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PARAGUAY-BRAZIL: Lugo to Seek New Terms for Itaipu Dam

Mario Osava

RIO DE JANEIRO, Sep 5 2008 (IPS) - Paraguay’s new government wants to increase ninefold the revenues the country takes in from the sale of its share of the energy generated by the Itaipú hydroelectric dam, which it runs jointly with Brazil.

But above all, it plans to defend its sovereignty over Paraguay’s main source of energy.

“We want to have the right to make our own free decisions about our energy” – the first of six points that the administration of Fernando Lugo would like to discuss with Brazil, said Roberto Colman, a member of the new commission created in Asunción to negotiate international treaties like the one that established the binational Itaipú power plant.

One of Paraguay’s aims is to be able to sell energy to third countries or increase the portion of energy consumed domestically, Colman said in an interview with IPS during a visit this week to Brazil, where he is seeking support from different institutions and social movements for the Lugo administration’s demands.

Under the bilateral treaty, Brazil and Paraguay are each entitled to half of the output of the plant, which had a potential of 14,000 megawatts in May 2007. But Asunción is only allowed to sell its surplus energy to Brazil, and in order to increase the share of energy that it consumes internally, it must notify its partner five years in advance.

Paraguay currently consumes a mere eight percent of the energy generated by Itaipú, and takes in just 400 million dollars a year from the 46 million megawatt-hours that it exports to Brazil.

If it could sell that surplus energy for 80 dollars per megawatt-hour, the price set for Brazil’s wholesale energy market by the national regulatory agency, the total would climb to 3.5 billion dollars a year – “a fair price,” said Colman.

He explained that this is the second of the proposals outlined by the Paraguayan negotiating committee.

The increased revenue would help finance the long list of social projects and plans drawn up by the government of Lugo, a former bishop who was sworn in as president on Aug. 15, putting an end to six decades of rule by the notoriously corrupt Colorado Party.

Itaipú is the world’s largest hydroelectric facility, a position it will hold until the Three Gorges dam in China is operating at full capacity.

With a 1,350-sq km reservoir fed by the Paraná river, which forms part of the border between Brazil and Paraguay, Itaipú generates energy that integrates – and divides – the two countries.

The projects that the centre-left Lugo wants to finance with the increased revenues his government is demanding include employment generating initiatives, “integral” agrarian reform that would provide credits, technical assistance and other measures to promote family farms and agribusiness, infrastructure works and social programmes.

But the basic question, said Colman, is “recuperating our sovereignty” over the country’s chief source of energy, through the recognition of Paraguay’s right to sell electricity to other neighbouring countries in need of electric power, like Argentina, Uruguay and, on an occasional basis, Chile.

These are the two central – and touchiest – points. But they will be difficult to negotiate, as they would require a modification of the treaty that was signed by the two countries in 1973, which expires in 2023, he acknowledged.

But based on statements made by Brazil’s leftist President Luiz Inácio Lula da Silva and his close associates with respect to the need for generosity towards the smallest partners of the Southern Common Market (Mercosur), the Paraguayan negotiators hope the Brazilian government will be favourably disposed towards opening up the Itaipú treaty to negotiation, said Colman.

The negotiations could benefit by the desire expressed by the leaders of Mercosur (which is also made up of Argentina and Uruguay) to “eliminate asymmetries” and promote “integration based on solidarity,” by means of measures aimed at bolstering development in the trade bloc’s two smaller members, since it is not in Brazil’s best interests to have a neighbour with problems, he added.

A reduction or cancellation of the debt owed by Paraguay for the construction of the Itaipú hydroelectric project, which could balloon to 65 billion dollars by the time the treaty expires in 2023, due to the high interest rates, is the third point that the Paraguayan government is seeking to negotiate, and is also of interest to Brazilians, because the financial costs drive up the price of energy for all of the consumers, argued Colman.

Furthermore, the 4.19 billion dollar debt, he said, is “spurious,” and accumulated because a Brazilian company did not even pay the price agreed to in the treaty, to which have been added the “usurious” interest rates of 7.5 percent a year, plus an adjustment for U.S. inflation.

The first step, however, is “to achieve a consensus in Paraguay” on the proposal for negotiations of the treaty with Brazil, which would undoubtedly not begin until after the October municipal elections in Brazil, said Colman.

An effectively binational administration of Itaipú, rather than the current administration which is “in the hands of Brazil,” the design of oversight bodies, a thorough audit of the project “from the very start” and the completion of the complementary works on the Paraguayan side for the distribution of electricity in the country are the rest of the points to be negotiated, he said.

Analysts say it will be a complicated process. The nationalisation of Bolivia’s natural gas resources affected investments by Brazil’s state-run oil company Petrobras in 2006 and triggered an outcry from business sectors and opinion-makers in Brazil, who condemned the move by Bolivia and criticised the Lula administration for giving in to what they described as a “violation” of the Brazilian oil industry’s contract with Bolivia.

In the case of Itaipú, the backlash could be even stronger because it involves a possible rise in electricity prices, which would affect society as a whole, and not only a few economic sectors, like in the case of Bolivia’s gas.