Paraguay - Itaipu, Yacyreta, and Corpus

More about the Economy of Paraguay.

Itaipú, yacyretá, and corpus

Only superlatives adequately describe the grandeur of the Itaipú hydroelectric power plant. Itaipú was the world's largest hydroelectric power plant, located on one of the world's five largest river systems. Itaipú's cost was estimated at US$19 billion, but no exact figure was calculated. The plant's dam, small compared to those at some hydroelectric plants, nonetheless required the diversion of the entire Río Paraná, including the permanent flooding of the spectacular Guairá Falls and of some 235,000 hectares of land. Over a 5-year period, the concrete poured each day would have been sufficient to construct a 350-story building. More importantly, the project created an "Itaipú euphoria" that brought jobs to 100,000 Paraguayans, instilled a renewed pride in the country, and strengthened the nations's image vis-à-vis its giant neighbor and largest economic partner, Brazil.

The Itaipú project began with the signing of the Treaty of Itaipú between Paraguay and Brazil on April 26, 1973. The treaty created a binational authority--Itaipú Binacional--to see that the two countries shared equally in the plant's operation. Itaipú provided Paraguay unprecedented employment opportunities and capital investment, but inadequate planning on the part of the government and the private sector hindered the country's ability to reap the project's full potential. Approximately 80 percent of the plant's construction was performed by local Paraguayan-Brazilian industry. Because the Paraguayan parliament demanded early on that Paraguay receive a fair share of the project's work, Paraguay was officially earmarked for 50 percent of all major contracts. In reality, Paraguay's small industrial sector was no match for Brazil's more technologically advanced industries. Observers believed that Brazilian companies actually rendered 75 percent of the total workload and provided almost all the key inputs such as steel, cement, machinery, and special technical expertise. Even housing materials for Paraguayan construction workers were smuggled in from Brazil.

After five years of labor, the Río Paraná was diverted, and from 1978 to 1982 key construction was completed on the plant, dam, and spillways. Brazil's serious economic problems in 1983 and 1984 slowed the completion of the dam, but overall delays were reasonable by regional standards. Electricity was first generated on October 25, 1984, more than a decade after the signing of the treaty.

Electrical operations were slowly developing at Itaipú in the late 1980s, and full capacity was not expected to be reached until 1992. Because of delays in Brazil's sixty-cycles-per-second system, the plant's fifty-cycle units were the first to produce commercially, and this electricity went to Paraguay. Itaipú was so colossal, however, that ANDE could process only about 30 percent of the output of 1 of Itaipú's 18 generators at peak output. As stipulated in the treaty, Brazil and Paraguay bought their electricity from the binational power facility at predetermined rates. Because Paraguay was expected to use only a tiny fraction of its power for the foreseeable future, it sold most of its share back to Brazil, also at a predetermined rate, including normal compensation and royalties.

The major debate over Itaipú in the late 1980s revolved around the low prices that Paraguay had negotiated in the original treaty. What Brazil paid Paraguay for electricity was one-ninth what Paraguay was scheduled to receive from Argentina under the Treaty of Yacyretá, signed just seven months after Itaipú. After twelve years of indecision about how to adjust the Treaty of Itaipú, on January 25, 1985, Paraguay and Brazil signed five revisions to cover matters of financial compensation. Paraguay gained significantly from the 1985 revisions, but most analysts believed Paraguay deserved still greater compensation for its electricity. Further revisions were likely before the end of the century.

The Yacyretá project, although generally overshadowed by the colossal Itaipú project, was one of Latin America's major publicsector projects in the 1980s. Established hastily by Argentina's Peronist government on December 13, 1973, the Yacyretá project was stalled for years as a consequence of regional maneuvering, lobbying by the Argentine nuclear and oil industries, and political instability in Argentina. After ten years of delays, the first major engineering contract finally was awarded in June 1983. As with Itaipú, Yacyretá was hindered by the general lack of physical infrastructure at the dam site. Also as with Itaipú, Paraguayan firms did not receive equal work, despite stipulations in the initial agreement. Construction of the dam and the hydroelectric plant continued throughout the 1980s, but the major construction phase did not begin until the late 1980s, and numerous delays-- mostly political--persisted. Yacyretá was not expected to become fully operational until the mid-1990s, more than twenty years after the treaty's signing and at a cost of as much as US$10 billion, five times the original calculation.

An early point of contention between Paraguay and Argentina was the percentage of each country's land that would be flooded for the project's dam; more than 1,690 square kilometers would be needed--a larger area than was flooded for Itaipú. It esd sgreed that flooding was to be just about equally divided. Another disagreement involved Paraguay's exchange-rate policies. Exchange rates determined the final price Argentina would pay for the plant's electricity. This issue continued to be negotiated in the late 1980s.

When completed, Yacyretá would be roughly one-quarter of the size of Itaipú, with an initial installed capacity of 2,700 megawatts and an annual generation capacity in excess of 17,500 gigawatt hours. Yacyretá's electricity per unit would be more expensive to generate than Itaipú's, and the unit price Paraguay would eventually receive was expected to be much greater. None of the electricity produced by Yacyretá was intended for use by Paraguayans; it was to be sold back to a binational body that would manage the plant. But the gearing up of key construction activity at Yacyretá in the late 1980s was expected to give a boost to the Paraguayan economy, which was suffering from what one observer termed the "post-Itaipú blues." Observers believed that the Argentine-Paraguayan project would provide renewed construction jobs, large capital inflows, and eventually badly needed foreignexchange revenues. The binational project also would provide seriously needed bridges, highways, improved river transport at the port of Encarnación, and even increased irrigation potential for nearby rice fields.

Located midway between Itaipú and Yacyretá on the Río Paraná was the proposed site of the Corpus hydroelectric power plant. After years of preparations, Corpus remained in the planning stage in the late 1980s because of the slow progress at Yacyretá. Hydrologically linked with Itaipú and Yacyretá, the Corpus plant was designed to make optimal use of the falls at Itaipú and the currents of tributary rivers. In order to integrate and maximize the various projects along the Río Paraná, in October 1979 Paraguay, Argentina, and Brazil signed the Itaipú-Corpus Accord, which set specific regulations for the projects and improved communication among the countries. Although planning was still not final in 1988, Corpus was expected to be comparable in size to Yacyretá. When operable, Corpus would raise Paraguay's electricity output to an estimated 300 times its domestic demand. Beyond Corpus, Argentina and Paraguay also planned several smaller hydroelectric power plants downstream from Yacyretá, including Itatí-Itá-Corá and others. Future hydroelectric development along the river would continue to be coordinated by the Combined Technical Commission for the Development of the Río Paraná.

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