On justifying the Itaipu hydroelectric energy agreement signed last July with Paraguayan president Fernando Lugo, Brazilian leader Luiz Inácio Lula da Silva argued a country with the size of Brazil can't fight with minuscule Paraguay. "I preferred to give a country like Paraguay the chance to develop."
The bilateral instrument which among other points anticipates a higher price for the power Paraguay sells to Brazil has yet to be ratified by the Brazilian Senate, where apparently the opposition is not willing to ratify.
Itaipu, the world's largest operational hydroelectric complex, is shared by Brazil and Paraguay, but the junior member only absorbs 10% of its 50% share of the power generated and the rest, by contract, is sold to senior partner Brazil.
This makes land locked Paraguay and one of South America's poorest countries one of the few in the world that has a huge energy surplus.
However the surplus is sold at prices dating back to the 1970s when the dam was built.
After months of discussions, sometimes irritating, the administration of President Lugo managed to convince Lula to triple the annual price paid for the energy, (US$ 120 million to US$ 360 million) plus other benefits such as a new high voltage line from Itaipu to blackout-castigated Asunción with an estimated cost of US$ 400 million plus two bi-national bridges.
Brazil has justified the fixed price for energy paid to Paraguay arguing that the country still owes its share of the costs of building the huge complex along the Paraná River over three decades ago.
The agreement also opens the Brazilian electricity spot market to Paraguay's Itaipu surplus share, which currently is totally absorbed by a Brazilian government power corporation.
Most of the energy is demanded by power hungry São Paulo, the industrial hub of Latin America's largest economy.
Lula has been lobbying strongly to have the agreement approved by Congress with the opposition claiming it will distort Brazilian industry costs in a highly competitive world.
"When Paraguay irritates Brazil, my job is to understand the situation and not act aggressively. Brazil is so much powerful and richer," said Lula.
"With Paraguay for Brazil is like a father-son relation. That is how large countries must act" towards smaller countries, argues the Brazilian president.
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The Brazilian government could anticipate payments to Paraguay for the energy from the shared huge Itaipu dam, which should help the Treasury of the weakened President Fernando Lugo. However Brazil would also like to see an end to Paraguay's intention of modifying the Itaipu dam accord, according to the Brazilian press quoting government sources.
Quoting unnamed Brazilian presidency and ruling coalition sources, daily O Estado de S. Paulo says that the proposal will be presented to President Lugo when he visits Brazil next May 7.
The initiative says the São Paulo newspaper is geared to advance payments on energy from Itaipu not consumed by Paraguay thus helping the Lugo administration finances, "short of cash" and politically debilitated following the "three paternity demands."
Itaipu in the heartland of South America is shared by Brazil and Paraguay and is the world's largest operational hydroelectric dam. Built in the seventies the original agreement can't be reviewed until 2023. Brazil picked the bill for the dam, but Paraguay makes regular payments from its non consumed share of power generated. The surplus 90% of Paraguay's power share is sold to Brazil.
But President Lugo made one of his electoral promises the review of the Itaipu treaty alleging the energy can only be sold to its huge neighbor and at prices dating back to the seventies. "We want a better deal" was the campaign motto but Brazil remains unmovable regarding such initiative.
Both countries have been negotiating some form of new deal because President Lugo decided on a self imposed timetable for a friendly understanding: next August. If not Paraguay could appeal to international justice courts or tribunals.
Paraguay argues that if its energy surplus was sold on the free market it could collect maybe eight to ten times what Brazil currently pays. Brazil says that it's a fair deal and the net payment is because Paraguay must cancel the Itaipu construction debt.
Speaking from Rio do Janeiro Mines and Energy minister Edison Lobão said another option under consideration by the Brazilian government would be to extend the Paraguayan payments timetable from 2023 to possibly 2040, which would make net installments more interesting for Paraguay.
"We could agree on smaller installments by extending the recoup period to 2030 or 2040, so both countries can receive higher royalties," said Lobão. He added President Lula had asked him to think about something to help Paraguay.
"President Lugo's claims are not fair: he says we owe him money and that is not the case. However since it's a brotherly country we are prepared to help them. I think we'll have something ready for when he meets President Lula da Silva," said Lobão.
Currently Paraguay is paid 130 million US dollars annually, a sum Paraguay would like increased to 1.2 billion US dollars based on current power rates.
Last January Brazil made a counteroffer which included several infrastructure public works and a billion US dollars in financing. Lugo rejected the proposal.
Lobão said that with the new proposal Paraguay could be receiving by 2010, double the current amount, which would be 260 million US dollars.
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