50 years after Itaipu, Paraguay wants to stop selling energy to Brazil at “derisory prices”

By Sergio Pintado

Paraguay seeks to renegotiate the clause that obliges it to sell the energy it does not consume from the Itaipu dam at lower market prices to Brazil.

In a dialogue with Sputnik, Senate candidate Ricardo Canese said that allowing Asunción to sell energy from Itaipu to other countries would benefit the region and the environment.

On April 26, 1973, the then-presidents of Paraguay and Brazil, Alfredo Stroessner (1954-1989) and Emilio Garrastazu Médici (1969-1974) signed the Itaipu Treaty with which both countries not only sought to solve a historic border conflict but also agreed to build a hydroelectric dam on the Paraná River.

Half a century after it was signed, and with the debt for its construction recently paid off, Paraguay is preparing to re-discuss parts of the agreement, historically considered more beneficial to Brazil and detrimental to Paraguayan economic interests.

The agreement interpretation that has prevailed since it was signed obliges Paraguay to sell the electricity it does not use to Brazil, generally at lower market prices.

“It is an ambiguous text used by the Brazilian dictatorship, with the complicity of Stroessner and the successive governments of the Colorado Party oligarchy, to interpret that Paraguay had to deliver the energy it consumed to Brazil at a derisory, ridiculous, even free price”, commented to Sputnik the engineer Ricardo Canese.

He is a Paraguayan Mercosur parliamentarian and Parlasur Special Commission on Hydroelectric Plants president.

Canese, currently a senatorial candidate in his country, said that having settled the debt for the construction of the dam puts Paraguay “at a historic moment” concerning Itaipu since, on August 13, 2023, the effects of Annex C of the Itaipu Treaty, which includes the economic arrangements for the negotiation of energy, expire.

The date allows the terms to be renegotiated, which is seen as an opportunity for a more favorable deal for Paraguayans.

For Canese, Paraguay’s fate in this process will depend on the country having “representatives who defend national interests and have the social sensitivity for the country to obtain fair conditions and prices”.

One of the pillars of this renegotiation should be, he remarked, that Paraguay should be able to sell Itaipu’s energy at market prices and not at lower ones, as is currently the case.

Brazil paid Paraguay US$20.75 per kilowatt per month for the energy and reduced this payment to US$ 2.67 per month on a provisional basis.

Canese recalled that an agreement signed in 2009 between then-presidents Fernando Lugo (2008-2012) and Luiz Inácio Lula da Silva (2003-2011) empowered the Paraguayan National Electricity Administration (ANDE) to charge Brazil the market price.

However, he pointed out, the governments that followed Lugo’s – impeached after an impeachment trial in 2012 – “have not even attempted to exercise this sovereignty”.

THE KEY TO THE REGION AND THE ENVIRONMENT

Paraguay’s other claim is to be able to trade the electricity it does not consume among third countries without being obliged to deliver it to its Brazilian counterpart, as is currently the case.

For the aspiring senator, allowing this would benefit Paraguay and the region since Brazil and Argentina could benefit from the energy produced by Paraguay’s binational dams, Itaipu with Brazil and Yaciretá with Argentina, with a similar agreement.

“Sometimes the one who needs more energy is Brazil, as happened in 2021 when it had a water deficit, it paid better prices, and it was absurd that it could not use the energy from Yaciretá that Paraguay did not consume.”

“In 2022, the opposite happened; Argentina had the best prices and could not buy energy from Itaipu”, he pointed out.

Canese recalled that when a country “pays better prices” than the energy market, it generates energy from thermal power plants, which are more expensive and more harmful to the environment, as hydrocarbons feed them.

“It is in the region’s interest to burn fewer hydrocarbons, to emit fewer greenhouse gases, and to share the benefits. It is absurd to continue with this system,” he summarized.

For the candidate for the Senate in the next elections on April 30, what is lacking in the region to implement a true energy interconnection is “political will”.

In addition to questioning the Paraguayan Colorado Party, Canese pointed out that the obstacles in Argentina and Brazil come from the private companies in charge of electricity distribution in both countries.

“The private companies do not want Paraguayan energy from Itaipu to enter because they will stop billing, and the market price will decrease.”

“The powerful interests of the private sector are those that oppose an energy integration process that is in the interest of the whole region”, he pointed out.

In any case, Canese was confident that, with Lula back in government, Brazil would comply with what he signed in 2009.

He also estimated that a victory of the Concertación Nacional – running Efraín Alegre for the presidency – could give Paraguay a firmer position with Brazil.

The aspiring senator considered that Paraguay “should contract 100%” of its share of the energy generated – that is, 50% of all that is generated – and then “dispose of it as a sovereign country”, bidding it in the energy market or offering it through agreements to countries in the region.

“We are not an Argentine province or a Brazilian state”, Canese emphasized, about the firmness with which Paraguay must take advantage of the benefits of the energy generated by its dams.

GOOD FOR PARAGUAY, BAD FOR BRAZIL?

What appears as a golden opportunity for Paraguay is seen as a diplomatic challenge for Brazil, which does not find it convenient to lose the Paraguayan side of Itaipu as a secure energy supplier at low prices.

“I am sure that we will make a treaty that takes into account the reality of both countries and that takes into account the respect that Brazil must have for its ally, our beloved Paraguay,” President Lula remarked in mid-March during his meeting with his Paraguayan counterpart, Mario Abdo Benítez, during the ceremony of the inauguration of Enio Verri as the new Brazilian director of the dam.

The Brazilian president emphasized Brazil’s willingness for the new agreement between the two countries to benefit both countries and his confidence that “it will be very beneficial for the maintenance of the development of Paraguay, of Brazil and for this cordial relationship between the Brazilian and Paraguayan people”.

However, some Brazilian experts consider that Paraguay should prioritize Brazil as a client over possibly negotiating its electricity in the regional market.

Speaking to Sputnik Brazil, Regiane Nitsch Bressan, an expert in International Relations at the Federal University of Sao Paulo (Unifesp), said that although Paraguay is no longer obliged to sell to Brazil, “due to logistics and diplomatic commitment, these sales tend to continue”.

For Bressan, the Itaipu dam “would not exist” if it were not for Brazilian financing, and the Brazilian Foreign Ministry still has “great diplomatic power” over Asunción.

With information from Sputnik