Itaipu tariff should have fallen to US$ 10.77 with the end of the debt – 03/04/2024 – Market

Itaipu Binacional’s energy tariff could have fallen to US$10.77 per kW (kilowatt) last year, when the debt for the construction of the hydroelectric plant was paid off.

The data comes from a projection made by the hydroelectric plant’s own internal working group, Cecuse (Study Committee to Assess the Unitary Cost of the Itaipu Electricity Service).

A Sheet had access to annual tariff studies and the group’s projections in different years.

Cecuse is the technical group with representatives from Brazil and Paraguay. It was created in the 1990s precisely to annually carry out tariff studies based on costs. It also makes projections.

Historically, the value defined in the tariff study is submitted to the board and approved.

A Sheet also spoke to people who follow the company. They all confirmed that Cecuse’s calculations showing the drop in the fare value are known in different government bodies.

Projections show that the debt contracted for the construction of the hydroelectric plant would fall in 2022 and would be paid off the following year after paying a residual amount, which would lead to strong reductions in costs and, consequently, in the tariff and electricity bill.

The Cecuse survey highlights that the tariff was frozen at US$22.60/kW from 2009 to 2021. The debt, then, consumed just over US$2 billion per year.

In 2022, this expense fell to US$1.4 billion, and this would allow the tariff to fall to US$18.75. However, the fixed value was US$20.75/kW, 10.66% higher.

Last year, the annual cost of debt would be below US$300 million, which, according to Cecuse’s projection, would take the tariff to US$10.77. The value set, however, was US$16.71, 55% more than predicted by the committee.

Experts who know the rules of the treaty and its annexes state that the discrepancy between what was projected by the technical group and the value actually practiced is a demonstration that governments on both sides of the border are increasing Itaipu’s spending on works and socio-environmental projects as debt payment expenses fell.

Detail: 85% of Itaipu’s energy is paid for by Brazilians from the South, Southeast and Center-West regions. The amount must be debited from the electricity bill.

As defined in the bilateral agreement, the Itaipu tariff is the amount necessary to keep the hydroelectric plant in operation and fulfilling its obligations, such as paying royalties to the municipalities affected by the plant.

Social and environmental works and projects are recorded in Itaipu’s accounting records as exploration expenses. During the Jair Bolsonaro (PL) government, the debt began to fall, but spending on works increased, and exploration expenses began to rise.

The first general director of Itaipu under Bolsonaro’s administration, Army General Joaquim Silva e Luna, made adjustments, cut staff, streamlined the operational structure, reviewed agreements and sponsorships in the two years he was in command. With the savings, he expanded the plant’s investment plan while maintaining the tariff value.

In April 2021, Luna e Silva was replaced by fellow general João Francisco Ferreira, who only spent ten months in the position and asked to resign.

The last director general in the Bolsonaro administration, Admiral Anatalicio Risden Junior, took office in January 2022, announcing his commitment to be a negotiator with Paraguay. It was up to his management to monitor the discussion of the first tariff adjustment in 13 years thanks to the reduction in the cost of debt from US$2 billion per year to US$1.4 billion.

That was when exploration expenses, which were between US$760 million and US$800 million per year, exceeded US$1 billion for the first time in history.

Risden ended his term by distributing an advertisement highlighting 26 projects financed by the energy tariff in the Bolsonaro administration from 2019 to 2022. Bolsonaro went to numerous events in Paraná, often accompanied by the president of Paraguay, to launch or inaugurate works.

Paraná was one of the 14 states where he won in the second round of the 2022 presidential election, with 62.40% of the valid votes.

There was an expectation that the Luiz Inácio Lula da Silva (PT) government would review this strategy, as it is necessary to reduce the cost of Brazilian energy, which is increasingly expensive. However, it was expanded and critics say it was to repeat Bolsonaro’s political recipe.

The new general director, Enio Verri, announced the “Itaipu Mais que Energia” program, foreseeing investments of R$1 billion in regional development projects. At the same time, it expanded the plant’s coverage area to serve all 399 municipalities in Paraná and another 35 in Mato Grosso do Sul.

It has also been announced that Itaipu will fund a new area for emus at Palácio do Alvorada. On March 28, Itaipu formalized that it will invest R$752 million to complete Unila (Federal University of Latin American Integration). It is considering investing R$1 billion in sanitation works in Belém, so that the city can host COP-30, the UN conference on climate change.

Itaipu’s consolidated balance sheet for last year has not yet been released, but the projection is that exploration expenses will have risen to around US$1.5 billion.

Currently, there is a struggle between Brazil and Paraguay over the 2024 tariff. Provisionally, Brazil is applying the same value as last year, but Santiago Peña’s government wants more.

Itaipu states that projection does not exist

OTHER SIDE

When contacted by the report, the press office denied that the projection had been made, despite the Sheet having had access to the company’s documents and having complemented the investigation with reports from people linked to Itaipu who also had access to the data.

“The projection mentioned in the article does not exist among the entity’s official documents”, stated the text.

The advisor maintained the argument that the tariff is the result of an understanding between Brazil and Paraguay, based on costs defined in bilateral agreements.

“We highlight that the Itaipu tariff, defined annually by consensus between Brazil and Paraguay, considers exploration expenses (operation, maintenance, company management and socio-environmental projects), Annex C charges (such as the payment of royalties) and loans and financing (among them, the debt for the construction of the plant). In 2023, in view of the reduction in obligations incurred with the debt for the construction of the plant, the result of arduous negotiations between the Brazilian and Paraguayan management, the Itaipu tariff was reduced by 19, 5%.”

The advisory also stated that Itaipu will continue to maintain resources to invest in the guidelines established by the federal government and in accordance with its mission: “Generate quality electrical energy with social and environmental responsibility, contributing to sustainable development in Brazil and Paraguay”.