Brazil to deal with Paraguay on power price demand

By Stuart Grudgings

RIO DE JANEIRO, April 22 (Reuters) - With the victory of former Catholic bishop Fernando Lugo in Paraguay's presidential election, Brazil is facing another leftist neighbor whose demands for higher prices for energy could sour relations.

But analysts said Lugo's demands for a "fair" deal over the countries' shared Itaipu power plant would be easier for Brazil to fend off than when Bolivia nationalized its gas fields in 2006, partly because Paraguay has far less leverage.

Brazil's President Luiz Inacio Lula da Silva has publicly rejected the idea of changing the contract, but his foreign minister, Celso Amorim, appeared to leave room for negotiations over the price Brazil pays for the power.

"Let's discuss with Paraguay about how to achieve an adequate price for their energy. That is fair," Amorim told the government news agency.

Lugo, whose victory in Sunday's election broke 61 years of one-party rule in Paraguay, made renegotiating the Itaipu contract a central plank of his poverty-alleviation, anti-corruption campaign.

The pledge tapped into a popular anger over the 50-year contract, whose terms are now widely seen as unfair to Paraguay. The deal was signed in secret in 1973 by the then military governments of the two countries. The plant now supplies about 20 percent of Brazil's energy needs.

Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington, said Brazil would likely adopt the same conciliatory approach as it had with Bolivia after initial tensions caused by President Evo Morales' 2006 nationalization of the energy sector.

Brazil, which is heavily dependent on Bolivian natural gas, has offered to invest $1.5 billion in new gas projects, roads and farm assistance in the land-locked Andean country.