Saturday, July 25, 2009

The Politics of Energy #6 - The Ant & the Elephant

Paraguay Pushes ‘Imperialist’ Brazil on Hydro Power

By Joshua Goodman

South America’s Itaipu dam, built three decades ago in what Brazil and Paraguay heralded as a triumph of cross-border cooperation, is now the object of a sharpening feud between the two countries over which is benefiting the most.

Brazil gets 20 percent of its electricity from the dam straddling the Parana River, paying its neighbor about $120 million a year. Paraguayan President Fernando Lugo has vowed to recover “sovereignty” of the world’s most productive hydro dam, and is seeking more money from Brazil. State-controlled utility Centrais Eletricas Brasileiras SA and Brazilian consumers may get stuck with the bill.

Brazil’s President Luiz Inacio Lula da Silva will try to break a stalemate in negotiations when the two leaders meet July 25 in Asuncion. Lula wants Lugo, a former Roman Catholic bishop, to give up his demand to reopen the dam’s treaty, Brazilian Energy Minister Edison Lobao said in May. The nationalist pitchforks may be ready, as they were during Lula’s last visit in 2007, when Paraguay’s biggest newspaper called Brazil an “imperialist nation and exploiter” on its front-page.

“We don’t want to be a Brazilian protectorate,” Jorge Lara Castro, deputy foreign minister and future ambassador to Brazil, said in an interview in Asuncion. “This isn’t demagoguery. At stake is the viability of a poor country.”

Ant and Elephant

Itaipu’s 1973 treaty, written by the dictators then in power in both countries, reflects the “realpolitik of an ant staring up at an elephant,” Lara Castro said. Each country is entitled to half of the dam’s output, which last year reached a world hydroelectric record of 95 million megawatt hours.

That’s given Brazil, Latin America’s largest economy, access to a lot of cheap power. Paraguay, whose $12 billion rural-based economy is 1/100th the size of Brazil’s, can use only about 5 percent of the dam’s output. Banned from selling elsewhere, it must cede its unused share to Rio de Janeiro-based Eletrobras, Latin America’s largest utility, for about $3 per megawatt hour.

Lugo, whose election last year ended 61 years of one-party rule, is pushing for the right to sell directly to Brazilian distributors, or to Chile and Argentina, both of which recently faced energy shortages. A “fair price” and “energy sovereignty” is his mantra.

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