Brazil’s Itaipú Dam Treaty With Paraguay Up For Renewal

Via The Financial Times, a look at Brazil’s Itaipu dam and its treaty with Paraguay:

Celso Villar Torino, the Brazilian superintendent of operations at the Itaipú mega-dam, beams as he shows off a series of plaques outside his office. We are talking in a building whose six storeys are dwarfed by the colossal dam’s 200m-high concrete wall that rises up above it. The 8km-long barrier blocks the flow of the Paraná river on the border of southern Brazil and Paraguay.

The plaques show the hydroelectric power station’s production records over the past few years, reminding employees that even if China’s Three Gorges dam has trumped it in terms of installed capacity, Itaipú still generates more power.

“We are in our best moment in terms of efficiency — there is no doubt about it,” says Torino over the roar of the 20 gigantic turbines that last year broke a new world record in electricity production.

Itaipú Binacional, a 50:50 project jointly owned by Brazil and Paraguay, generated 103m megawatt hours (MWh) of electricity in 2016, compared with 93.5m MWh at Three Gorges, which has installed capacity of 22.5GW, compared with Itaipú’s 14GW. Itaipú wins on production largely because of the sheer power and constancy of the Paraná, the second-longest river in South America, in contrast to the wild fluctuations of the Yangtze, which is prone to flooding and drought.

“The great challenge is to keep this performance up, while modernising the plant, as it is getting old,” says Torino. Indeed, he adds, an international bidding process is under way for the investment of $500m to modernise the turbines. The job will take at least a decade and put each turbine in turn out of action for months.

The upgrade will help to avoid blackouts — huge numbers of people rely on the power station. In 2016, it supplied about 17 per cent of the electricity consumed in Brazil, and 76 per cent of Paraguay’s.

This imbalance is underlined further by the fact that Brazil consumes 93 per cent of the electricity generated by Itaipú, but Paraguay sells most of its 50 per cent share to its bigger neighbour since it is unable to use it all.

Itaipú has produced more electricity in cumulative terms than any other hydroelectric power station; since opening in 1984 it has generated 2.5bn MWh. In 2023, however, the binational treaty governing Itaipú expires — 50 years after it was signed in 1973 — opening the possibility that parts of it will be renegotiated.

That could have far-reaching implications. By 2023 the debt contracted to build the dam will finally have been paid off. With almost two-thirds of the power station’s $4bn in gross annual revenues spent on repaying that debt, Itaipú’s finances will improve dramatically.

Perhaps the most important question is how to price Itaipú’s electricity from 2023 onwards. Some in Paraguay argue that the price should be high, to give the government welcome funds to develop the economy; industries would prefer cheaper electricity.

“The question is, who do you want to subsidise: current users or future users?” asks Christine Folch, an anthropologist at Duke University in the US. “Is the purpose of the dam to produce electricity, or is it for development? Arguably there is a lot that can be done through government-led investment.”

The debate throws into question the role of such mega-dams in Latin America, where half of power is generated by hydroelectricity. In Brazil, which owns one-fifth of the planet’s water resources and is the world’s second-biggest producer of hydroelectric power after China, it is closer to two-thirds. But industry commentators say that scarcely a fifth of Latin America’s hydroelectric capacity has been developed. 

“When I arrived here I assumed that Itaipú was just a dam, but I have since discovered that it is so much more,” says Luiz Fernando Vianna, the Brazilian director-general of Itaipú Binacional.

Vianna outlines three possible scenarios after 2023. First, that there is no change to the current agreement, leading to a 60 per cent reduction in Itaipú’s costs. Second, a revision of the value of royalty payments, and the amount Paraguay is paid for the energy it cedes to Brazil.

And third, “radical” changes to the treaty, which could permit Paraguay’s national electricity company ANDE to sell directly to Brazil — at market prices — as well as to countries such as Argentina.

Brazilian officials favour the second option, but many in Paraguay are pushing for the third. “For an economy the size of Paraguay’s, Itaipú has made a huge difference, even though we have only received the crumbs,” says Axel Benítez, a Paraguayan engineer, who points out that the military dictators who originally signed the treaty had different concerns from today’s leaders.

“But it is time, and it would only be fair, for Paraguay to get a little bit more,” says Benítez. It currently sells its electricity in Brazil at around $10 per MWh, when, he says, the market price is closer to $30.

Despite tensions over financial arrangements, Itaipú has played a part in uniting what has long been a divided region. “The Paraná unites the two countries, rather than separating them,” says Vianna, noting that rivers have often been a source of conflict. When Itaipú was built, Argentina feared it could be used as a weapon: if all the sluice gates were opened, it would be capable of flooding Buenos Aires downriver.

“Itaipú is a symbol of economic integration. It’s a major achievement,” says Pablo Pereira Dos Santos, special adviser for infrastructure at the Inter-American Development Bank. “This is really important, especially in a region with economies that are very difficult to integrate in terms of infrastructure.”

For Nivalde de Castro, an energy specialist at the Federal University of Rio de Janeiro, Itaipú also serves as a model for other binational projects. Several projects are being studied on Brazil’s lengthy border with Bolivia, especially in the Madeira river basin.

Nevertheless, as Folch observes, ultimately the Itaipú dam is a machine, “and all machines break down”. Officials put the dam’s lifespan at up to 200 years, by which time the reservoir is likely to have silted up beyond use.

But Torino is convinced that in 200 years that will not be a problem. He predicts that by then hydropower will have been replaced by solar energy. “The world will have found other sources of energy before Itaipú stops producing,” he says. 

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About This Blog And Its Author
As the scarcity of water and energy continues to grow, the linkage between these two critical resources will become more defined and even more acute in the months ahead.  This blog is committed to analyzing and referencing articles, reports, and interviews that can help unlock the nascent, complex and expanding linkages between water and energy -- The Watergy Nexus -- and will endeavor to provide a central clearinghouse for insightful articles and comments for all to consider.

Educated at Yale University (Bachelor of Arts - History) and Harvard (Master in Public Policy - International Development), Monty Simus has held a lifelong interest in environmental and conservation issues, primarily as they relate to freshwater scarcity, renewable energy, and national park policy.  Working from a water-scarce base in Las Vegas with his wife and son, he is the founder of Water Politics, an organization dedicated to the identification and analysis of geopolitical water issues arising from the world’s growing and vast water deficits, and is also a co-founder of SmartMarkets, an eco-preneurial venture that applies web 2.0 technology and online social networking innovations to motivate energy & water conservation.  He previously worked for an independent power producer in Central Asia; co-authored an article appearing in the Summer 2010 issue of the Tulane Environmental Law Journal, titled: “The Water Ethic: The Inexorable Birth Of A Certain Alienable Right”; and authored an article appearing in the inaugural issue of Johns Hopkins University's Global Water Magazine in July 2010 titled: “H2Own: The Water Ethic and an Equitable Market for the Exchange of Individual Water Efficiency Credits.”