A secret hydropower deal with Brazil causes a political crisis in Paraguay

WHEN BRAZILIAN soldiers invaded Paraguay 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 region and withdrew only after the two countries 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 Paraguay’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 (including 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,...

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