Region of Oil/Gas Exploration Circled

Paraguay's Chaco region borders Argentina's and Bolivia's petroleum and natural gas zones and for many years there's been speculation that there might be oil and gas in northwest Paraguay. Amerisur Resources (UK-based) has just received permission from the Paraguayan government to explore the Piriti-Pilar Basin for oil and natural gas.

Another company, Texas-based Crescent Group, has held a concession for the Piriti Basin since 2008, but it's hit a few legal road bumps which have recently been resolved in drafting a new agreement.

These developments are interesting for a few reasons. First, none of the potential petro stuff is new news--every few years there are announcements that exploration and drilling in the Chaco are set to start. But what is interesting is where the authority over oil and gas lies within the Paraguayan government: the Ministry of Public Works and Communication. And this might be why there's so much confusion with the Crescent Group (and why Paraguay's public learned of the Amerisur developments via the London Stock Exchange rather than any government announcement in Paraguay). Rather than creating a separate energy ministry (which is how Brazil's government is organized) to administer the hydroelectric and now potentially hydrocarbon resources, there is a Vice-Ministry of Mines and Energy under Public Works. 

The Vice-Ministry has been traditionally focused on Paraguay's vast hydroelectric resources and so the oil-gas concerns are but a side note. Currently it's headed by leftist Mercedes Canese, the daughter of well-known Itaipú-dam activist Ricardo Canese who has been involved with pressuring Brazil to renegotiate the amount of money Paraguay receives for its Itaipú energy sold on the Brazilian market. The Vice Minister is from the part of the President Lugo coalition that is most leery of foreign investment (and certainly of private firms) and that most admires the way Morales has steered Bolivia's energy policy in a nationalistic and social re-investment direction.

Thus, the Vice-Ministry's posture and the little institutional development for how to administer oil and gas resources (e.g., the person in charge of hydrocarbons within the Vice-Ministry has a background in biology and ecology but not in energy) imply that there will likely be more road bumps ahead.

A few computer geeks in Paraguay have come up with a brilliant idea: to use Paraguay's vast renewable electricity surplus to support internet data centers (IDCs) for companies like Google.

The situation is this: Paraguay has a huge surplus of electricity. It consumes something like 6,000,000 MWh a year, but produces about 50,000,000 MWh a year via its two binational hydroelectric dams Itaipú and Yacyretá. Right now, this excess energy is sold to its neighbors, the co-owners of the two dams (Brazil and Argentina, respectively). This excess, however, could be used to power data centers and, even were Paraguay's domestic consumption to double or treble in the next ten years (an unprecedented growth rate), there'd still be plenty. Itaipú electricity costs about $44 per MWh--a bargain compared to what the average cost is for industry in the U.S., $67.2 per MWh in 2011.

Paraguay is a developing country and this would bring in not only revenue, but improved infrastructure. It's geologically stable (landlocked--no hurricanes or tsunamis; not on a fault line--no volcanoes or earthquakes). And it's physically close to the growing South American giant: Brazil, whose internet and data consumption is continuing to skyrocket.

The place to develop this kind of data park would be in the eastern "department" ("state") of Alto Paraná, probably actually on the site of Acaray (a small hydroelectric dam) or the Paraguayan side of Itaipú, where there's already engineering capacity, security, and the beginning of necessary infrastructure.

The entire proposal, written in Spanish, is here: Uso de energía excedente en Paraguay para alimentar centros de cómputo.

Carlos Menem, former president of Argentina, and no paragon of transparent, corruption-free government, once described Yacyreta as "a monument to corruption."

Paraguay is co-owner of two of the world's largest hydrolectric dams: Yacyreta (shared with Argentina) and Itaipú (shared with Brazil). At first blush, they may appear very similar. But they are starkly different. What I find frustrating is that, in the Paraguayan public sphere, there is no distinction being made between the situation in Itaipú and the one in Yacyreta.

I have already blogged about why they are at the center of a crisis in Paraguay's foreign policy. These large construction projects, because of the systematic and organized corruption within the Paraguayan government, have been a source of misdirected hundreds of millions of dollars (probably billions) for the past 30 years.

Because of his moral stature as a priest, Fernando Lugo's election represented a chance for change in the Paraguayan government. (The subsequent revelation that he has fathered at least one child while bishop has seriously damaged his credibility and demoralized people in this country.) As of this morning, both of his appointed General Directors to the dams have been formally summoned ("interpellated") before Congress to answer regarding their administration of the dams.

I have already written my thoughts about the interpellation of Itaipú's GD Carlos Mateo Balmelli. In short, the accusations of poor administration appear factually baseless and are contradicted by both a large paper trail and expert opinion. A brief example: Mateo Balmelli was accused of irresponsibly contracting a private plane for trips from Asunción to the dam while Itaipú already owned a plane. It turns out that the Itaipú plane is unflyable and that the annual budget for the contracted plane is less than 1/10 of the annual budget for the Itaipú plane.

Yacyreta's situation is a bit worse. First of all, the dam is still incomplete, with no termination point in sight though construction began in 1983 (and planning in 1925). As a quick contrast: Itaipú planning started in 1966, construction in 1974, and completion in 1991. Its current director, Carlos Cardozo, was discovered to have used Yacyreta money to fund an international Young Leftists conference that took over military barracks two weeks ago. While it was only about $20,000 (USD), it caused a huge scandal because of the political nature of the event, causing Cardozo to return the money to Yacyreta. Given the history of using public funds from the dams to finance political parties and given the controversy of physically occupying a military compound (most of Paraguay's population is not hardcore lefty), this was troubling. Cardozo has just admitted to budgeting $1 million (USD) of Yacyreta money to fund the president's public relations and communitions secretariat. This, again, raises suspicions that Yacyreta is being used to finance the propaganda of a political party.

It seems to me that the severity of charges being levelled against Mateo Balmelli and Cardozo are quite different. What remains doubtful is whether Congress, the media, and the Paraguayan public will act accordingly.

UPDATE: Congress was not pleased with Cardozo's responses after more than 4 hours of questioning about misdirected monies (turns out that the Roman Catholic diocese of Misiones, the department where Yacyreta is located, also received money from the dam to distribute as it wished).