Paraguay may stall negotiations and stall Itaipu’s multi-million dollar budget

In just over a month, the review of the much-talked about Annex C of the Itaipu Treaty between the governments of Brazil and Paraguay. In practice, it is these negotiations that define the use of resources that will remain in cash at the energy binational, after the settlement of financing for the construction of the hydroelectric plant, located on the Paraná River. The calculations point to a value of almost $2 billion a year to be divided between the parties, which the productive sector, civil society and public entities claim for investments destined to large structuring works, focused on infrastructure and logistics.

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But if, on the one hand, the government of Paraná (the state through which the dam passes) embraces the idea of infrastructure investmentsas well as the government of Paraguay, which is focused on national development, at the other end, the federal government of President Lula intends to review this bias, allocating resources from Itaipu to social policies and research.

In this balance, the argument already highlighted on several occasions by the Brazilian director of Itaipu, Enio Verri (PT), that the interests of the neighboring country will be taken into account must still weigh. However, if consensus takes time to be reached, the consequence will be the halting of negotiations for the revision of Annex C of the Treaty of Itaipu.

Verri admits that it will be a lengthy process and that it will depend on a fine-tuned understanding between the parties. As an example, he cited the process on the Yacyreta hydroelectric plant, also on the extension of the Paraná River, but on the border between Argentina and Paraguay. Over there, the review of agreements and financial aspects extends for almost a decade and a half.

Renegotiation of Itaipu

According to the Treaty of Itaipu, the renegotiation would begin on August 13, the same week that the new Paraguayan government of Santiago Pena takes ownership.

Since the subject began to occupy a prominent place on the agenda in Brazil, the Brazilian director of Itaipu has alerted to two points: the definition and the rules on the use of these funds, which will take place in a negotiation between the governmental summits, from the foreign ministers of the two countries. The Brazilian government arrives to sit at the negotiation table, opposing investments in large works, defending the supply of cheapest electricitywith more quality, in addition to investing in social policies.

Meanwhile, in Legislative Assembly of Paraná (Alep) a Parliamentary Front for the New Treaty of Itaipu – Annex C was created, chaired by state deputy Marcel Micheletto (PL), who is from the region where Itaipu is located (west of Paraná), on the Brazilian side.

According to Micheletto, a series of public hearings are planned to debate the issue in line with the productive sector and civil society. “The objective is to listen to the population, the entities, to understand the demands. Do you want something more social than investment in infrastructure that will result in the generation of more jobs and income? We have one of the greatest agricultural potentials in Brazil and we need structuring works, infrastructure to transport production. Itaipu is an important ally in this process and will have around R$ 10 billion more in cash per year”, he highlighted.

In addition to listening to the population and seeking to sensitize the Brazilian government, the Parliamentary Front wants to address the issue with the Paraguayan Executive Branch. “We will, together with the government of Paraná, talk to the new Paraguayan government which, in our understanding, has already identified that the country that grows so much through agribusiness needs infrastructure. It seems to me that over there this is well defined for investment of resources. We would like at least part of this amount to be allocated to the works”, argued Micheletto.

The former president of West in Development Programan entity that brings together five of the ten largest agribusiness cooperatives in Brazil, and current president of Commercial and Industrial Association of Foz do IguaçuDanilo Vendruscolo, recognized that the involvement and financial participation of hydroelectric plants are essential to foster development.

“We have serious logistical problems that affect the flow of production with critical road stretches; lack of railway; and one of the great examples to boost regional development is the second bridge between Brazil and Paraguay (funded by Itaipu during the government of Jair Bolsonaro). We need more works like this. Paraná, Brazil and Paraguay need it ”, he considered.

A Integration Bridge not yet in operation. It is estimated that the entire infrastructure that gives access to the bridge, essential for its operation, will only be completed in 2025. Among these works is the East Perimeter, which diverts heavy traffic from the central region of Foz do Iguaçu from a bypass road. Perimetral is also paid by Itaipu and its works began during the government of former President Bolsonaro. Right now, about 30% of it is ready.

“We will not be inconsequential in paralyzing or leaving works unfinished. Those that are in progress will follow and will be completed”, promised Enio Verri. Together, the construction of the bridge and the perimeter will cost the binational coffers more than BRL 700 million. He considers, however, that the themes proposed by the Parliamentary Front “will have to be dealt with directly with the Ministers of Foreign Affairs of both countries”.

“Development factor”, says future Paraguayan minister

The future Minister of Foreign Affairs of Paraguay, Ruben Ramirez said in a recent interview with EFE Agency that the agenda with Brazil goes far beyond Itaipu, but he highlighted the importance of reviewing Annex C. The president-elect in the neighboring country was in Brasília in May for a meeting with Luiz Inacio Lula da Silva.

At the time, Peña stated that the “revision of the treaty that allowed his country and Brazil to jointly build and operate the Itaipu hydroelectric plant will not be limited to financial aspects” and may extend to the entire document. “We have a battery of options and proposals that we are going to put on the table as soon as President Santiago Peña takes office,” added Ramírez to EFE Agency.

For the future minister, “Itaipu will be a development factor” for both countries. He also said that there is no rush for this debate, however, there is a deadline for it to be closed, and that he defends the best agreement, “with balance between the Brazilian and Paraguayan sides”. Itaipu is the largest company in Paraguay and, as the country does not consume all the energy it produces, 80% of it is mandatorily sold to Brazil under current rules. With the revision of the Itaipu Treaty, Paraguay will also be able to define whether or not it will continue selling the surplus to Brazil.

During Verri’s inauguration ceremony in charge of the Brazilian side of the plant, in March, Lula said that he has an idea of ​​what the review means for Paraguay, symbolizing the end of debt payments. “I wanted to say that I am sure that we will make a treaty that takes into account the reality of both countries and the respect that Brazil has to have for its ally”, added the president.

neighboring municipalities

Those who also want to debate the distribution of extra resources in Itaipu’s cash are the municipalities bordering the lake: 15 in Paraná and one in Mato Grosso do Sul. These are cities that had areas affected by the filling of the reservoir in 1982 to start the operation of the hydroelectric plant.

The president of Adjacent Municipalities Council and mayor of the city of Santa Helena (PR), Evandro Grade, is also a supporter of the infrastructure investment proposal, but reinforced the importance of maintaining the payment of royalties and perhaps “an increment”.

In 2022, Itaipu paid approximately BRL 572 million in compensation to the neighbors alone. From January to May of this year, it had already been R$ 345 million. Santa Helena, the municipality most affected by the dam, receives the most royalties. Last year it was R$ 171 million, in addition to R$ 84 million in the first five months of this year. “St. Helena lost a third of its land as the lake filled up. These lands are underwater or with forest to preserve the river, which generates a loss in production, in economic and social aspects”, reiterated the mayor.

For Grade, greater compensation is needed for those affected. “We completed a study by the Council of Lindeiros. He showed that the values ​​received in royalties
should be four times higher to compensate for territorial and, consequently, financial and social losses. This study goes to Itaipu, to the government, we will certainly not have that amount of compensation, but let the ones we have today be maintained and who knows, with some corrections”, highlighted the mayor.

Enio Verri confirmed, in a meeting with municipal managers, in May, that the royalties will be maintained, but the values ​​will be on the review agenda of the Itaipu Treaty.

What is the Itaipu Treaty

The review of Annex C of the Itaipu Treaty takes place 50 years after the beginning of the works of one of the largest hydroelectric dams in the world. The Treaty of Itaipu is the diplomatic agreement that gave rise to the binational company, allowing the use of the area with hydro potential for the generation of electric energy for both countries. On April 26, 2023, the agreement turned 50 years old. Itaipu produces 10% of the electricity that Brazil consumes.