Leveraging Paraguay's Hydropower for Sustainable Economic Development

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Leveraging Paraguay's Hydropower for Sustainable Economic Development Leveraging Paraguay’s Hydropower for Sustainable Economic Development Final Report1 Director of the Earth Institute: Jeffrey Sachs Director of CCSI: Lisa Sachs Lead authors: Perrine Toledano and Nicolas Maennling With Support from: Jose Acero, Sébastien Carreau, Charlotte Gauthier and Paloma Ruiz November 2013 1 The views in this report are that of the Research Team and the Research Team alone and do not reflect the views of any supporting institution. 1 The Columbia Center on Sustainable Investment (CCSI), a joint center of Columbia Law School and the Earth Institute at Columbia University, is the only applied research center and forum dedicated to the study, practice and discussion of sustainable international investment. Our mission is to develop and disseminate practical approaches and solutions, as well as to analyze topical policy-oriented issues, in order to maximize the impact of international investment for sustainable development. The Center undertakes its mission through interdisciplinary research, advisory projects, multi-stakeholder dialogue, educational programs, and the development of resources and tools. For more information, visit us at www.ccsi.columbia.edu. Acknowledgements We would like to thank Fabrizio Franco and Lorena Mersan for their legal contributions to the report, Jacky Mandelbaum and Sophie Thomashausen for their thorough review, and Ignacio Urrutia for his political economy insights and hospitality during our visit to Asunción. We would also like to thank the following Institutions and Organizations that provided us with valuable information during our consultations: Administracion Nacional de Electricidad (ANDE) Banco Central del Paraguay (BCP) Banco Interamericano de Desarrollo (BID) Centro de Análisis y Difusión de la Economía Paraguaya (CADEP) Desarrollo en Democracia (DENDE) Faculty of Law – University of Oxford Grupo de Estudos do Setor Elétrico (GESEL) Grupo Técnico de Negociación (GTN) Instituto Acende Brasil Instituto de Derecho y Economía Ambiental (IDEA) Itaipú Binacional (IB) Ministerio de Hacienda (MH) Ministerio de Industria y Comercio (MIC) Ministerio de Obras Públicas y Comunicaciones (MOPC) Red de Inversiones y Exportaciones (REDIEX) Rio Tinto Alcan Secretaría Técnica de Planificación (STP) Unión Industrial Paraguaya (UIP) Finally, we are thankful for the feedback sent to us by individuals during the consultation period and we have done our utmost to include all the relevant comments provided. 2 Table of Contents List of Acronyms and Abbreviations .................................................................................................. 6 Executive Summary .................................................................................................................................. 7 Introduction .............................................................................................................................................. 12 1. The Domestic Electricity Sector ................................................................................................ 13 1.1 Current Situation ................................................................................................................ 13 1.2 Problems Faced by the Electricity Sector .................................................................. 18 1.3 Planned Investments and Energy Strategy ............................................................... 21 1.4 Overcoming the Problems Identified Above ............................................................ 25 1.5 Summary of Findings and Recommendations ......................................................... 29 2. Industrial Development and the Domestic Electricity Sector ....................................... 31 2.1 Industrial Development ................................................................................................... 31 2.2 Energy-Intensive Industries ........................................................................................... 40 2.3. Summary of Findings and Recommendations ........................................................ 57 3. Fair Pricing of Electricity Sales .................................................................................................. 59 3.1. Past Itaipú Electricity Sales ............................................................................................ 59 3.2. Regional Demand and Tariff Negotiations ............................................................... 62 3.3. Summary of Findings and Recommendations ........................................................ 66 4. Towards a Green Economy ......................................................................................................... 68 4.1. Transport transformation .............................................................................................. 68 4.2. Replacing biomass consumption in Paraguay ........................................................ 75 4.3. Summary of Findings and Recommendations ........................................................ 80 5. Proper Management of Electricity Revenues ....................................................................... 82 5.1. Existing electricity revenue management ................................................................ 82 5.2. Non-electricity revenue collection .............................................................................. 88 5.3. A planning strategy ........................................................................................................... 90 5.4. Summary of Findings and Recommendations ........................................................ 91 ANNEX A: Paraguay’s Comparative Advantages and Barriers to Sustainable Development ............................................................................................................................................. 93 ANNEX B: Mapping of the Investment Legal Framework ..................................................... 102 ANNEX C: Itaipú Debt History ......................................................................................................... 106 ANNEX D: Salto Grande ...................................................................................................................... 108 3 List of Figures Figure 1: Electricity Consumption in Paraguay Compared to the Region ............................ 15 Figure 2: Cost of Generation: US¢2.57/ kWh in 2010 .................................................................... 15 Figure 3: Distribution of the Social Tariff by Region ...................................................................... 17 Figure 4: Annual Electricity Sales and Distribution Losses in 2005 ........................................ 20 Figure 5: Number of Power Cuts and Estimated Duration .......................................................... 21 Figure 6: ANDE’s Peak Demand Growth Projections ..................................................................... 22 Figure 7: CRU and RTA’s Annual Energy Demand Growth Projections .................................. 23 Figure 8: The Paraguayan Industrial Sector in 2008 ..................................................................... 33 Figure 9: Average Energy Use as a Percentage of Operating Costs of Energy-intensive Industries ........................................................................................................................................................ 40 Figure 10: Electricity Tariffs RTA Would be Willing to Pay if No Taxes are Imposed ...... 45 Figure 11: Resource Rent Tax ................................................................................................................. 47 Figure 12: Projected Revenues from RTA Under the Best Possible Scenario ...................... 48 Figure 13: Structure of the Global Aluminum Industry ................................................................ 51 Figure 14: Developing SMEs Through Business Linkages – The Mozlink Model ................ 56 Figure 15: Domestic Electricity Demand and Supply .................................................................... 63 Figure 16: Electricity Available for Exports With and Without the RTA Project ................ 63 Figure 17: Regional Electricity Demand/Supply Projections Until 2030 .............................. 65 Figure 18: Brazil and Southern Corn Electricity Generation Mix (2008 & 2030) ............... 65 Figure 19: Investment and Operation Comparison, Asunción (3,500 buses) ...................... 70 Figure 20: Cumulative Costs of an Electricity-based Transport System Versus a Petroleum-based Transport System in Asunción ............................................................................ 70 Figure 21: Plug-in Hybrid Electric Vehicles (PHEVs) Total Cost of Ownership (Including ARRA Tax Credit) ......................................................................................................................................... 72 Figure 22: Pure Electric Vehicles (EVs) Total Cost of Ownership (Including ARRA Tax Credit) ............................................................................................................................................................... 72 Figure 23: Additional Electricity Consumption from the Transport Sector .......................... 75 Figure 24: Sources of Energy Consumption in Paraguay and Neighboring Countries in 2010 .................................................................................................................................................................
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