Brazil signs ‘historic’ power deal

Brazil and Paraguay have reached what they call a “historic” agreement under which Brazil will pay more to Paraguay for electricity from the Itaipu hydro-electric power plant on the countries’ border and provide cheap loans for infrastructure.

The deal is the latest effort by President Luiz Inácio Lula da Silva of Brazil to increase his influence in Latin America through “good neighbour” policies.

President Fernando Lugo of Paraguay – whose presidency has been beset by scandals over children he fathered while he was a bishop – described the agreement as a victory on Saturday after meeting Mr Lula da Silva in Asuncion. “In 10 months . . . we have achieved something that was impossible for 30 years,” he said.

Critics in Brazil say Mr Lula da Silva has handed a gift to Brazil’s tiny neighbour, to be paid for by Brazilian electricity consumers and taxpayers, who will get nothing in return.

“The only thing Brazil has to gain is a boost to Lula’s personal leadership in Latin America,” said Adrian Pires of CBIE, an energy consultancy in Rio de Janeiro.

But Mr Lula da Silva’s bid for regional leadership – which has resulted in concessions to other neighbours such as Bolivia and Venezuela – is part of an expansion of the country’s foreign policy aims that may already be paying dividends by enhancing its global status.

At the G8 meeting in Italy this month Barack Obama, the US president, asked Mr Lula da Silva to use his influence over Iran to try to persuade the Middle Eastern country to abandon its nuclear ambitions.

President Mahmoud Ahmadi-Nejad of Iran was due to visit Brazil last month but cancelled his trip because of turmoil over Iran’s elections. Brazil has made it clear that the invitation remains open, in spite of outcry at home over the recognition Brazil would be giving to a Holocaust denier.

Brazil’s concessions to Paraguay include a tripling of the fee it pays for access to about 90 per cent of Paraguay’s half-share of the energy produced at Itaipu, currently $120m (€84m, £73m) a year. In addition, Brazil buys Paraguay’s electricity at about $45 per megawatt hour – equal to about $2bn last year – and the agreement may also allow Paraguay to sell its energy directly into the Brazilian market, where it believes it can get a higher price.

Brazil may also give Paraguay cheap loans to build power lines. All the measures must be approved by the country’s legislatures.

“This is telling of Brazil’s attitude to consensus,” said Alfredo Behrens, a consultant and professor at FIA, a business school in São Paulo. “The thinking is, ‘Why not? We are big, they are small, why not let them have something?’ Brazil has no strategic objective except its good standing.”

That standing has been enhanced, for example, by Brazil’s role as a leader of United Nations peacekeepers in Haiti.