Ambassador believes in compromise between Brazil, Paraguay over Itaipu

Over-50-year-old hydroelectric dam Itaipu Binacional—the world’s largest energy producer—is facing a deadlock stemming from the lack of a contract on the purchase of energy by Paraguay’s state-controlled energy firm National Electricity Administration (Ande) and Brazil’s utility Eletrobras. Due to the absence of a contract, the plant has been unable to issue an invoice since the beginning of the year. The fact is unprecedented since May 5, 1984, when the firm became operational.

In an exclusive interview to Agência Brasil, Ambassador Eugenia Barthelmess, director of the South America Department of the Brazilian Foreign Ministry, said the problem may be addressed through a technical deal between the two countries, aimed at outlining terms for scheduled energy supply from 2019 to 2022.

In order for Brazil and Paraguay to reach an accord, however, Ande must agree to pay for the energy bought every year. This has not been the case, Barthelmess said.

Over the last few years, Ande has underrated the predicted amount of energy it needs from Itaipu. Because it needed more and more energy than the purchased level every year, the Paraguayan firm resorted to its energy quota from Eletrobras. This led to financial difficulties as this quota should be paid for.

To try and solve the problem, Brazil and Paraguay signed a deal on May 24, 2019, on the gradual increase in the energy to be bought by Ande, thus mitigating the impact of the payment. Despite the move, the neighboring country used its right to renounce the terms of the document and declared the deal ineffective. In the same document, however, the two countries agree to keep talks going.

Ambassador Eugenia Barthelmess believes continuing negotiations is a good means to tackle the imbroglio. “The importance of Brazil–Paraguay relations goes way beyond these specific problems,” she argued, adding that Brazil thinks more optimistically about the topic, which is strategic for Brazil, “and I believe for Paraguay too,” she concluded.

Here are the main excerpts from the interview with Ambassador Eugenia Barthelmess:

Agência Brasil: Why haven’t Brazil and Paraguay reached an agreement on energy supply from Itaipu yet?

Barthelmess: Itaipu is jointly owned by the Paraguayan and Brazilian governments. The energy produced by the Itaipu Dam is acquired by Eletrobras in Brazil and Ande in Paraguay. Sometime in the last few years, Ande started understating its predicted demand for energy from Itaipu—in other words, the firm has been buying less energy than it really needs.

Here’s what happened. In the last four years, the power purchased by Ande from Itaipu increased 6.7 to seven percent. During this time span, the energy coming from Itaipu that was actually used increased 41.4 percent.

This led to a technical problem, because, in addition to using most of the surplus from Itaipu, Ande also consumed energy previously bought by Eletrobras. This happened in three months last year, and caused losses at Eletrobras. Eletrobras and Ande then started addressing the issue by trying and outlining a schedule for energy acquisition.

Back in 1973, Annex C of the treaty stipulated that this power acquisition schedule should last 20 years. But this never materialized. Later on, it was agreed that the schedule should be 10 years long. Again, it never lasted 10 years. Next, a schedule should be created on a yearly basis. The fact is, lately there hasn’t been a schedule at all. There was no schedule laying forth how much energy each company should buy. So Ande and Eletrobras met in a bid to tackle the technical problem and come up with a monthly power schedule to make the energy acquired minimally predictable.

Agência Brasil: What kind of solution are both nations aiming to find?

Barthelmess: The two countries have come up with a political deal dubbed “Ata Bilateral,” signed on May 24, 2019. This document seeks to stop Ande from once again availing itself of the energy bought by Eletrobras. This document attempted to stipulate the gradual increase of power purchased by Paraguay—gradual because sudden would mean too strong an impact on Ande’s coffers. Eletrobras’s plan was to have a single increase equivalent to the difference observed in the last few years. However, what the talks led to instead was a piecemeal increase so as not to impact Ande’s resources too abruptly. By gradual I mean at a 12 percent rate every year over the next four years.

On the last day of negotiations, Ande, represented by one of its engineers, proposed that the gradual increase operate like a trigger. Here’s how it would work. Let’s suppose that, in a given year, Ande’s consumption increased less than 12 percent from the previous year. So, of course, the extra 12 percent wouldn’t be charged. You consume less, you pay less. However, if the surge from the year prior was more than 12 percent, then they’d have to pay more. On the last day of negotiations, Ande proposed—and Brazil agreed to—a six percent curb for whenever the 12 percent threshold was overstepped. Let’s imagine that, in a given year, Ande spent 12 percent more energy than the year prior. They have to pay 12 percent. But then, supposing Ande spent 30 percent more than the previous year. Under the trigger system, an additional 30 percent is due. Nonetheless, as per the deal Ande was able to strike, the Paraguayan firm would pay 12 plus 6 percent. It would never go beyond 18 percent, regardless of how far higher its real consumption could be.

Why would Ande ask such a thing on the last day? Paraguay was seeking to protect its interests, and the Brazilian government made its own interests flexible. Because Brazil is greatly interested in keeping positive ties in Itaipu as well as with the Paraguayan government as a whole. It’s an important country for us. These bilateral relations are important. We have a number of key projects with Paraguay in the fight against transnational crime, integration in physical structure, and health care. We have greater interest in bilateral relations than we do in a specific issue in Itaipu.

This problem needs to be solved because the company has been unable to issue an invoice since the beginning of this year. After this deal was reached, it had to be translated into contract form. When this moment came, Ande representatives proposed reopening the political commitment made by the foreign ministries. The deadlock was then brought back to the picture.

Agência Brasil: You mean the deadlock brought about by Paraguay?

Barthelmess: I wouldn't be so bold as to interpret the developments on Paraguay’s side, or the nature of the political crisis that set in over there.

To focus at all times on the nature of the May 24 deal, drafted in a bid to tackle a technical issue, the coverage made by the press in Paraguay did not correspond to the real nature of the document. It was argued that secret talks had been held, when I have never taken part in secret negotiations. With so many actors negotiating on every side, it is hard to imagine negotiations taking place behind closed doors. We read, for instance, that Paraguay asked to have a section included in the deal allowing Ande to sell energy directly to the Brazilian market. This was never among Ande’s motions. This was never brought to the negotiation table, as it is not allowed under the terms of the Itaipu Treaty. These talks aim to address a specific technical problem. Letting a public or private company other than Eletrobras sell energy from Ande in the Brazilian market would have to result from a change in the core of the treaty—an important and complex matter, an issue of such political significance, it would certainly have to be considered by the Congress in both countries. It wouldn’t be no discussion on a small, technical problem—by small I mean local, because it’s causing a cash problem in the first time in the company’s history. The firm is unable to invoice its services.

Agência Brasil: How do you see Paraguay’s decision no longer to comply with the May 24 deal?

Barthelmess: The Paraguayan government, in a move it’s entitled to making as a sovereign state, reported to the Brazilian government on August 1 that the May 24 deal was considered ineffective on their side. What do we have before us then? In that same document—where the Paraguayan government unilaterally declared the May 24 deal ineffective—the two governments recommend their technical authorities to continue the discussions or resume the understanding with a view to settle the issue on the need to outline a schedule for buying energy for the dam in the period between 2019 and 2022. This is where we are right now.

Agência Brasil: Do you believe there is an impasse in negotiations?

Barthelmess: I don’t. I believe the two countries will find a technical solution, correct and politically acceptable for the hydroelectric plant, which is an asset shared by the two nations. It’s a gigantic dam we’re talking about, a world champion of clean, cheap energy, renewable energy, which plays a major role in the development of both countries. It’s joint property of both countries, a positive agenda with nothing but benefits for the two nations. What we have here is a local and technical issue, which must be addressed. I believe it’s going to be settled sometime in the coming months. There is an answer to this problem. I believe a solution will be reached because Brazil–Paraguay ties are of such great importance they go beyond these specific problems. Brazil has a more optimistic view about the role this topic plays in bilateral relations—which are key for Brazil, and I believe for Paraguay as well.