By an ample majority, the Paraguayan Senate approved an agreement with Brazil which will give Paraguay a higher financial compensation from Itaipu, the world's largest operational hydroelectric dam. The question has been a decades-long standing claim which was addressed in several summits between Brazilian president Luiz Inácio Lula da Silva and his Paraguayan counterpart Fernando Lugo.
The agreement was finally reached last July in Asunción and now must be approved by the Brazilian congress before it becomes effective. According to the new conditions Brazil will pay Paraguay US$ 360 million (three times the current figure) for its share of surplus energy from the Itaipu dam, which is totally absorbed by Brazil under a standing contract clause.
As part of the deal Brazil is also committed to finance major power lines and transport infrastructure connecting Itaipu with Asuncion to the tune of US$ 450 million and in a near future Paraguay will be able to sell part of its surplus power in the Brazilian spot market. Currently it is all purchased by a Brazilian government public utility company.
A Paraguayan Brazilian committee will be in charge of working out the details for the transition from an only client to the spot market and eventually to third countries.
Itaipu the world's largest operational hydroelectric dam jointly managed by the two neighboring countries has long been a source of irritation for Paraguay.
Brazil insists in paying for the surplus energy prices from the seventies, when the dam was built, and under contract clauses can only be traded among partners. Since Paraguay only uses 5% of its half the rest is sold to Latin America's largest economy.
Brazil claims Paraguay never paid its share of the construction costs and therefore has a huge debt from then which it must address.
For the industrial hub of Brazil, metropolitan Sao Paulo, cheap power from Paraguay and cheap natural gas from landlocked Bolivia have been a significant factor in their costs' equation.