Lugo and Lula Sign Historic Itaipú Power Agreement

Image of Brazil's Lula da Silva and Paraguay's Fernando Lugo, signing the Itaipú agreement on Saturday from the official website of Paraguay's presidency.

Eleven months after assuming the presidency of Paraguay, Fernando Lugo signed an agreement accepting Brazil's offer regarding Itaipú Binacional, the world's largest hydroelectric dam, shared by the two neighboring countries. Celebration erupted. Comments sections in internet newspapers complained that Paraguay did not get enough. The official website of the Paraguayan presidency hailed, "After 10 months in office, President Lugo achieved what in 30 years other governments could not." And even the BBC wrote about it.

What does it all mean?

In Sum: though Brazil didn't pony up the $1billion that Paraguay asked it to pay for the Paraguayan electricity it uses, it has agreed to pay (starting next year, I presume) more than $360million instead of $100million. And it's agreed to let Paraguay sell that electricity directly to the Brazilian market on a slightly longer time scale. This means that as Paraguay itself sells to the Brazilian market, the amount Brazil's government pays (the newly agreed $300million) will eventually decrease-- Paraguay will assume the risk and, presumably, the profit, from selling directly to the market. This is a badly needed political victory for Lugo, who's had a difficult time governing Paraguay.

More Detail: Itaipú is owned equally by Paraguay and Brazil, built and administered to this day under treaties negotiated by two military governments in 1973. The issue of access to the energy and earnings from this has been at the center of international negotiations and massive agitation within Paraguay. Look here for more detail on what Paraguay wants, but the biggest complaint is that, per treaty, Brazil uses Paraguay's unused electricity, pays $2.80 per megawatt hour and then sells it in its own market for anywhere between $20 and $70 per megawatt hour, pocketing the difference. Paraguay wants the right to sell its own energy to whatever market it wishes and keep the profit.

Here's a complete version of the joint declaration signed Saturday, but, for some highlights: First, if you read the declaration, you'll realize that there's a lot that's not about Itaipú and instead talks about regional integration, development, inequality, and fascinating economic changes that are about to take place at the Triple Frontera (the tri-border area where Brazil, Paraguay, and Argentina meet... a place with a dicey reputation).

Next, here are the points (of 31) that I found particularly striking:
(note that I'm summarizing from the Spanish into English)

#5 In Plain English: The amount Paraguay receives from Brazil for its excess electricity will go up from about $107million to more than $360million a year. Brazil de facto and de jure accepts the validity of the Six Points as points of negotiation.

#6 In Plain English: As soon as possible, Paraguay will sell its electricity directly to the Brazilian market, thus pocketing the profits. And, maybe after 2023, will be allowed to sell to other countries too.

#8 In Plain English: Hey! Paraguay has electricity from non-Itaipú hydroelectric dams. Maybe they can sell that to Brazil, too.

#15 In Plain English: Paraguay's Comptroller is doing an audit of the controversial construction debt from Itaipú, which is about $60billion. Also, since Paraguay's GDP is about $14billion, that's a lot of money.

#16 In Plain English: Brazil is totally up for creating a fund for regional development.

#25 In Plain English: So, though this isn't at all about Itaipú, there are a bunch of Brazilians living in Paraguay.

The document seems to be filled with many Brazilian carrots offered to pacify Paraguay. Point 25 reminds Paraguay that the Brasiguayos, the hundreds of thousands of Brazilians living in Paraguay, are a priority for Brazil and that violence against that community will be taken seriously.

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One Response to Lugo and Lula Sign Historic Itaipú Power Agreement

edtsch said...

Wow. What has changed politically that Brazil is making these concessions?

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