straddling the U.S.-Canadian border boasts one-fifth of the world’s fresh surface water. Lakes Superior, Huron, Michigan, Erie and Ontario together hold about 22,000 cubic km of fresh water, enough to cover the entire lower 48 U.S. states to a depth of about 3 meters. And the region has industrial cities and an extensive port, rail and highway network.

Indiana, for example, is gearing up to market itself as a region “with abundant water supplies,” according to Vox Global’s Tony Calandro. Milwaukee, Wisconsin, has aggressively been positioning itself as a world water hub for some time. America’s historical brewing capital wants to reinvent itself as a magnet for water technology startups. Its local universities have established freshwater research programs. The Water Council, a local umbrella group, runs a seed-funding competition and provides office space for water entrepreneurs.

Chicago is already a national center for water-intensive pharmaceuticals and food processing, which together account for tens of thousands of local jobs. The Windy City also shares its smaller northern neighbor’s ambitions, but is playing catchup.

There are challenges, though. High taxes in Chicago, for one, may act as a deterrent. Newcomers would have to show they could operate without draining or spoiling the watershed. Nestlé, the global food giant, spent years fighting local opposition to a Michigan bottled-water factory in the 2000s. Water-hogging refineries and paper mills may face political opposition from residents who use the lakes for drinking water and recreation.

The tech industry may be a better prospect. Microchip foundries and server farms require huge amounts of water. They don’t, though, come with the same public relations and environmental baggage, in part because they don’t contaminate the water they use and don’t remove all of it permanently. Intel, for example, returns 87 percent of it to the environment. Luring just a fraction of the global semiconductor industry’s roughly $300 billion of annual revenue could make a difference to a city like Chicago, which is forecast to run a budget deficit of almost $340 million this year.

There’s certainly money to be made from being a water hub. A combination of arid conditions and a recent years-long drought cajoled Israel to put even more emphasis on finding ways to conserve. Its water technology exports jumped from $700 million in 2006 to $2 billion in 2010 as a result and may hit $2.7 billion by 2015, Goldman Sachs estimates. Agricultural exports, meanwhile, rose to $2.1 billion in 2011.

That should serve as encouragement to companies and governments in America’s water-scare regions as well as the water-plentiful Great Lakes. Relocating is, after all, impractical for some businesses, like agriculture and service industries. AT&T, for example, needs to be where its customers are. It uses 3.3 billion gallons of water a year, almost a third of which goes to cool its buildings. By deploying relatively cheap technology, the telecoms company cut its usage by up to 40 percent.

Such simple solutions may help keep companies in place. The harder it gets – and the more scarce the resource – the more likely it is that states use water as an economic weapon.

First published June 16, 2014

IMAGE: REUTERS/Mike Blake

BY ANTONY CURRIE AND MARTIN HUTCHINSON

Ethiopia’s plans for the Nile are emblematic of global water woes. The country is building a dam across the river so that it can become a regional leader in exporting hydroelectric power. That looks at odds with a recent IMF report calling for greater competition in the economy. The project has also angered Egypt – a sentiment likely to be shared by whichever party ends up in power.

Obscured by the rhetoric over the Nile, though, are broader, longer-term concerns about how nations can sensibly grow their economies when water’s either a scarce or shared resource.

In the Nile Basin, it’s both. Though considered the longest river in the world, the Nile discharges less water than 50 others around the globe, barely topping America’s Missouri in that regard. Yet it and its tributaries flow through 11 countries with a total population of 437 million that’s growing fast. Egypt and Sudan, at the end of the river’s course, claim rights over much of the water under a 1959 treaty. Several upstream states, however, have made noises about challenging that arrangement in order to help modernize their agriculture, industry and power supplies.

Water is essential to each of these sectors. Extracting one gigajoule of energy from oil requires more than one cubic meter of water, according to the World Energy Council. Oil sands require up to four times that much, and digging for shale gas 10 times. Meanwhile, as countries become more affluent, their eating habits can change. China’s pork consumption, for example, has doubled since 1990, according to the U.S. Department of Agriculture. Rearing pigs consumes five times – and cows 17 times – more water than growing maize, UNESCO reports.

Population growth is another factor to consider. While the United Nations expects a 14 percent rise globally by 2030, the OECD reckons the number of people living with severe water shortages will increase by a third, to 3.9 billion.

All this supports a measured, cooperative and long-term approach to water use. But national pride or angst often get in the way. That’s the case along the Nile. Egyptians are worried the Grand Ethiopian Renaissance Dam will mean less water flowing downstream. Evaporation and leaks alone could reduce the amount by 15 percent, based on experience at Egypt’s Aswan High Dam.

Currently, Egypt has none to spare. The Nile provides 98 percent of the fresh water Egyptians consume, former Prime Minister Hisham Kandil told CNN in May. Meanwhile, the nation’s population is expected to grow about 25 percent by 2030. After millennia of relying on the river, Egyptian officials’ offhand remarks about considering military action in response to Ethiopia’s plans might not be a surprise. But any such moves could provoke retaliation, including against the Aswan High Dam, and anger China, which is helping finance Ethiopia’s project.

Building the Grand Ethiopian Renaissance Dam seems rational, at least on the surface. The landlocked country’s economy and population are growing quickly, but only one fifth of its citizens are connected to a reliable electricity supply. The dam’s proposed 6,000-megawatt output would satisfy Ethiopia’s current electricity consumption four times over.

But the $4.7 billion construction cost is huge – some 77 percent of the country’s annual tax revenue. Ethiopia is also paying for most of the project itself, despite having only limited access to capital. That appears to fly in the face of a statement last week by the IMF on the country’s economy calling for more private enterprise and competition and less government spending.

And Addis Ababa is already building plenty of dams elsewhere to fill domestic needs. So the plan is to export pretty much all the electricity from Grand Ethiopian Renaissance, for dollars or even oil. The major market would probably be Sudan, whose border is 15 miles from the construction site. Yet that state is already building its own dams.

There are lots of ways to grow an economy other than grandiose projects that risk provoking powerful neighbors. Allowing private land ownership would help, as would promoting small private enterprises.

Longer term, Ethiopia, Egypt and the other countries along the Nile need to work together to make the most of the river. Using water more efficiently in agriculture and even finding ways to reduce the birth rate would help, according to the Signet Institute, a Cairo-based research group. Building better sewage systems, increasing waste-water recycling and desalinating water are possibilities, but they’re costly.

Attempts to charge market rates for water are also problematic. Civil unrest forced Egypt to drop proposed cuts to its roughly two-thirds subsidy of water consumption costs. Sadly, such challenges are common the world over.

First published July 9, 2013

IMAGE: REUTERS/Tiksa Negeri