Hydro Equality

Fernando Lugo
Fernando Lugo

Photo by Antônio Cruz, ABrThe victory by Fernando Lugo last Sunday in Paraguay´s presidential elections has sent ripples through the energy ministries of Brazil and Argentina, based upon his assertion that the Itaipu and Yacyretá Dam treaties must be re-negotiated to guarantee a fair deal for his country.

Both bi-national dams were built during military dictatorships, where official corruption was the rule, rather than the exception. A former Paraguayan president reportedly made a fortune selling concrete for Itaipu which never existed. And, Yacyretá has so far cost ten times original estimates, despite the fact the project is still incomplete.

The core of Lugo´s argument is that Paraguay, a country with a small population compared with its two giant neighbors, and with an economy based primarily on grain exports and contraband, has historically used only a small percentage of the energy generated by the two dams. And, by the terms of the treaties negotiated in the 1960´s and 1970´s, Argentina (in the case of Yacyretá) and Brazil (with Itaipu) have the right to buy the energy Paraguay cannot use at a cut-rate price.

Brazil has reacted vehemently to Lugo´s demands, saying that adjusting the cost of Itaipu´s energy, which provides 19% of Brazil´s electricity would severely hurt the country. President Lula said "we have a contract, and that contract will be maintained. According to Brazilian sources, state company Eletrobrás pays US$45/MWh for the excess energy from Itaipu, which it says is "fair", but is well below the prevailing market price in Brazil.

Without detailing his calculations, Lugo has said that the cost of the 45% of Itaipu´s production that Brazil now buys from Paraguay could be increased from the $200-400 million reportedly received today to as much as $1.8 billion annually. Even at $45/MWh, the 93 million MWh generated last year by Itaipu would cost about $4.2 billion, making Paraguay´s share of the take about $2.1 billion. The equation is further complicated by the fact that Brazil is still repaying the cost of building the 14,000 MW plant, the world´s second largest, and is expected to not pay off all of Itaipu´s debt until at least 2030.

Lugo has pledged that renegotiating energy sales from Yacyretá and Itaipu will be his first order of business upon taking office in August. To this point, the cheap rates paid by consumers in Argentina and Brazil for hydroelectricity have been a reflection of the bargain basement prices paid for electricity generated by Yacyretá and Itaipu. If and when the treaties are fairly renegotiated, and electricity rates adjusted upward as a consequence, it would quickly become more apparent that hydropower is not the cheap source of energy it is made out to be.