Powering Paraguay

Asunción needs to rethink its energy strategy.

For the fourth year in a row, Paraguay’s drought is seriously hindering the country’s economic performance which, in the first quarter of the year, should have fared much better following the reopening of the economy after the Covid pandemic and the recovery of the services sector. 

An energy infrastructure coordinator at an Asunción-based civil engineering company explained, “The drought has seriously affected crop production which is a serious challenge given the economy’s dependence on agricultural exports.” 

“The drought has seriously affected crop production which is a serious challenge given the economy’s dependence on agricultural exports.”

An energy infrastructure coordinator, Paraguay

To boost struggling crop farms, the Ministry of Agriculture recently passed several measures to compensate producers. These include new loans, refinancing facilities and flexible repayments. These are all well-intentioned measures to support the agribusiness sector, but it does little to address the bigger picture which is Paraguay’s vulnerability to extreme climate conditions. 

To mitigate the more pernicious effects of climate change, Paraguay’s agricultural sector should invest more in research and development to promote climate-smart agricultural measures. Whether the sector has the capital – via government support or foreign investment – to progress such innovation is another matter. 

40% of Paraguay’s energy derives from hydroelectric plants, around 35% from biomass and the remaining 25% from oil and oil derivatives imports. Notably, the energy-end-use consumption dynamic gives us a whole different picture, with more than 40% coming from biomass and coal, followed by oil derivatives, over 35% and only 20% coming from hydroelectric generation. 

More positive news – the Itaipú dam is faring well due to its operational efficiency, good maintenance, and coordination with Brazil’s electric system. In January and February this year, the dam generated an amount in the region of 9,000 GW/h, enough to supply the country’s energy needs for six months. 

There have been many suggestions in relation on what to do with the country’ electrical energy surplus. Former minister of the Treasury César Barreto suggested creating a sovereign wealth fund. Other politicians have suggested lowering electricity prices in the country which would effectively function as a subsidy. Another option would be to create incentives for investments in the sector. 

The energy infrastructure coordinator said, “In my view, all three options are valid if they are properly implemented. Acknowledging the complexity of setting up a sovereign wealth fund and soundly managing it, I would favour more modest ambitions embracing these three measures, wealth distribution and attracting foreign investment. But, as always in Paraguay, it seems impossible to have a proper political consensus over these measures.” 

“In my view, all three options are valid if they are properly implemented…But, as always in Paraguay, it seems impossible to have a proper political consensus over these measures.”

An energy infrastructure coordinator, Paraguay

Last year, president Mario Abdo Benítez and Félix Sosa, president of the National Electricity Administration, announced a 20-year USD 8.9 billion investment plan in energy infrastructure. It included funds to support Itaipú’s maintenance and modernisation, new transmission lines, technological innovation measures throughout the whole electric system and new hydroelectric plants. 

Covid postponed the start of the implementation of some of these investments, but there has been progress. In December, Congress approved a USD 250 million loan to finance the energy transmission lines in the country. Only time will tell if it turns out to be money well invested. 

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