On 24 November Paraguay’s President Mario Abdo Benítez discussed electricity tariffs for energy produced by the jointly owned Itaipú hydroelectric complex, during a meeting with his Brazilian counterpart, Jair Bolsonaro, in Brasília.
Analysis
The jointly owned Itaipú Binacional remains one of the world’s largest hydroelectric power stations (on some days it generates more electricity than China’s Three Gorges dam). Paraguay wants to maintain the price for the surplus Itaipú electricity it sells to Brazil at US$54 per kilowatt hour (KwH), while Brazil wants the price to be reduced. After their meeting the two heads of state said that talks had “advanced” but gave no further details
- Annex C of the original Itaipú treaty, signed in 1973, says that each of the two partners owns 50% of the electricity generated by Itaipú, and has an obligation to sell any surplus back to the other. In effect, Paraguay uses only about 10% of the Itaipú-generated power, selling the other 40% back to Brazil.
- The Annex established a ‘cost of service’ pricing model. As the original debt incurred to build the complex is now almost completely paid off, operational costs have been falling. Brazilian negotiators therefore aspire to a reduction in the tariff next year. Paraguay on the other hand wants to maximise revenue at a time when commercial electricity tariffs are much higher, due in part to a persistent regional drought.
- While both presidents have a good rapport and share similar right-wing political views, the Itaipú pricing issue appears to lock them into a win-lose transaction. Paraguay holds elections in 2023 and Bolsonaro is seeking re-election next October. For both leaders a ‘victory’ in the Itaipú pricing talks would boost their domestic political standing.
- Manuel María Cáceres, the Paraguayan director of Itaipú, said the Asunción government had advanced “technical and political arguments” for keeping the price at US$54/KwH.
Looking Ahead: Paraguay’s request to hold the electricity tariff at US$54 for next year will need to be resolved by the two governments during December. A further Abdo Benítez-Bolsonaro meeting is scheduled for 13 December.