Itaipu: What’s at stake with the elections in Paraguay – 04/26/2023 – Market

The name chosen next Sunday (30) to command Paraguay will have a task as soon as he sits in the presidential chair: renegotiate the rules that define the tariff for energy produced by the Itaipu hydroelectric plant, on the border with Brazil.

The treaty signed between the two countries turns 50 this Wednesday (26); therefore, a part of it, the so-called annex C, will have to be revised this year. According to the treaty, everything generated by the plant is divided in half, but Paraguay does not consume all of its share.

What is at stake, therefore, is what will be done with this surplus, which, according to the current document, is sold to Brazil without generating profits. Mainly, the components that define its price, passed on to Brazilians in the South, Southeast and Midwest regions, will be discussed.

An important part of this price corresponded to the debt contracted for the construction of the hydroelectric plant, which corresponded to 64% of the plant’s expenses in 2021. In February, however, after five decades, the commitment was paid off and costs fell, yet another reason to the revision of the agreement.

Faced with a still very uncertain presidential race in Paraguay, four days before the single-round election, the choice of one or another candidate could change the fate of the negotiations, scheduled to begin in August, the month of the new president’s inauguration.

While Santiago Peña, from the conservative Colorado party (in power for almost 70 years) gives few details of his intentions with the hydroelectric dam, the candidate for the opposition coalition, the liberal Efraín Alegre, has already told Sheet that “the current model does not suit Paraguay”.

Both appear technically tied in the survey released this Tuesday (25) by AtlasIntel —considered the most reliable in a country with little independence from the institutes—, with 33% and 34% respectively. A third candidate gained strength in the final stretch, the extremist Paraguayo Cubas, who has 23% and is also positioned in the sense of “Paraguayan sovereignty”.

All, however, see an advantage in negotiating with Lula (PT) and have been cautious in dealing with the issue, which arouses passions and exacerbated nationalism in the Paraguayan population. There is a strong narrative against what they call Brazilian sub-imperialism.

The Itaipu issue nearly overthrew Colorado President Mario Abdo Benítez in 2019, after a secret agreement signed with former President Jair Bolsonaro, with whom he was close. The leak of the content, which would cost Assunção more than US$ 200 million, was the trigger for a wave of protests that pressured him to cancel it.

Itaipu supplies about 86% of the electricity used by Paraguay, while in Brazil this percentage is 8%, according to the hydroelectric plant. It was responsible for the vertiginous growth of the country between 1974 and 1982, when around 30,000 workers worked on the works, and even reversed emigration at the time.

“We have differences in development policies. For Brazil, the market wants me to have the cheapest electricity possible. For Paraguay, the important thing is to have a surplus to invest in development”, said the Brazilian director of Itaipu, deputy Enio Verri (PT), in a ceremony this Wednesday in Foz do Iguaçu (PR).

According to Tomas Espósito, an expert on the subject at the Federal University of Grande Dourados (MS), Paraguayan interests also include changing the terminology from “transfer” of surplus energy to “sale” and selling it directly to the Brazilian market, without going through Eletrobras , or to other countries.

A fourth interest would be to obtain more financing for works and projects. “Itaipu is Paraguay’s main source of income and dollars. You go to Assunção and the hospital, nursery, everything is built with money from the plant”, says the researcher.

These resources, from Itaipu’s so-called “socio-environmental responsibility programs”, are the mine of the eyes of politicians on both sides of the border and have been expanded in the last decade. They doubled from US$ 220 million for each side, last year, to US$ 400 million this year —which, in practice, prevents a greater drop in energy tariffs for consumers after the end of the debt.

This could also be at play with the Paraguayan elections. “We are very critical of this policy. We believe that Itaipu is a company to generate energy, and it shouldn’t be anything else,” said candidate Efraín Alegre in an interview with Sheetdefending the transfer of resources to the State to avoid corruption.

He is the only one who has more demarcated proposals on energy policy. It is item 1 of his government program, which mentions “six requirements” in the negotiation: market price, co-management and parity of benefits, transparency, completion of works, discussion on the impact caused by “spurious debt” and indigenous peoples.

His idea is to attract investment and use that energy to generate jobs and develop the country, so that in a few years there will be no surplus left to be traded.

Santiago Peña, for his part, has stayed further away from the topic. He did not mention the negotiations, for example, when speaking to employees of Itaipu Binacional at the beginning of the month, saying only that “those who reach public office arrive thanks to the Colorado party”.

It was the party that signed the treaty with Brazil 50 years ago, during the dictatorship of Alfredo Stroessner (1954-1989), and also that dealt with the agreement with Bolsonaro. The newspaper asked the candidate for an interview and sent questions, but his team said that the agenda was very tight in the last days of the campaign.

“You can’t say that Colorado is more favorable to Brazil, they also managed to benefit Paraguay in other negotiations, but the opposition is more emphatic on this issue”, says Victorio Oxilia, a professor at the National University of Asunción.

Third place, Paraguayo Cubas, goes in the same direction as Alegre. His deputy candidate, electrical engineer Stilber Valdés, responded to the Sheet that “Paraguay must have absolute sovereignty over its 50%”, but goes further by defending that the country must claim the direct sale of its surplus to other buyers.

Despite the differences, the three welcome Lula’s presence on this side of the border. In 2009, the PT signed an agreement with the only opposition government in the country in the last 70 years, of former left-wing bishop Fernando Lugo (2008-2012), which tripled the price of energy for Brazil and was celebrated by Paraguayans.

For Oxilia, regardless of the winner, what will happen in August after taking office, in the diplomatic offices, will also put something much bigger at stake: the future of energy relations in the Southern Cone. “Itaipu can define the bases for an integrated regional market”, he says.