Paraguay has scheduled its first auction to sell its energy on the free market in Brazil for this Friday (26th). The operation was agreed upon between the neighboring country's government and Minister Alexandre Silveira (Mines and Energy) as part of the deal that resolved the dispute over the Itaipu hydroelectric plant tariff. Regional energy integration is a longstanding and welcome goal in the sector, but specialists question the rush to hold the auction for two main reasons. First, Brazil does not currently need more energy, as there is an oversupply in the domestic market. Second, despite the agreement allowing the transaction under existing rules (read more below), in practice, the process requires legal revisions and technical adjustments that have not yet been made.

This is because, according to several electricity sector professionals consulted by the report, the only way for Paraguay to sell energy on the free market in Brazil, given the current situation, is by using its quota in Itaipu—this alternative, however, requires changes to the treaty that governs the binational operation.

However, risks and uncertainties have been identified. The auction's rules stipulate that the winner will be the one offering the highest price for the longest term and capable of making annual advance payments.

To deliver the energy, the state-owned company Ande (responsible for the auction) says it will use the Itaipu plant connection on the right bank (the Paraguayan side in binational jargon). The trading company that wins the auction must internalize the energy into the Brazilian free market at its own expense, assuming all costs. According to Ande, the source would be the Acaray plant. The other hydroelectric plant, Yacyretá, is a binational project with Argentina, without a connection to Itaipu. However, sector technicians monitoring the process state that, currently, there is no way for this energy to enter Brazil.

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