MercoPress. South Atlantic News Agency

Paraguayan election, another energy challenge for Brazil

Fernando Lugo is leading in the polls

Energy and energy security has snowballed as an issue in the last leg of the Paraguayan presidential election of next Sunday, April 20. The two heavy weight neighbors are highly dependent on Paraguayan energy resources and all Paraguayan leading candidates have promised a review of the contracts “which are most unfair for our country”.

Former Catholic bishop Fernando Lugo, who is leading in the polls, followed by former general Lino Oviedo and the ruling party candidate Ms Blanca Ovelar have promised to review the contracts governing energy production from the shared hydroelectric dams of Itaipú (Brazil/Paraguay) and Yaciretá (Argentina/Paraguay), which were signed in the seventies when all the region was under military dictatorships. The greatest impact of the potential claim has been felt in Brazil, which fears a repeat of the Bolivian natural gas experience with the election of President Evo Morales who managed a hefty increase in the price of the millions of natural gas pumped to the industrial heartland of Sao Paulo. Morales also successfully renegotiated contracts with gas short Argentina. Brazil consumes 95% of the electricity from Itaipú, the world's largest dam on full production and equivalent to 19% of the country's consumption. In Yaciretá 98% of energy represents 17% of Argentina's electricity demand. Brazil and Argentina absorb most of the dams given the minimum consumption in Paraguay. "These contracts are most unfavorable for Paraguay. In the Itaipu contract energy is donated to Brazil at cost price and not at market price. We are claiming market prices for the energy sold both to Argentina and Brazil, which would mean a significant boost for the country's finances", argues Lugo. Brazil pays Paraguay annually 300 million US dollars for electricity from Itaipu and its ten turbines of which only one generates electricity for Paraguay. If elected Lugo has threatened to take the case to the International Court of Justice in The Hague, to renegotiate terms of the contract which expires in 2023. "When there's no fair price between a powerful country and a weak country, conflict prevails", he said. With Argentina there's an ongoing negotiation since Paraguay still has some pending bills from the construction of the Yaciretá dam. Candidate Blanca Ovelar from the ruling populist Partido Colorado is more cautious and suggests that threats "won't achieve anything; we must try the path of dialogue…" A position shared by the third candidate with chances of becoming president, General Lino Oviedo. However analysts have also warned that Paraguay must learn from the Bolivian experience: Paraguay, as Bolivia, can't consume all the energy they produce and given its landlocked geography can only sell it to Argentina and Brazil.