The Itaipu treaty is close to expiration, creating risks for Brazil and Paraguay

In August 2023, the current treaty concerning the commercialization of energy produced by the massive Itaipu dam, a binational hydroelectric plant co-owned by Brazil and Paraguay, is set to expire. 

Signed 50 years ago, the so-called “Annex C” establishes that Brazil and Paraguay are entitled to an equal 50-percent share of the energy. The 20 power-generating units at Itaipu have a 14,000 MW capacity. Annex C also forces Paraguay, a sparsely populated country with a demand for power that is dwarfed by Brazil’s, to sell the unused share of its cut to Brazil. Negotiations with other countries are expressly prohibited.

According to Brazil’s Mines and Energy Ministry, the Itaipu plant currently accounts for around 8.4 percent of the total energy used in Brazil. Meanwhile, it answers to over 85 percent of Paraguayan demand.

With a population of 7.4 million (29 times smaller than Brazil’s), Paraguay uses about 20 percent of Itaipu’s total production — less than half of its share. The rest has to be sold to Brazil for the same price Paraguay pays for it. 

For Brazil, the deal is a bargain. Many in Paraguay would like to change the treaty’s terms, and the Itaipu issue has been politically weaponized in recent years. One should expect negotiations around a new version of the treaty’s Annex C...