UPDATE – New Paraguay president might push for new dam deals

Fernando Lugo, a mild-mannered leftist whose campaign called for more money from Brazil for jointly owned hydropower, was elected president of Paraguay April 20.

The 56-year-old former Catholic bishop ousted the Colorado Party from its 61-year-long rule with promises to tackle inequality and stamp out corruption.

However, no one party was expected to win a majority in Congress, likely forcing Lugo to cut deals with rivals if he hopes to get his proposals passed.

“We don’t know how much Lugo is going to change the government, or how much he can,” Mark Weisbrot, of U.S. think tank Center for Economic and Policy Research, said, noting the Colorado Party has a powerful machine at every level of government.

Lugo campaigned heavily on trying to charge Brazil more money for the power it imports from the jointly owned 14,000-MW Itaipu hydroelectric project on their border, the Parana River. (HNN 4/10/08)

Argentina and Paraguay own the 3,200-MW Yacyreta project, also on the Parana. The two big regional neighbors benefit from decades-old deals that provide them with electricity at cut-rate prices.

Paraguayan leaders including Lugo are clamoring for a new pricing deal. The call comes as many Latin American countries are strengthening state control over their natural resources to reap economic benefits from record-high commodity prices.

For landlocked Paraguay — which has few resources other than abundant fresh water — that means launching a difficult challenge to its two bigger and more powerful neighbors.

“They also thought it was impossible for Panama to renegotiate the (Panama) canal ahead of time,” Lugo said. “We’re just asking for what’s fair.”

The United States handed over control of the Panama Canal to Panama in 1999.

14,000-MW Itaipu

In 2007, Paraguay President Nicanor Duarte Frutos called for a review of the Itaipu pricing treaty. (HNN 11/22/07) More recently, Itaipu has been the focus of Paraguayan newspaper editorials and Lugo’s claims that Brazil is not paying a fair price for surplus power. Paraguay is forced to sell to its neighbor at prices set more than 30 years ago when both countries were ruled by military dictatorships.

“It’s not remotely close to today’s market price,” said Ricardo Canese, an energy analyst and aide to Lugo.

A 1973 treaty establishes that each country owns 50 percent of the energy produced and that Paraguay, which consumes 7 percent of the total output, must sell its excess amount to Brazil. Power from the dam goes to southern Brazil and accounts for 20 percent of the country’s total consumption.

Brazilian authorities reject calls for a new price deal, saying it would change the conditions put in place to ensure the dam was built. Brazil helped back many of the loans needed for the dam’s construction.

Paraguay receives about US$400 million a year from its sales to Brazil, but some critics say the proceeds are often lost to government corruption.

3,200-MW Yacyreta

Yacyreta Dam was largely financed by Argentina in the 1980s. Argentina uses almost all of the power generated under a similar price scheme, but Paraguayans say Buenos Aires has shown less resistance than Brasilia to a possible price change.

In 2006, Frutos reached an accord with Argentine President Nestor Kirchner to relieve the debt owned to Argentina by jointly owned project owner Entidad Binacional Yacyreta. (HNN 7/6/07) At that time, they also agreed to develop a new joint project, 3,000-MW Corpus Christi, also on the Parana.

Canese said by not seeking price modifications, Paraguay was failing to protect one of its few natural resources.

“Without Paraguay’s hydroelectric energy, Brazil and Argentina would have to burn 90 million barrels of oil a year,� he said. �At an average price of US$100 a barrel, we’re talking about a cost of US$9 billion dollars.”

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