PARAGUAY - Itaipú Deal Precipitates Political Crisis

Paraguay’s President Mario Abdo Benítez is facing a major political crisis with his political opponents pushing for his impeachment over the signing of a controversial bilateral agreement with the Brazilian government on the distribution of electricity produced at the Itaipú binational hydroelectric dam.

The crisis emerged when the head of Paraguay’s state-owned electricity firm (Ande), Pedro Ferreira, unexpectedly tendered his resignation on 24 July. Ferreira resigned saying that he simply could not accept the terms of the bilateral agreement that the foreign ministry had reached with Brazil setting a schedule on how much electricity Ande is due to contract from Itaipú until 2023, when the Itaipú treaty expires and by when the two countries must conclude the treaty’s renegotiation process.

  • Itaipú

The head of Paraguay’s state-owned electricity firm (Ande), Pedro Ferreira, explained that the schedule for how much electricity Ande is due to contract from Itaipú until 2023 would be harmful to Paraguay’s interests as it called for the firm to contract an increasingly high level of electricity from Itaipú and leave less of the excess electricity (the share of electricity to which Paraguay is entitled but does not currently use).

Under the terms of the Itaipú treaty, any excess electricity from one partner must be sold to the other at a discounted price and cannot be sold to third parties. One of Paraguay’s main objectives in the treaty renegotiation process is to convince Brazil to let it sell its excess electricity produced at Itaipú to third parties or even directly to the Brazilian market (where prices are higher) rather than be forced to cede it to Brazil at a discounted price. Notably Ferreira explored the possibility of selling Itaipú electricity in the regional electricity market during a recent business conference.

Ferreira also explained that the agreed electricity distribution schedule would translate in an additional US$250m bill for Ande, noting that the price of contracted electricity is higher than that of excess electricity that any party may have in Itaipú, which they are allowed to access at any time at a discounted price. Ferreira complained that, although he had explained all of this to the foreign ministry officials that negotiated the agreement with their Brazilian counterparts, his advice was ignored and that the agreement was signed back in May without further consulting Ande and only made public now. Ferreira’s revelations sparked an immediate furore, with the political opposition led by the Partido Liberal Radical Auténtico (PLRA) calling for the government to provide a full explanation.

The PLRA said that if the government failed to explain why it had struck an agreement that goes against the national interest without consulting congress in a potential violation of the constitution, then it would push for impeachment proceedings to be opened against the president. Abdo Benítez initially defended the deal, saying that striking an agreement on Itaipú electricity distribution was necessary and that it would help to facilitate the Itaipú treaty renegotiation process. He also said that his administration wanted to show Brazil that it is serious and that it does not need any “breaks”, pointing out that the Itaipú treaty stipulates that distribution schedules must be set out every year and that Paraguay’s failure to do this has become a constant Brazilian complaint.

But Abdo Benítez’s defence of the agreement only produced more anger after former government officials pointed out that under previously agreed amendments to the Itaipú treaty, Brazil had agreed to allow Paraguay not to set up a distribution schedule in exchange for increasing production at the dam. This sparked public demonstrations in rejection of the agreement promoted by the opposition. Amid the growing public anger, Foreign Minister Luis Alberto Castiglioni announced on 28 July that the government had decided to nullify the agreement and that it would try to convince Brazil to agree to cancel it and negotiate a new one. Castiglioni’s announcement looked like an admission that the agreement was not in Paraguay’s best interests. Indeed, the senate summoned Castiglioni, and some of the other officials involved in the negotiations, to appear before congress to answer questions.

But the following day, on 29 July, the government announced that Abdo Benítez had accepted the resignations of Castiglioni and three other officials, including Paraguay’s ambassador to Brazil and the Paraguayan Itaipú director (all political appointments made by Abdo Benítez), after they assumed political responsibility for the agreement. The departures, particularly that of the political heavyweight Castiglioni, looked like a major concession to the opposition that had been demanding his dismissal. They did succeed in easing some of the pressure on the Abdo Benítez executive, with the opposition welcoming them and saying that it was prepared to withdraw the impeachment threat and give the government “another chance”.

However, on 31 July, the local press revealed that José Rodríguez, a lawyer and adviser to Vice President Hugo Velázquez, had helped to draft the agreement and called for the removal of key clauses that would have allowed Paraguay to sell its share of excess electricity directly to the Brazilian market. The removal of these clauses is said to represent US$700m in lost potential annual revenue for the Paraguayan state. Rodríguez, who happens to be the son of the head of Paraguay’s anti-money laundering agency (Seprelad) María Epifania González, is said to have links to Brazilian electricity distribution firms and to have been acting on orders from Velázquez. The revelations prompted González to tender her resignation, while the PLRA and other opposition parties announced, after holding a meeting, that they will file a motion in congress calling for impeachment proceedings to be opened against Abdo Benítez and Velázquez.

Critically, the Movimiento Honor Colorado dissident faction of the ruling Asociación Nacional Republicana-Partido Colorado (ANR-PC) has said that it will back the impeachment motion. The Honor Colorado faction is loyal to former president Horacio Cartes (2013-2018), Abdo Benítez’s main in-party rival who has become increasingly critical of his administration. All of this suggests that there may now be enough votes in congress to open impeachment proceedings against Abdo Benítez and Velázquez and the two will now need to shore up support among the ANR-PC congressional ranks. This will all come at a political price and, if they survive, they will be severely weakened.

Bolsonaro offers a hand

Brazil’s President Jair Bolsonaro has responded to the crisis faced by President Abdo Benítez in an uncharacteristically conciliatory tone. Asked about the controversial agreement and the crisis it has produced in Paraguay by journalists on 31 July, Bolsonaro stated that “Our relations with Paraguay are exceptional, excellent. We are ready to act justly on the Itaipú issue, which is very important for Paraguay and for us…. Any small differences will be resolved”. Bolsonaro and Abdo Benítez share a high level of political affinity and the Brazilian president would prefer for Abdo Benítez to remain in power. But it is not clear if Bolsonaro will go as far as offering Paraguay a sweet deal in the Itaipú renegotiations to secure Abdo Benítez’s position.