By Eliot Brockner, Latin America Contributor
What to do with the excess energy produced at Itaipú is creating a strain in Brazilian-Paraguayan relations
Rarely is a surplus of energy a bad thing. Nations the world over are confronting the demand for reliable energy from renewable sources. Yet, in Paraguay and Brazil, it is a surplus of energy that is at the heart of a conflict between Paraguayan president Fernando Lugo and Brazilian President Luiz Inacio Lula da Silva that may have broader regional implications for security and economic policies.
Located at the confluence of South America’s other giant rivers, the Paraná and Paraguay, Itaipú is the largest hydroelectric dam in the Americas. In 2006 the dam produced 92,690 Gigawatt hours, making it the world’s most productive hydroelectric plant. Located close to the Brazilian-Paraguayan border, Itaipú is a bi-national venture between the Brazilian and Paraguayan governments and provides close to 90 percent of Paraguay’s energy and roughly a quarter of the energy consumed by Brazil each year.
Since the dam first started pumping out energy in 1984, the agreement, signed in 1973, has enormously favored Brazil. Under the current terms of the treaty, which was signed in 1973, each nation is entitled to 50 percent of the total energy produced by the dam. Whatever is left over must be sold to the other for below-market value. Given the size of Brazil’s population (roughly 192 million) compared to Paraguay’s (6.9 million), it is no surprise that Brazil is the ultimate recipient of more energy.
Paraguayan President Fernando Lugo has made renegotiation of the terms of Itaipú a priority from his first moment in office. Lugo is Paraguay’s first president in 61 years who is not a member of the Colorado Party. As a result of single-party rule, Paraguay is notorious for political corruption in a region known for backroom deals. Itaipú is another example of misallocation of resources that benefit a select few rather than the nation as a whole. Eager to change this, Lugo has been in negotiations with Argentina, Chile, and Uruguay, where an apparent deal would sell excess Paraguayan energy generated at Itaipú for up to 20 times more than the price for which it is currently sold to Brazil.
Brazil benefits greatly from energy sold at below-market value. On March 10, 2009 the Wall Street Journal reported that in spite of a slowdown in the economy, demand for energy in Brazil is rising. As a result, Brazil has been reluctant to renegotiate the terms of the treaty. On May 7 Fernando Lugo reiterated that Paraguay will not change its course and will continue to demand a higher price paid by Brazil and an end to exclusivity to the Brazilian market. The next round of talks is slated for June 2009.
It remains unclear whether these negotiations will accomplish anything. Both Brazil and Paraguay have shown little flexibility in compromising their positions. Previous meetings in January and May 2009 have thus far been unproductive, in spite of claims from the Brazilian president that the latest rounds of talks helped identify certain territories that can be explored for future negotiations.
Yet it is in each nation’s best interest to not let the Itaipú dispute affect broader bilateral relations. This goes beyond energy policy. Paraguay and Brazil share a common interest in combating contraband smuggling, including arms and illegal drugs. Effectively combating this international security threat will require cooperation and intelligence sharing between Paraguay and Brazil. A failure to reach an agreement at Itaipú will increase tensions between the two nations, which could impact bi-lateral security.
Additionally, Itaipú presents an opportunity for Brazil and Paraguay to set a precedent for future resource sharing and broader cooperation in the region. In spite of damages to ecosystems caused by the damming of rivers, hydroelectric power remains one of the cleanest energy sources available on a large scale. An agreement on Itaipú will not only emphasize each nation’s commitment to this, but will also stress the importance of utilizing geography to benefit each respective nation’s people. For example, an agreement on Itaipú portrayed publicly as a mutually beneficial agreement for all Paraguayans and Brazilians may inspire other regional geographic conflicts such as the debate between Chile and Bolivia on how to best grant Bolivia access to the Pacific Ocean.
Recently, much of the press has focused on allegations that Lugo, formerly a bishop, fathered children by three different women while still a member of the church. This has strengthened Lugo’s adversaries and weakened him politically within Paraguay. It remains unclear whether or not this will impact his political capital in the international arena. Given Brazil’s leverage in regional negotiations as the de facto leader on security issues and largest and most populous nation in South America, Lugo will need all of the support he can get when negotiating for new terms at Itaipú.
