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Paraguay Seeks to Sell Less Itaipu Energy to Brazil, Get Better Prices

SAO PAULO--Paraguay's new government, dissatisfied with the prices it gets from selling energy to Brazil from the world's biggest hydroelectric dam, is seeking to attract energy-intensive industries to the country to boost its revenues. Paraguay shares control with Brazil of the Itaipu hydroelectric dam, currently the world's biggest by output, but uses just a small portion of the dam's annual output of more than 90 million megawatt-hour. An agreement allows Paraguay to sell all the energy it doesn't use to Brazil, at a price which has been renegotiated four times since the dam began operations in 1984. But recent comments by Federico Franco, who was sworn in as Paraguay's president in June after President Fernando Lugo was impeached, signaled that the government wants to use that energy for itself and bring in more revenue from expanded tax collections on the manufacturing sector. One possibility is the installation of an aluminum smelter--which utilizes massive amounts of power--by Rio Tinto PLC (RIO). "I refuse to accept that Paraguay has to give away its energy," Mr. Franco said at the end of last month, according to Paraguayan newspaper Ultima Hora. "We're going to bring the energy here, so come Rio Tinto and come companies that produce solar panels," another energy-intensive industry. The press office of Paraguay's president said Thursday a project was underway to increase power use in the country as well as to negotiate higher prices from Brazil electricity sales. Before talks between Brazil and Mr. Lugo last year boosted annual payments to Paraguay to $360 million, the country was receiving $120 million a year for power from Itaipu. The press office for the Brazilian side of Itaipu operations said there were no company-level discussions underway yet to renegotiate the price that Brazil pays Paraguay for the energy, and said that any discussion would start at the Foreign Affairs Ministry. Brazil's Foreign Affairs Ministry referred questions about price talks to Itaipu. Rio Tinto declined to comment. The company signed an agreement with Paraguay's national electricity administration, ANDE, in 2009 to study electricity prices for the possible installation of an aluminum smelter in the country. According to the Paraguayan press, ANDE could offer energy at $43 per megawatt-hour to Rio Tinto, almost double the $25 per MWh it currently gets from selling power to Brazil. ANDE's press office said the $43-per-MWh price is by no means final, because studies are still underway to determine how much the government would have to invest to transmit the electricity to the possible smelter site, some 320 kilometers from the Itaipu dam. People familiar with the situation said Rio Tinto is currently in talks with the Franco administration about building the smelter in the country, but they added that talks haven't progressed to negotiations about prices. Itaipu last year supplied Brazil with 83.5 million MWh, accounting for about 17% of Brazil's energy needs, while it provided Paraguay with 8 million MWh, or 73% of its electricity needs. Write to Paulo Winterstein at paulo.winterstein@dowjones.com Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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