Paraguayan government locks up Itaipu’s cash flow to force tariff increase

The management of the Paraguayan side of the Itaipu Hydroelectric Plant blocked the binational’s budget at the beginning of the year. There are late payments from employees, service providers and suppliers. Employees do not rule out stopping the activities of the hydroelectric plant – which is one of the largest in the world, responsible for supplying 10% of energy in Brazil – if payments are not normalized by the 25th.

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As administration is shared between the two countries, no cash movement can be made through one of the banks without the consent of the other. The reason for stopping financial transactions is not the lack of money, but pressure from the Paraguayan government to re-discuss the amounts paid by Brazil for the surplus energy produced by the right bank of Itaipu (Paraguay).

Brazil acquires around 80% of the production that is not consumed in the neighboring country, at a cost of US$16.71 per kilowatt (kW).

Paraguay wants more – there is talk of at least US$20 per kW, but there are still no official statements about the new values ​​to be claimed. The increase in this price is an emphatic defense of the Santiago Peña government since he assumed the presidency of Paraguay. Itaipu represents the largest source of revenue for public coffers in the neighboring country.

By the strength of Treaty of Itaipu, which completed 50 years in 2023 and is undergoing a review of the so-called Annex C (which will define the application of billion-dollar resources), Paraguay can only trade the surplus with Brazil. Peña defends the free market in this review, so that it can sell to those who best pay for energy. This Monday (15), a new meeting was held between the two countries to continue the process of reviewing the bilateral treaty.

Itaipu says it seeks to resolve the impasse

To the report from People’s Gazette, the Brazilian bank of Itaipu stated that it hopes to resolve the impasses quickly at a next extraordinary meeting of the Board of Directors. “The situation must be quickly defined, and such a meeting will be called soon. The company will honor all its commitments, with personnel and suppliers, as quickly as possible. This is not a cash problem, but rather a Provisional Procedure of the Payment System”, he admits.

According to information from Itaipu (Brazil), there is no way to make payments without a signature on the Paraguayan side: “any unilateral decision could represent a breach in the company’s corporate governance”. Brazilian directors and advisors are looking for possible measures to reduce payment deadlines.

Last December, the National Electric Energy Agency (Aneel) approved a provisional tariff for the transfer of energy from Itaipu for 2024, setting values ​​12.69% lower, compared to 2023. values ​​under negotiation are debated between the chancelleries of the two countries, on an annual methodology. “Brazil is seeking a lower tariff than that proposed by Paraguay. As this tariff is defined in a binational agreement, between Brazil and Paraguay, the Brazilian Foreign Ministry is committed to achieving the best possible value, through consensus, as provided for in the current Treaty”, he reinforces.

The Itaipu energy transfer tariff has as its main tariff component the Unitary Cost of the Electricity Service (Cuse), a reference for budgeting expenses and investments, but it needs to go through the hydroelectric plant’s Board of Directors.

The transfer fee is the amount paid by distributors in the South, Southeast and Center-West. For Aneel, the reduction in values ​​is justified because in February last year the hydroelectric plant paid off the last installment of financing taken out half a century ago to build the plant. The debt was still reflected in the 2023 tariff, but since then it is estimated that around US$2 billion per annum. The use of this resource is one of the main points under review by both countries.