BRAZIL AND Paraguay have moved to settle a long-standing dispute over the huge Itaipú dam on their shared border, signing an agreement at the end of last month that sees Brazil cede many of Paraguay’s demands for a greater share of the dam’s income.
Spanning the Paraná river, Itaipú is the world’s second-biggest hydroelectric plant after China’s Three Gorges dam and provides nearly a fifth of Brazil’s electricity.
Operated by both countries, Paraguay has long claimed that the 1973 treaty that led to the dam’s construction has seen Brazil benefit disproportionately, while it has struggled to help repay the debt run up to build it.
Now under the terms of last weekend’s accord Brazil has agreed to a tripling of Paraguay’s income from the dam, rising from $120 million (€83 million) to $360 million (€250 million).
It will also allow Paraguay to sell its surplus electricity directly into the Brazilian market. Under the 1973 treaty Paraguay had to sell any surplus, over 90 per cent of its share of the power generated, at a fixed low rate. Paraguay said this denied it billions annually that it could make in the open market, whether in Brazil or neighbouring countries.
These were two key demands of Paraguay’s president Fernando Lugo, and the agreement is a timely boost after a difficult first year in office, which has seen the former Catholic bishop beset by accusations that he fathered several children while in the priesthood.
In a speech to the nation after the signing, Lugo hailed the agreement as a major triumph for his country, which still harbours bitter memories of a 19th century war with Brazil that left its population devastated. “For the first time in history, Brazil recognizes our sovereignty and will contemplate our right to sell to other markets,” he said.
But Paraguay will still have to service its share of the dam’s $20 billion debt, most of which it owes to Brazil’s electrical utility Eletrobrás and the Brazilian government. Mr Lugo had tried to argue the debt was illegitimate as it was contracted by former Paraguayan dictator Alfredo Stroessner.
As well as the deal on Itaipú, Brazil will also invest in improving infrastructure on its border with Paraguay and finance new transmission lines from Itaipú across Paraguay to Asunción.
In Brazil, members of the opposition have attacked the deal, describing it as the latest cave-in by Mr Lula to populist leaders in neighbouring countries.
But Mr Lula, boosted by Brazil’s strong performance during the global economic crisis, has defended the deal. “We bigger countries have the obligation to help smaller countries achieve a qualitative leap in their development and competitiveness,” he said in his speech at the agreement’s signing.
The agreement is the latest example of Brazil’s “good neighbour” policy in South America, which has seen it make a number of concessions in economic disputes with smaller neighbours. In 2007 Mr Lula agreed to Bolivian demands that Brazil pay more for imports of natural gas.
Brazil is acutely aware that its growing economic heft makes its smaller neighbours nervous. It already runs a trade surplus with the rest of the region and its companies are increasingly influential in adjacent economies.
Brazil’s good neighbour policy is designed to ally fears that the growing regional leadership role that has come with its economic rise will see the interests of smaller neighbours ignored and lead to regional opposition to the long-term diplomatic goal of the Brazilian state which is to see its regional leadership recognized with a permanent seat on the UN Security Council as the representative of Latin America.