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Brazil and Paraguay celebrate the 45th anniversary of the Itaipu Treaty
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25/04/2018

April 26th marks the 45th anniversary of the Itaipu Treaty. Despite almost half a century passing since its signature, the document is considered a reference in binational agreements for having made possible the successful project of the largest power generator on the planet, the Itaipu power plant, an undertaking that equally belongs to Brazil and Paraguay. And with the approaching 50th anniversary in 2023, the deadline for reviewing Appendix C, the financial part of the agreement, is also approaching.

According to Itaipu’s Brazilian general director, Marcos Stamm, Itaipu's success is not limited to the power plant's importance in terms of power generation (the binational accounts for 17% of the Brazilian electric power market and 85% of Paraguayan consumption, in addition to having set a new quarterly production record of 27.9 million megawatt/hour this year).

"We must highlightthe benefits provided by the various programs aimed at sustainable development in the region. Recently, in Brazil, Itaipu expanded its socio-environmental area to 54 municipalities (52 of them in western Paraná, one in the northwestern part of the State and another in Novo Mundo, Mato Grosso do Sul). In addition, there are also over $ 10.7 billion dollars in royalties paid to both countries",said Stamm.

Force of Law

Signed by presidents Emílio Garrastazu Médici (Brazil) and Alfredo Stroessner (Paraguay) in 1973, the treaty is the result of several years of studies and previous diplomatic agreements. The hydroelectric potential of the Paraná River was known in the early 1960s. In 1966, the Iguaçu Act was signed, which formalized the interest of both countries to study and exploit this potential together. The model defined in the treaty had the decisive participation of the jurist MiguelReale.

Not coincidentally, we at the binational usually say that Itaipu is not only a result of mechanical, civil and electrical engineering, necessary for the realization of the plant, but also of diplomatic engineering (which ensured equitable treatment between two independent countries and solved border issues endured since the end of the Paraguayan War) and financial (which allowed the hydroelectric plant to be financed almost entirely with the payments of the debt being made from the energy generated itself).

According to Itaipu’s Legal Director, Cézar Ziliotto, the treaty is similar to the bylaws of a company, but goes beyond. "These are bylaws that are consolidated in an international treaty that, in order to be valid, had to be approved as a law in Brazil and Paraguay. Therefore, the treaty is the law that governs Itaipu. Without it we lose our fundamental characteristic, which isits dual nationality. Without a treaty, there is no Itaipu", he added.

Therefore, said Ziliotto, when we say that Itaipu does not follow the Brazilian or Paraguayan laws, this is not entirely true. "We follow one law, the treaty. And whenreasonable, Brazilian and Paraguayan laws also contribute, provided that they are in line with and respect the document signed by both countries”.

An important point provided in the treaty is the review of Appendix C, which deals with the financial part of the enterprise. Itaipu’s tariff is calculated by its cost and an important component in this account is the payment of the debt (of approximately US$ 27 billion) borrowed for the construction of the plant. This loan, which is equivalent to about two-thirds of the tariff, will be fully amortized in 2023.

Thus, the current conditions are maintained; each country will have US $ 1 billion per year at its disposal for direct investments. The discussion on the new financial bases of the partnership between Brazil and Paraguay in the company will be the responsibility of the governments of both countries (most likely, negotiations will take place between the newly elected Mario AbdoBenítez and the winner of the election next October, which will define the new Brazilian president).

The Foreign Affairs departments, which are responsible for the discussions, and the Departments of Mines and Energy, responsible for the energy policy in both countries, will play a key role. Finally, the new document must be approved by the Brazilian and Paraguayan congresses.