Controversial agreement suspended between Brazil, Paraguay over 14-GW Itaipu hydroelectric plant

Controversial agreement suspended between Brazil, Paraguay over 14-GW Itaipu hydroelectric plant

2019-08-17T11:26:30+00:00August 17th, 2019|Water Energy|

The governments of Brazil and Paraguay have suspended a controversial agreement related to the 14-GW Itaipu hydroelectric plant.

According to BNamericas, the administration of Paraguay’s President Mario Abdo Benitez signed, in May, what local media called a secret accord with Brazil over the sale of the extra volume of energy produced by Itaipu to Brazil’s state-run electric company Eletrobras.

The agreement was revealed just last week by the press, and it is reported to cost Paraguay about US$300 million extra over the next three years, according to the country’s legislators.

But the two governments have suspended the controversial accord under intense political pressure, BNamericas says. In fact, Abdo survived a serious push for his impeachment after less than one year in office.

When Abdo started his tenure in August 2018, he promised to pursue business-friendly policies to sustain the rapid economic expansion of recent years. As a key priority, he sought closer ties with Brazilian companies to attract more investment. In recent years, many international companies have gone to Paraguay to take advantage of low labor and energy costs and low taxes.

Following the media reports, on June 25 Pedro Ferreira, president of state power company Ande, resigned and was replaced by Alcides Jimenez. The political crisis then forced foreign minister Luis Alberto Castiglioni to resign earlier this week, along with the ambassador to Brazil, Hugo Saguier, and Jimenez.

Efrain Alegre, leader of the main opposition liberal party, demanded the president’s impeachment, tweeting, “this is the moment we’re going to push for the impeachment of Mario Abdo. It was a big betrayal. We hope for the support of all of you to see justice done.”

But after the agreement was suspended, the opposition refrained from pursuing the impeachment process.

Brazil and Paraguay have equal stakes in Itaipu Binacional, the operator of the dam and hydro project.

When the deal for the power plant was signed in the 1970s, Paraguay did not have the financial resources to build the plant, so it arranged a loan from Brazil to meet the initial capital demand plus other future investment needs. Itaipu started operations in 1984 and cost US$20 billion to build.

The two countries have an equal right to Itaipu’s production, but because Paraguay only consumes 15% of its share, it is obliged to sell the rest to Brazil, with 70% of the price covering the financing of construction.

Paraguayans claim Brazil does not pay enough for the power and want the right to sell the country’s share to other nations that would pay the market price.

Brazil agreed to pay Paraguay a fairer price for the energy in 2009 and also allowed the latter to sell power directly to Brazilian companies rather than through Eletrobras. The so-called secret agreement overturns that authorization, according to reports.

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