Paraguay row threatens Itaipu power deal

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RIO DE JANEIRO, Aug. 13 (UPI) -- An escalating diplomatic row between Brazil and Paraguay is threatening Brazil's energy security as the new government in Asuncion challenges Brazilian rights over the jointly operated Itaipu Dam and hydroelectric power generation complex.

Diplomatic tension between Brazil and landlocked Paraguay rose after Brazil, Argentina and Uruguay engineered Paraguay's suspension from Mercosur regional pact when the country's Senate impeached and removed Fernando Lugo from the presidency on June 22.

Lugo's deputy Federico Franco was installed as the new president but Mercosur called the change a coup and suspended Paraguay's membership and joining a regional campaign to have the country suspended from other regional organizations.

Paraguay's membership of the Union of South American States was suspended but a regional diplomatic bid to have the country ejected from the Organization of American States failed.

The neighbors' once cordial relations are a cauldron of bitter recrimination as Franco angrily retaliates against neighbors with a freeze on ties at different levels.

Brazilian President Dilma Rousseff was roundly taken to task by opposition critics in Brazil and the media, who accused her of mishandling the Paraguay situation.

Adding insult to injury, the three countries also rushed to have Venezuela's full membership ratified as the suspension removed a main stumbling block, the Paraguayan congress, which had opposed Venezuela's accession. Venezuela is a huge and lucrative consumer market for the trio that backed its speedy inclusion in Mercosur.

Electricity sharing from the $20 billion Itaipu dam, which opened in May 1984, was always a sore point as Paraguay fretted over Brazil's rising consumption while it lacked resources to use more of the excess capacity to electrify its own villages and urban sprawls.

Itaipu is the world's largest hydroelectric dam, built on the Parana River, shared by Brazil and Paraguay. Against Brazil's burgeoning population of more than 190 million, Paraguay has only about 6.5 million and never consumes more than 10 percent -- often less -- of its share.

The deal requires Paraguay to sell Brazil what electricity it cannot use. For many years, Paraguay protested the price it received and only last year secured a trebling of the rate pledged by Brazil.

Brazil depends on Itaipu for more than 22 percent of the electricity it consumes.

Franco declared last week he would rather use Itaipu's spare electricity in Paraguay than "yield" it to Brazil.

Brazil was quick to respond.

"Generation, distribution and prices for electricity from Itaipu are the result of a bilateral accord which is effective," Brazilian Foreign ministry spokesman Tovar Nunes said.

"The energy which Paraguay does not consume goes to Brazil, but this power is paid for, 'not yielded,' Brazil does not obtain electricity from Itaipu free," Nunes said.

Paraguay says the current contract is unfair. It wants to sell more electricity to other regional consumers, including Uruguay, at higher prices.