(FT.com, Andres Schipani, 10.Jun.2019) — From the Guaraní language, Itaipú translates as “the sounding stone”, echoing the reverberations the Paraná river makes as it flows between and around underwater rocks. Centuries ago, a Jesuit missionary described the Guaíra falls in the area as the “river raining down with the utmost violence”. In the 1970s and 80s, and to harness such energy, enough concrete to build over a dozen Channel Tunnels was poured in the construction of the Itaipú mega-dam.
From the control centre inside the 200m-high concrete wall of the dam you can sense the forces at work. The flow of 11.2m litres of water per second makes the floor quiver. The roar from the 20 huge turbines beneath an 8km-long barrier inspired the avant-garde US musician Philip Glass to compose his Itaipú cantata.
As a hydroelectric wonder, it competes with China’s Three Gorges dam, which trumps it in terms of installed capacity (22.5GW against 14GW), though Itaipú generates roughly the same amount of power, about 100m MWh a year. Straddling Paraguay’s border with Brazil, it symbolises unity between the two countries. Indeed, in the control centre, the lingua franca is Portuñol, an improvised mingling of Spanish and Portuguese.
Such sentiments, however, will soon be put to the test. In 2023 the two countries must renegotiate key parts of the 1973 treaty, signed by the Paraguayan and Brazilian military rulers of the time, to build the dam.
Itaipú delivers about 90 per cent of the total electricity supply of modestly sized Paraguay and 15 per cent of that of relatively enormous Brazil. According to the treaty, any of Paraguay’s half share of the energy that it does not use domestically must be ceded to Brazil and not sold to other countries. In exchange, Paraguay receives payment based just on Itaipú’s energy production cost, including debt repayments.
Paraguay uses about 12.5 per cent of its share of the electricity. The rest goes to Brazil. With Paraguay’s economy growing at a faster rate in recent years than that of its large neighbour, the expectation is that Paraguay could absorb much, possibly all, of its electricity share in a quarter of a century or so.
Meanwhile, many Paraguayans feel the Itaipú treaty’s terms are an affront to the nation’s sovereignty and its coffers. A study by Miguel Carter, of the Paraguay-based Demos think-tank and expert in rural development, says from 1985-2018 Paraguay lost out on $75bn in income — almost twice the present size of its $40bn economy — as a result of the energy ceded to its far larger neighbour. “Seeing how much we lost, made me cry,” he says, adding that the money was much needed for Paraguay’s healthcare, education and infrastructure.
A 2009 deal saw Brazil agree to triple yearly payments to Paraguay to $360m. In 2013, however, a report led by Jeffrey Sachs, development economist at Columbia University and who will join Paraguay’s treaty negotiating team, said the country had been “dramatically undercompensated for its electricity exports to Brazil”.
“Itaipú is Paraguay’s main asset,” says Itaipú’s Paraguayan director, José Alberto Alderete, likening Paraguay’s hydroelectric generating power to Saudi Arabia’s oil. He wants Paraguay to get more money for sales of energy to Brazil and be able to sell it to other neighbours, like Argentina. “We’ll negotiate the treaty with patriotism,” he adds.
Gerardo Blanco, who heads an energy research group at Asunción national university, says the treaty negotiation, if Itaipú’s contractual shackles are loosened, “could mean the refounding of Paraguay” as a nation.
Analysts note that the possible outcomes of the talks could include a revision of the payments to Paraguay for the energy it sells to Brazil, or even Paraguay being allowed to freely sell to Brazil and other countries at market prices. Despite the fact that presidents Mario Abdo Benítez of Paraguay and Jair Bolsonaro of Brazil share a similar conservative ideology, energy sector observers expect Brazil to push its weight around with its smaller neighbour.
Former army general Joaquim Silva e Luna, the Brazilian director of Itaipú, is arguing for a reduction in the sale price of energy to benefit his country’s industries. Cláudio Salles of Instituto Acende Brasil, a research institution, points to the fact that it was Brazilian economic clout that secured and guaranteed the debt that was used to finance Itaipú’s construction in the first place.
“Having complaints from one side and the other is just part of the business,” says Mr Silva e Luna. “No pain, no gain.” But he adds that life has moved on in the near half a century that has passed in Itaipú history. “It will be hard not to change” things, he says, from the original treaty signed in the now quite distant days of military dictatorship.
Despite bickering over treaty arrangements, both Itaipú directors stress that through “diplomatic engineering” the dam — the cumulative power of which since the start of its life could light up the entire planet for more than a month — has been key in uniting an area where river borders have been a source of international tensions. People now see, comments Mr Silva e Luna, that “what comes in as water from one side exits as dollars from the other.”
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