22 TheEconomistAugust 24th 2019
1W
hen braziliansoldiers invaded Par-
aguay in 1865, after banding together
with Argentina and Uruguay, the country
lost a quarter of its territory and perhaps
90% of its male population. A century later
Brazil sent soldiers to a disputed border re-
gion and withdrew only after the two coun-
tries agreed to build the world’s largest
hydro-electric dam.
The dam, named Itaipu, is still a sore
subject in Paraguay. Last month it emerged
that in May Paraguay’s current president,
Mario Abdo Benítez, had struck a secret
deal with Brazil, further reducing Para-
guay’s access to cheap power. The resulting
outcry has put Mr Abdo Benítez at risk of
impeachment. The fiasco has underlined
the importance of renegotiating the dam’s
governing treaty, which expires in 2023.
Under the current agreement, which
was signed in 1973, each country has the
right to half the dam’s output. Paraguay, a
country of 7m people with little industry,
only uses about a quarter of its share,which fulfils 90% of its electricity needs. It
sells the rest to Brazil, which depends on
the dam for 15% of its power. But Paraguay
is paid only the cost of production (includ-
ing debt repayments for construction), not
the market price of electricity. According to
the calculations of Miguel Carter of demos,
a think-tank, had Brazil been made to pay
full whack, between 1985 and 2018 it would
have paid $75.4bn more, or roughly twice
Paraguay’s current annual gdp.
In 2009 Brazil’s then-president, Luiz In-
ácio Lula da Silva, agreed to triple Brazil’s
annual payment and to take steps to allow
Paraguay’s state power company, ande, to
sell directly to private Brazilian compa-nies. But in May’s secret deal, a clause that
would have made Brazilian companies bid
for power was struck out. Paraguay also
agreed to receive around 18% less money
over the next three years.
The agreement became public in July,
when the head of ande, Pedro Ferreira, re-
fused to sign it, resigned and accused Mr
Abdo Benítez of “high treason”. He and
Paraguay’s minister of foreign relations—
who also resigned, along with three other
officials—told prosecutors that a “parallel
negotiation” was under way to sell power
exclusively to a Brazilian energy company,
Léros. A politician from the party of Brazil’s
president, Jair Bolsonaro, travelled to Para-
guay three times on behalf of Léros.
Mr Ferreira gave text messages to the
Paraguayan press purporting to show that
an adviser to Paraguay’s vice-president,
Hugo Velázquez, acting with the knowl-
edge of Mr Abdo Benítez, was arranging
meetings with Léros and lobbying on its
behalf. In the messages, the adviser, José
Rodríguez, claims that the Brazilian politi-
cian, Alexandre Giordano, represents not
only Léros, but also Mr Bolsonaro’s family
and the Brazilian government.
The vice-president now denies employ-
ing Mr Rodríguez, though he admitted to
meeting him to discuss the possibility of
Léros buying energy from Paraguay. Mr Fer-
reira has a different story: he says the vice-
president personally introduced Mr Rodrí-Paraguay and powerA dam mess
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