RIO DE JANEIRO, July 27 (UPI) -- President Luiz Inacio Lula da Silva has put his political future on the line by giving impoverished neighbor Paraguay a huge concession over pricing for energy Brazil imports from the jointly operated Itaipu hydroelectric power generation complex on the Brazil-Paraguay border.
Amid rumblings of dissent over the tripling of the price Brazil pays for energy it imports from Itaipu, Lula argued Brazil needs to foster friendship and collaboration with its neighbors. He called the deal with Paraguayan President Fernando Lugo a "historic agreement."
Although he did not spell it out, Lula's gesture is seen by analysts as a part of his ambitious diplomatic effort to enhance and reinforce Brazil's pre-eminent position in South America.
Added to the government price increase, Lula also agreed to let Paraguay access the Brazilian energy market and in effect determine a price in response to customer demand. The Brazilian state sector's payments to Paraguay could top $300 million a year -- a welcome cash boost for a nation of just over 6 million people, 60 percent on the poverty line. The World Bank estimates Paraguay's gross national income per capita at $1,670.
The deal promises to end a long-running dispute between the two countries over the shared power-generation plant, which began operations in the 1980s when both countries were under military rule.
Lugo, a former priest, won the Paraguay presidential election last year on a pledge to negotiate a fair price for the energy supplied to Brazil, almost 90 percent of the total quantity produced at the plant. Brazil had resisted the price increase, arguing it had invested the bulk of the cost of the plant and needed fair returns.
Industry analysts said the price increase could be ill-timed for Brazil's state sector as well as business because of recession fears. But Paraguayans see the cash boost as an opportunity to move away from a mainly agrarian economy to industrial development, just as Brazil took advantage of the lower energy costs to build its industry.
Lugo has said he wants to use the cash to modernize Paraguay. Politically, he hopes to gain from the deal because his Patriotic Alliance for Change does not have a majority in either house of the Paraguayan Congress.
