Paraguay Reclaiming Energy From Brazil in Franco Industrial Push

Paraguay Reclaiming Energy From Brazil in Franco Industrial Push
Paraguayan President Federico Franco said he is seeking foreign investors to develop untapped oil fields, build an aluminum plant and buy the country’s first global bonds. Photographer: Noberto Duarte/AFP via Getty Images

Paraguayan President Federico Franco said Brazil and Argentina will have to accept less hydroelectric energy as the land-locked country develops its industry and tries to accelerate development.

“We are no longer going to hand over our energy,” Franco said in an interview yesterday at Bloomberg’s headquarters in New York. “We’re going to develop internal markets, we’re going to industrialize our country and Paraguay will no longer just be a country that exports cattle and agricultural goods.”

Franco, the former vice president who took office in June after Congress impeached President Fernando Lugo, said he is seeking foreign investors to develop untapped oil fields, build an aluminum plant and buy the country’s first global bonds. The 50-year-old leader said accomplishing that will require using more energy from two hydroelectric dams on the country’s borders, most of which is currently sold to its larger South American neighbors.

A surgeon and father of four, Franco is looking beyond the region for support as the country remains suspended from the Mercosur trade bloc and the Union of South American Nations following Lugo’s ouster. The world’s fourth-biggest soybean exporter needs investors from Asia to the U.S. to help develop its resources, while the Mercosur bloc it co-founded may have outlived its usefulness, Franco said.

Aluminum Plant

Under a treaty with Brazil, Paraguay has the rights to 50 percent of the energy produced by the Itaipu dam yet sells most of that to Brazil, Franco said. The country can boost its energy use from the dam without renegotiating the accord, he said. Of the 11 Itaipu turbines the country has the right to use, only two are directed toward Paraguay, he said. The development of a $4 billion to $5 billion aluminum smelter will require at least one additional turbine, he said.

“Paraguay is preparing itself to use its energy and develop the country,” he said.

Brazil, Latin America’s biggest economy, has depended on energy produced by Itaipu for its industrial development. A 2009 blackout caused by the loss of transmission lines from the dam plunged 40 percent of Brazil into darkness, affecting 18 of the country’s 26 states. Replacing Itaipu’s energy entirely with oil would require 536,000 barrels per day, according to the dam’s website.

Argentina and Paraguay agreed in January to boost investment in the Yacyreta dam, which helps power the industrial core around Buenos Aires, by 25 percent. About 15 percent of Argentina’s energy needs came from Yacyreta in 2010, according to the plant’s website.

Officials at Brazil’s Energy and Foreign Affairs ministries didn’t respond to e-mails seeking comment after business hours. Horacio Mizrahi, an Argentine Planning Ministry spokesman, and Deputy Economy Minister Axel Kicillof declined to comment.

Five-Year Plan

Jorge Samek, the Brazilian head of Itaipu, said Brazil has sufficient energy for the next five years and that the country supports Paraguay’s development.

“The Brazilian government has made all efforts to industrialize Paraguay,” Samek said in an interview from Curitiba, Brazilyesterday. “The Brazilian government wants Paraguay to consume more energy.”

Oil production in Paraguay may begin as soon as December, Franco said, while shale resources await exploration and development. The search for investors includes the sale of $550 million in bonds by mid-January as the country seeks to tap the lowest emerging-market borrowing costs on record, he said.

Zambia, Bolivia

Paraguay joins emerging-market countries including Zambia and Bolivia in seeking to take advantage of record-low yields by raising funds overseas. The yield on emerging-market debt fell to a record 4.71 percent on Sept. 11 and was at 4.77 percent yesterday, according to JPMorgan Chase & Co. EMBI Global indexes. Angola, which shares Paraguay’s BB- rating from Standard & Poor’s, sold $1 billion of debt in the form of loan participation notes due in seven years to yield 7 percent in August for its first international issue.

S&P removed Paraguay from a negative credit-watch on Aug. 29, saying the political turmoil in the country from Lugo’s ouster would have a “limited impact” on the economy.

The political crisis will have a direct impact on Franco, who under Paraguayan law won’t be eligible to run for re-election next April. He said he’ll throw his support behind Senator Efrain Alegre’s candidacy in the race.

Franco said Paraguay felt mistreated in the Mercosur trade block by its bigger neighbor and that he couldn’t worry about the implications of his plans on Brazil and Argentina.

“The people voted for me to govern my country,” Franco said.

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