Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean | Analysis

ENERGY-SOUTH AMERICA: Dependency, Not Integration

Analysis by Mario Osava

RIO DE JANEIRO, Feb 20 2007 (IPS) - Energy production and distribution does not necessarily encourage integration between poor countries in South America, but rather a relationship of dependency marked by disputes, resentments and greater distance between its peoples.

This phenomenon provides opinion leaders with strong arguments, whether on the anti-imperialist or imperialist sides.

“We’re not the imperialists some say we are. Nor do we seek hegemony, as some would have it,” said Brazilian President Luiz Inácio Lula da Silva, announcing an agreement that will raise the price of natural gas imported from Bolivia, which was signed last week with Bolivian President Evo Morales.

But there is no escaping the issue.

On the one hand, if Brazil is accommodating towards its South American neighbours, critics who accuse the government of pursuing a misguided foreign policy and making excessive concessions to “populist” governments while neglecting national interests will intensify their complaints.

On the other, satisfying the demands of those domestic critics feeds foreign allegations of Brazilian imperialism.

Energy is the most sensitive issue. Energy integration is often the subject of rhetoric, but claims that progress is being made in that direction contradict reality.

Lula and his leftist Workers’ Party (PT) supported Morales unstintingly until his electoral victory in December 2005. But the issue of natural gas has turned Bolivia’s friendly government into a thorn in Brazil’s side.

The most popular presidential hopeful in Paraguay for the April 2008 elections is former Catholic bishop Fernando Lugo, who is pressing for a revision of the 1973 treaty that regulates the gigantic Itaipú hydroelectric station on the border with Brazil, inaugurated in 1984.

Lugo wants a seven-fold price hike for the electricity Paraguay sells to Brazil.

Itaipú is shared on supposedly equal terms, with half the energy generated belonging to each country. But Paraguay consumes only five percent of its share, and exports the rest to Brazil, as the treaty forbids sales to third countries.

Lugo is not the first Paraguayan to accuse Brazil of paying too little for its energy, or to suggest an imperialistic relationship.

Brazil purchases the electricity “at cost” when in fairness it should be paying the market price, which is seven times higher, according to Lugo. If he were to win the Paraguayan elections, Brazil would face further problems on the energy front.

Itaipú’s 14,000 megawatts constitute about 15 percent of Brazil’s electricity generating capacity, in a country that is avid for energy to sustain economic growth, which the government hopes will rise to five percent of gross domestic product a year.

Brazil depends on electricity from Paraguay, and a price hike would not be acceptable to the populace, burdened by the increasing cost of energy, nor to industry, which is struggling to survive with its competitiveness already undermined by the overvalued local currency.

But energy from Itaipú and natural gas represent a unique opportunity to help millions of Paraguayans and Bolivians out of extreme poverty.

Calling for increased prices for energy sold to Brazil is a popular vote-winner. This is an additional pressure on both left or rightwing governments of poor countries with limited economic opportunities.

Dependence on Bolivian natural gas became a dramatic issue for Brazil when Morales nationalised his country’s energy resources on May 1, 2006.

Last year, Brazil imported 26 million cubic metres a day, half its national consumption of natural gas. The gas supplies thousands of industries in central and southern Brazil, as well as a large number of thermoelectric plants considered essential in the national energy plan.

The price increase that will result from the agreement reached on Thursday in Brasilia, estimated at six percent, is causing concern in the ceramic industry which depends on natural gas.

In the southern state of Santa Catarina, factory owners are considering speeding up research on producing gas from coal, which is abundant in the area. But this is a very long term prospect.

Many thermoelectric plants have stopped production because of lack of fuel. The state oil company Petrobrás, which signed the contract to import Bolivian gas and built the 3,150 kilometre gas pipeline between the two countries, has accelerated plans to extract more natural gas inside Brazil.

But national self-sufficiency in energy, according to the most optimistic estimates, will only be feasible in the next decade. And in the worst case scenario, it is impossible – a view held by many experts.

Meanwhile, Bolivian gas is fuelling criticisms of Lula’s foreign policy by his opponents, who are demanding a tougher approach to neighbouring countries and who look to the large markets of the industrialised North, especially the United States.

Brasilia’s diplomatic reaction to the nationalisation of Bolivia’s fuels last year was to recognise the country’s sovereign rights to its natural resources. This unleashed a wave of criticism in overtly imperialist tones.

“We cannot invade Bolivia,” was the answer of Foreign Minister Celso Amorim.

The agreement signed last Thursday with Morales renewed accusations against Lula’s allegedly “ideological” foreign policy. Brazil agreed to pay a premium for gases like ethane, butane, propane and natural gasoline, which are mixed with methane, the basic component of natural gas. These other gases command higher market prices.

Brazil agreed to pay the international market price for these gases, which will provide Bolivia with an additional income of 100 million dollars a year, according to Bolivian Energy Minister Carlos Villegas.

Last year, Brazil paid 1.26 billion dollars for gas imports from Bolivia.

The Bolivian government also obtained a price raise for the gas it supplies to a thermoelectric plant in Cuiabá, the capital of the Brazilian state of Mato Grosso.

The former price of 1.19 dollars per million British thermal units (Btu) will rise to 4.20 dollars, bringing in another 44 million dollars a year, according to Villegas.

These are extra costs for Brazil, which does not have the necessary plant to separate natural gas components yet, but plans to establish a gas-chemical industrial complex on the border with Bolivia to extract the higher calorific value gases to the benefit of both countries.

The likely price increases for gas and electricity generated in thermoelectric plants and their impact on Brazilian consumers will no doubt swell the ranks of critics complaining that the Brazilian government is overly generous towards its poorer neighbours.

Morales is carrying on with “his strategy of weakening Brazil’s position, with advice and funds from Colonel (Venezuelan President) Hugo Chávez and Fidel Castro, his mentor,” former foreign minister Luiz Felipe Lampreia wrote in the conservative newspaper O Estado de Sao Paulo on Friday.

Lampreia compared Bolivia to “a 1.20-metre bullfighter” making a fool of “an 800- kilo bull,” his metaphor for Brazil.

In order to avoid appearing imperialistic and hegemonic, the government is neglecting the protection of Brazilian interests, claimed an editorial in the same newspaper.

As these interests are in conflict with those of countries supplying energy to Brazil, public opinion is tending to diverge in the very countries Lula would like to integrate in the South American Community of Nations.