Frankly, Jair, I don’t give a dam

On the Paraná river, which divides Brazil and Paraguay, lies the Itaipu Dam, a hydroelectric complex which produces more energy than any power plant in the world. Co-owned by the two neighboring countries, Itaipu could now lead to the downfall of the sitting Paraguayan president, as well as political implications for the Jair Bolsonaro administration in Brazil.

The treaty which gave rise to the Itaipu Dam was signed in 1973, after intense negotiations between military dictatorships in both countries: led by Emílio Garrastazu Médici on the Brazilian side, and the infamous General Alfredo Stroessner in Paraguay.

The agreement was that the hydroelectric energy produced by the Itaipu plant would be divided equally between Brazil and Paraguay. As Paraguay’s energy demands are much smaller than its continental-sized neighbor, the treaty states that the country must sell its surplus energy to Brazil for cheap. However, Paraguay has adopted a different strategy in order to get the most out of the current arrangement. The country purchases less reserve electricity, and fulfills its energy demands by buying—considerably less expensive—surplus power.

As an example, Paraguay consumed 1,717 average megawatts (MW) in 2018, but only 50 percent of this came from the normal production of the dam, at a price of USD 43.80 per MWh. The rest was acquired from excess stocks, and bought for just USD 6 per MWh.

Brazil is not a fan of this arrangement, believing it is essentially subsidizing Paraguay’s electricity costs. With the treaty up for renewal in 2023, representatives from both countries met earlier this year to try and hammer out a new deal.

Brazil...