The Clause That Came Due
Paraguay owns half of the largest hydroelectric plant in the western hemisphere and has never been allowed to sell that half to anyone but Brazil. The financial annex that arranged it was written in 1973 with a fifty-year clock on it, and the clock ran out in 2023.
There is a detail at Itaipú that explains the whole arrangement before anyone mentions money. Twenty generating units, seven hundred megawatts each, fourteen thousand megawatts in total — and ten of them spin at 90.9 revolutions a minute to make fifty-cycle current for Paraguay while the other ten spin at 92.3 to make sixty-cycle current for Brazil. The two countries could not agree on a frequency, so the machine hall was built to produce both. Brazil then had to construct a high-voltage direct-current link most of the way to São Paulo to convert Paraguay's half into something its own grid could use, because almost none of that half stays in Paraguay.
That is the fact the rest follows from. Under the 1973 Treaty of Itaipú each country is entitled to half of everything the plant generates. Paraguay has never consumed anything close to its half — for most of the plant's life it used a small fraction — and the treaty obliged it to sell the remainder to one buyer, at a price set by the treaty rather than by a market. The clause that arranged this sits in Annex C, the financial annex, and Annex C was written with a fifty-year term. It expired in 2023, and Paraguay and Brazil have been arguing about what replaces it ever since.
What 1966 settled, and what it cost
The dam began as a border dispute. In 1965 Brazilian troops moved into contested ground on the Paraná at Guairá, where the river narrowed from about three hundred and eighty metres to sixty and fell over eighteen cataracts carrying, in flood, several times the volume of Niagara. Sovereignty over that stretch had never been finally settled, and the hydroelectric potential of it was obvious to both governments. On 22 June 1966 the two foreign ministers signed the Act of Iguaçu, which sidestepped the boundary question entirely by declaring the resource a condominium — jointly owned, jointly exploited, with the line on the map left undrawn. Seven years later the Treaty of Itaipú turned that principle into a company owned fifty-fifty by the two states. In October 1982 the reservoir filled and drowned the falls the argument had been about, in fourteen days.
What Annex C actually says
Annex C is not the romantic part of the treaty and it is the part that matters. It sets the cost of the electricity service — the tariff each country pays per kilowatt of contracted capacity — and that tariff was designed to recover the construction debt over fifty years. It also handles the surplus. Because Paraguay could not use its half, Annex C required it to cede the unused portion to Brazil, exclusively, in exchange for a compensation payment fixed in the annex. Paraguay could not sell that power to Argentina, to a private Brazilian buyer, or to anybody else. There was one customer, and the customer had helped write the contract.
A treaty is only generous or unfair at the price written into it, and Paraguay signed that price in 1973 under a dictatorship, with the debt unpaid and the falls still standing.
Fifty years of interest
The debt is the reason the tariff stayed where it did, and the debt behaved badly. Construction was financed largely through Brazilian state lenders at rates and on refinancing terms that Paraguayan auditors have disputed for decades; what began in the mid-1970s as an obligation of a few billion dollars was serviced, restructured and serviced again until the total paid over the life of the plant reached tens of billions. Paraguayan politics has argued about that arithmetic more or less continuously. In 2009 Fernando Lugo, who had been elected the previous year on precisely this issue, got Lula da Silva to triple the annual compensation for the ceded surplus from around US$120 million to US$360 million, plus financing for a transmission line from the dam towards Asunción. The right to sell the surplus into the Brazilian market rather than only to the Brazilian state utility was conceded in principle — and deferred to 2023, because that was when the debt would be gone and Annex C would open.
The review
Itaipú Binacional announced the debt cleared in February 2023, and the fifty-year clock ran out later that year. The positions were exactly opposite and entirely predictable. With the debt paid, the cost of running the plant collapses to operations and maintenance, so Brazil wants the tariff cut — cheap power for a hundred and thirty million consumers is a domestic political prize. Paraguay wants the tariff held up, because the tariff is what funds its share, and it wants the freedom to sell its surplus into Brazil's unregulated market at market prices rather than at a number in an annex. In May 2024 the two governments agreed a bilateral understanding that froze the tariff at US$19.28 per kilowatt-month for 2024, 2025 and 2026 and left the substantive revision for later. It bought three years. It settled nothing.
An espionage operation, and a shrinking surplus
Then it got worse. In 2025 Brazilian reporting established that ABIN, the Brazilian intelligence agency, had run an operation against Paraguayan government systems between June 2022 and March 2023 — the Senate, the Chamber of Deputies and the presidency — with an agent testifying that the object was leverage in the Annex C negotiation. The current Brazilian government said the operation belonged to its predecessor and had been stopped on discovery. Paraguay recalled its ambassador and suspended the talks within days of the story breaking in March 2025. They resumed in December of that year, and Santiago Peña has held the line publicly since: no tariff cut after 2026, and a revision that funds investment rather than merely covering operating cost.
What has changed underneath the argument is more interesting than the argument. Paraguay's own electricity demand is now growing at something between seven and nine per cent a year, pulled up by cheap-power industry and by a cryptocurrency mining sector that made the country one of the largest bitcoin-mining jurisdictions on earth before the data-centre operators arrived to bid for the same megawatts. The surplus that Annex C was written to dispose of is being consumed at home. For fifty years Paraguay's problem was that it owned more electricity than it could use and could sell it to only one buyer; within a decade the problem will be the ordinary one of a country that needs to build generation. The negotiation is about the terms of a windfall that is quietly turning into a supply question, and both sides know it.