Energy: Government can now remove Itaipu from the electricity bill – 10/29/2023 – Market

Once the debt contracted for the construction of Itaipu has been paid off, Brazil can now review the way it sells energy from the hydroelectric plant, say experts in the sector.

The measure does not require negotiation with Paraguay and does not violate the principles of the Itaipu Treaty. It only depends on a decision by the government of Luiz Inácio Lula da Silva (PT) and legal changes in the National Congress, they say.

Right now, Brazil and Paraguay are about to start renegotiating Annex C, part of the treaty that defines financial issues, but that doesn’t make a difference either, they argue. The Itaipu Treaty determines that 100% of the energy needs to be contracted, with any surplus on each side being transferred to the partner, against a payment.

There are no requirements in the document on how each country will treat its part of the quota, experts reinforce.

On the Brazilian side, a 1973 law requires that the hydroelectric tariff be included in the electricity bill of 31 distributors in ten states in the South, Southeast and Center-West regions, whatever the price. This compulsory purchase was one of the strategies in favor of financing and reinforced the guarantees to creditors that there would be a certain source of resources to pay the debt for the work.

The loan was made entirely by Brazil, as well as the presentation of the guarantees and, according to a study by the Instituto Acende Brasil, detailed this Sunday by Sheet, discharge too. Brazilians consumed most of the energy and paid in full, via electricity bills, the US$63 billion (R$311.7 billion) of debt, until the last installment, in February this year.

The institute advocates the end of the mandatory purchase of energy by distributors and that it should be sold at auctions by ENBPar (Empresa Brasileira de Participações em Energia Nuclear e Binacional), a state-owned company that took over the Brazilian side of Itaipu after the privatization of Eletrobras.

“ENBPar can hold the auction for everyone, distributors and free consumers”, says Claudio Sales, president of Acende Brasil.

According to the proposal, any values ​​generated by the difference between the plant’s tariff and the market sales price would be used to reduce the CDE (Energy Development Account), where Brazil’s expenses with growing subsidies to the energy sector are concentrated, leaving cheaper electricity bill in the country.

The assessment is that sales on the market would also require Itaipu to become more competitive and reduce the tariff, something that currently does not seem to be in the focus of partner governments, according to critics.

The debt for the work represented 60% of expenses, so the expectation was that its reduction and payment would lead to proportional reductions in the tariff, which did not happen. The resources are being channeled into socio-environmental works and projects, which experts consider a type of “parallel budget” for governments on both sides of the border.

“The inclusion of numerous activities that are unrelated to the hydroelectric exploration of Itaipu represents a distortion in the spirit of the treaty, and the practical effect of this is to irrationally increase the cost of energy from Itaipu”, says Sales. “There is nothing more socially correct than ensuring cheap energy.”

The debt began to fall in 2007. From 2009 to 2021, annually, its cost remained at around US$2 billion (R$9.9 billion) and the tariff was frozen. In 2022, the cost fell to US$1.4 billion (R$6.9 billion). This year, around US$300 million (R$1.5 billion) paid off. The reduction, however, was not fully passed on to the tariff.

In parallel, spending on works and socio-environmental projects grew.

A survey carried out by the PSR consultancy, one of the most respected in the sector, identified that these projects cost US$88.5 million (R$437.8 million) in 2013. Last year, they reached US$316 million (R$1. 56 billion).

Estimates from the MME (Ministry of Mines and Energy), in 2022, indicated that the tariff, without the debt, would be around US$10.77 (R$53.28) per KW (kilowatt). This year, it is US$16.71 (R$82.67).

Wanted by Sheet to talk about the tariff, Itamaraty stated that the value “is the result of intense bilateral negotiations and represents the possible balance between the interests of Brazil and Paraguay”.

Itaipu’s advisors, in turn, said that the 2023 tariff is the lowest in 20 years, and that initiatives in the field of social and environmental responsibility were agreed upon by the chancelleries of both countries as a “permanent component in the energy generation activity” .

In fact, these investments are only possible through a change in Itaipu’s original mission, made in 2005. The Lula government suggested, and Paraguay accepted, that Itaipu begin to act in favor of regional development, applying the parity rule. Every dollar spent for this purpose in one country, the other will also have the right to spend.

The measure was made official through a diplomatic instrument called a Reversal Note, and the new cost began to be recorded in exploration expenses, which were originally created for the plant’s operation and maintenance expenses.

Every current government in Brazil claims that Paraguay does not want to lower the tariff, but no management has explained what the criteria and limits of this type of investment are, since the plant’s tariff is the cost of the operation. History shows that everything fits into this type of investment.

Itaipu under Michel Temer’s government approved the construction of two bridges between the two partner countries, one in Mato Grosso do Sul. Jair Bolsonaro’s administration supported 24 projects, including the Boiadeira road, a section of BR-487 in Paraná.

With the cash stocked with historic value, say people close to Itaipu, Lula 3 increased the number of municipalities with the right to receive socio-environmental and infrastructure projects from 55 to 434. The list includes all 399 in Paraná and 35 in Mato Grosso do Sul. R$1 billion was announced through an agreement with Caixa.

Another R$600 million will go towards the completion of Unila (Federal University of Latin American Integration), in Foz do Iguaçu (PR).

“The resources paid by millions of consumers had to be distributed throughout the country, but in an action offensive to the federative pact, they are concentrated in the hands of a single state, where they are used for political purposes”, says José Luiz Alquéres, who was an advisor from Itaipu and president of Eletrobras.

Alquéres remembers that every dollar spent in Brazil is equivalent to another dollar in Paraguay’s account — all paid by Brazilians, as shown by a survey by Acende Brasil.

“There they also put money into all kinds of things, like Guarani classes and gas station networks. It’s a total distortion, which is not under the control of any supervision on either side of the border.”

In an attempt to monitor these costs unrelated to electricity, external control bodies in both countries are trying to create a Binational Accounts Commission. On October 16, the deputy attorney general of the Public Ministry at the TCU (Tribunal de Contas de União), Lucas Furtado, filed a representation asking the body to bring forward an action.

“I defend inspection and I talk about misuse of purpose because the plant was made to produce energy, not create emus”, he told Sheet, in reference to the fact that Itaipu is financing the new emu nursery at Palácio da Alvorada.

The end of these expenses and the compulsory purchase of energy, as well as the offer at auctions, already have the support of other entities.

“Brazil needs competitive energy for its development, and everyone agrees that it is reaching the end consumer and the price of products. Itaipu is an opportunity to start reversing this”, says Paulo Pedrosa, former advisor of Itaipu and president of Abrace Energia, an entity that brings together large corporate energy consumers.

The president of the National Energy Consumers Front, Luiz Eduardo Barata, who also worked in Itaipu, supports the changes and states that they should be debated with society.

“The consumer must have a predominant role in this discussion as they are the ones paying for the service, even those in regions that did not support the payment for the construction of the binational must participate in the solution”, says Barata.