MercoPress. South Atlantic News Agency

Brazil offers a billion USD in projects to compensate for Itaipu energy

Pte Lugo (L) will discuss a new agreement with Pte. Lula at end of the month

The Brazilian government is planning to offer a financing package worth one billion US dollars for industrial projects in Paraguay, local financial newspaper Valor Economico reported this week. According to the newspaper, which cited unnamed sources, the financing will be offered through Brazil's National Development Bank, or BNDES.

Details of the operation will be unveiled on April 29 during a meeting between Brazilian President Lula da Silva and his Paraguayan counterpart, Fernando Lugo.

The financing is a response by the Brazilian government to pressure from Paraguay on the price that Brazil pays for electric power from the bi-national Itaipu hydroelectric facility. Currently, Brazil's pays 45 USD per megawatt. Paraguayan officials have demanded changes in the existing contracts that would allow for a considerable hike in line with international prices.

The 14,000-megawatt Itaipu dam was built as a Brazilian-Paraguayan joint venture and began operating in the 1980s. The dam is located at the border of the two countries on the Parana River and is one of the largest dams in the world. It provides almost all of the energy consumed in Paraguay and 20% of Brazil's entire demand.

Since taking office last year President Lugo has been calling for energy “fairer prices” and a renegotiation of the whole Itaipú operation, since all surplus electricity can only be sold to energy starved Brazil.

The issue has been increasingly controversial, and Paraguay has admitted it’s a long term negotiation emulating the situation with that of Panama and the United States over the Panama Canal, a long term negotiation process”.

Paraguay son far has rejected several Brazilian financial alternative options plus several infrastructure projects. President Lugo needs wind fall earnings to honour much of his electoral campaign promises to invest in social, health and education affairs.