ASUNCIÓN — Paraguay and Brazil have locked horns over energy pricing at the massive Itaipu Binacional dam, with Asunción threatening to take the dispute to the Union of South American Nations after Brasília announced a unilateral 18 percent cut in the price it pays for Paraguayan electricity exports — a move Paraguay’s government called “a direct assault on our sovereignty over our own resources.”
The two countries co-own Itaipu, the world’s second-largest hydroelectric dam by generation capacity, on the Paraná River on their shared border. Under the 1973 treaty that governs the arrangement, Brazil buys 100 percent of the electricity Paraguay generates from its 50 percent share — roughly 45 terawatt-hours annually — at a price negotiated every eight years. The current price period expired in December, and negotiations have stalled for six months amid a broader deterioration of relations between the two governments.
The Money at Stake
Electricity exports to Brazil account for roughly 5 percent of Paraguay’s GDP and are the single largest source of foreign currency income. The cut Brazil announced would reduce Paraguayan export revenues by an estimated $600 million per year at current generation levels. Finance Minister Carlos Fernández said the reduction would push the country into a fiscal crisis, cutting social spending and threatening infrastructure projects already under contract. “We are not asking for charity — we are asking for the price that was agreed and is legally binding,” Fernández told reporters in Asunción.
Brazil’s Mines and Energy Ministry argues that falling global energy prices and a drop in Brazilian electricity demand justify the reduction. A ministry spokesperson said the offer on the table — a 4 percent cut — is “generous and in line with market conditions.” Brazil also contends that Paraguay’s share of Itaipu’s energy is far in excess of what its domestic grid can absorb, leaving it with no practical alternative buyer and thus no leverage.
Geopolitical Dimensions
Paraguay’s president, Santiago Peña, has turned to regional diplomacy to apply pressure, calling for an emergency OAS meeting and formally requesting mediation from the Lula government. The request has so far gone unanswered. Paraguay has also floated the idea of redirecting surplus electricity to Argentina through a new interconnector — a project that would require billions in investment and take years to complete.
The dispute comes as Paraguay prepares for a general election in April 2028, with opposition parties already attacking Peña for failing to secure better terms from Brazil. Former president Horacio Cartes, whose administration negotiated the previous pricing agreement, said Paraguay’s negotiators had been “outmaneuvered” and called for a renegotiation of the 1973 treaty itself — a prospect that Brazil has flatly rejected. The Itaipu dispute is the most serious bilateral crisis between the two neighbors since the 1989 border war.
Written by Diego Vargas, Latin America Correspondent
Written by Diego Vargas