Brazil has offered investments in Paraguay in exchange for not claiming a fair price and free availability of the surplus energy produced at South America's largest hydroelectric dam Itaipu shared by the neighboring countries.
According to Paraguayan sources this is as far as Brazil was willing to advance following a top level meeting this week between Foreign Affairs minister Celso Amorim and the Paraguayan delegation headed by counterpart Alejandro Hamed Franco held at the Itamaraty Palace in Brasília.
Since the new administration of President Fernando Lugo took office last year, Paraguay has been requesting Brazil improve the price of US$ 2.7 per megawatts/hour (agreed when Itaipu was built in the late seventies) and the free availability of non consumed surplus energy and which according to the original agreement must be sold to Brazil.
The Paraguayan delegation pointed out that the intention is not to modify the Itaipu Treaty to advance on these issues because they are well aware of the Brazilian Congress sensitivity about the issue given the recent experience with Bolivian President Evo Morales who nationalized the oil and gas industry (mostly under control of Petrobras).
However the Brazilian position seems to be that Paraguayan claims can only be achieved modifying the original Itaipu Treaty, to which Brazil is not in condition to abide. "Pacta sunt servanda" (agreements must be kept) was Brazil's Foreign minister Celso Amorim unmovable position during the two and a half hour meeting, according to Paraguayan sources.
Paraguay annually delivers 39 million MW of surplus energy (from its half share of Itaipu) to Brazil, for which it is paid an only price of US$ 2.7 per MW, totaling US$ 100 million. The sum does not include royalties, exploitation costs and Paraguay's share of building the dam.
Apparently Chile recently offered to pay Paraguay for the excess energy up to US$ 60 the MW and in the Brazilian domestic private market the price ranges from US$ 20 to US$ 22. But instead Brazil has offered to create "a special bi-national development fund to address Paraguay production activities and also respond to Brazilian interests."
Moreover Brazil is offering a special preferential credit line to promote Paraguay exports financed by Brazil's Development bank thus helping to confront the global financial crisis, according to Paraguayan sources.
Finally Brazil expects a reply to the proposals on writing in two weeks time when a new meeting will be scheduled probably for April, when President Lugo could visit Brasília to close the deal with his Brazilian counterpart Luiz Inácio Lula da Silva.
Brazil is Latin America's largest energy starved economy while Paraguay is the smallest and weakest partner of Mercosur and one of the few countries in the world with surplus energy, precisely because of Itaipu.
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