MercoPress. South Atlantic News Agency

Lula da Silva: “I preferred to give Paraguay a chance to develop”

Energy at the heart of the Brazil/Paraguay dispute

A country with the size of Brazil can’t fight with Paraguay, said Brazilian president Lula da Silva justifying the Itaipu hydroelectric energy agreement signed last July with his Paraguayan counterpart Fernando Lugo in Asuncion.
He added, “I preferred to give a country like Paraguay the chance to develop”.

The bilateral instrument which among other points anticipates a higher price for the power Paraguay sells to Brazil has yet to be ratified by the Brazilian Senate, where apparently the opposition is not willing to ratify.

Itaipú the world’s largest operational hydroelectric complex is shared by Brazil and Paraguay, but the junior member only absorbs 10% of its 50% share of the power generated and the rest, by contract, is sold to senior partner Brazil.

This makes land locked Paraguay and one of South America’s poorest countries one of the few in the world that has a huge energy surplus.

However the surplus is sold at prices dating back to the 1970s when the dam was built.

After months of discussions, sometimes irritating, the administration of President Lugo managed to convince Lula da Silva to triple the annual price paid for the energy, (120 million US dollars to 360 million USD) plus other benefits such as a new high voltage line from Itaipu to blackout-castigated Asunción with an estimated cost of 400 million US dollars and two bi-national bridges.

Brazil has justified the fixed price for energy paid to Paraguay arguing that the country still owes its share of the costs of building the huge complex along the Paraná River over three decades ago.

The agreement also opens the Brazilian electricity spot market to Paraguay’s Itaipu surplus share, which currently is totally absorbed by a Brazilian government power corporation.

Most of the energy is demanded by power hungry Sao Paulo, the industrial hub of Latinamerica’s largest economy.

Lula da Silva has been lobbying strongly to have the agreement approved by Congress with the opposition claiming it will distort Brazilian industry costs in a highly competitive world.

“When Paraguay irritates Brazil, my job is to understand the situation and not act aggressively. Brazil is so much powerful and richer”, said Lula da Silva.

“With Paraguay for Brazil is like a father-son relation. That is how large countries must act” towards smaller countries, argues the Brazilian president.