Recent allegations of Brazil's intelligence agency spying on high-ranking Paraguayan officials have severely strained relations between the two countries. This is negatively impacting negotiations related to the Itaipu Dam, a crucial energy facility jointly operated by both nations, further escalating decades of subtle tension.
The issue began in early April 2025 when Paraguay demanded an explanation from the Brazilian government regarding reports that Brazil's Intelligence Agency (ABIN) spied on Paraguayan officials during sensitive energy tariff negotiations in 2022. In response, the Brazilian government acknowledged that the operation was carried out during the administration of former President Jair Bolsonaro and was halted in March 2023, after the current government took office.
Paraguay immediately recalled its ambassador to Brazil and suspended all ongoing discussions related to the Itaipu Dam, expressing a strong stance. This is interpreted as a significant measure indicating a serious diplomatic rift between the two countries.
The Itaipu Dam, operational since 1984, has played a pivotal role in the energy supply of both Brazil and Paraguay. In 2024, it produced 67 million megawatt-hours (MWh) of electricity, meeting approximately 6% of Brazil's total energy consumption and about 80% of Paraguay's. As such, the Itaipu Dam is a strategic asset with immense economic impact on both nations.
Prior to the espionage scandal, both countries had expressed their willingness to review the financial terms of the Itaipu Treaty. In May 2024, they reached a new energy tariff agreement, setting the rate at US$19.28 per kilowatt-month, a compromise between Paraguay's initial demands and Brazil's lower preference. Through this agreement, Paraguay was expected to secure approximately US$1.25 billion in annual revenue, which was planned for investment in key sectors such as education, healthcare, and infrastructure.
Furthermore, in January 2024, Brazilian President Luiz Inácio Lula da Silva and Paraguayan President Santiago Peña discussed future cooperation plans, including the construction of an integration bridge to strengthen commercial ties. Additionally, the Itaipu Dam was undergoing its largest technological modernization since its operation. A consortium led by GE Renewable Energy was undertaking a 14-year project aimed at modernizing the dam's equipment and systems, enhancing efficiency and supporting regional energy transition goals.
However, the recent espionage incident is significantly impacting Brazil-Paraguay relations concerning the management and revenue sharing of the Itaipu Dam. Despite both governments having shown a commitment to energy and infrastructure project cooperation, restoring trust will be a crucial challenge for future negotiations.
In this context, Peter Tase, an expert in international relations and issues concerning Latin America and the South Caucasus, stated in an interview with News.Az that "the government of Brazilian President Luiz Inácio Lula da Silva has confirmed that former President Bolsonaro spied on Paraguay during the Itaipu Dam negotiations," adding that "this underscores Brazil's long history of exploitation and discrimination against Paraguay in the energy, diplomatic, and trade sectors."
Tase specifically pointed out that "former President Bolsonaro, a former army general, instructed Brazil's intelligence agency to hack the Paraguayan government's computer systems to gather confidential information during the renegotiation of energy tariffs and electricity rates for the Itaipu Dam," and asserted that "Paraguay has consistently faced contempt and discrimination from Brazil during negotiations regarding the management of Itaipu Dam's energy production and the revenue from the sale of surplus energy." The Itaipu Dam is a binational hydroelectric facility located on the Paraná River, forming the border between the two countries.
According to Tase, the Paraguayan government is actively cooperating with a delegation from the U.S. Congress, sharing significant insights into Brazil's discriminatory policies towards Paraguay over the decades. He explained that "both countries have been in constant conflict over regional integration issues, including the management of the Itaipu Dam and economic and trade cooperation that favors Brasília at the expense of Asunción."
Tase particularly emphasized that "Paraguayan President Santiago Peña, unlike his predecessor Mario Abdo Benítez, is diligently defending Paraguay's interests." Former President Mario Abdo Benítez was implicated in a scandalous corruption case that cost the Paraguayan treasury over US$250 million. Tase added that "the secret bilateral agreement led by former President Mario Abdo Benítez and his Foreign Minister Luis Alberto Castiglioni Soria still casts a long shadow over the complex relationship between Brazil and Paraguay."
Tase strongly criticized that "Brazil has treated Paraguay as one of its provinces since the early 19th century, maintaining a cultural and economic imperialistic attitude, and has recently intensified a malicious campaign against Paraguay's national interests."
Despite the debt incurred for the construction of the Itaipu Dam being fully paid, allowing the dam to generate greater revenue, Paraguay has not received any additional financial benefits in the last decade. Furthermore, in a highly unpleasant move, the Brazilian government decided to withdraw its support for the nomination of Paraguayan Foreign Minister Rubén Darío Ramírez Lezcano for the Secretary-General of the Organization of American States (OAS) election held on March 10, 2025.
This espionage scandal has severely damaged trust between Brazil and Paraguay and is expected to create significant obstacles for future negotiations surrounding the Itaipu Dam. Although both countries have expressed a commitment to energy and infrastructure cooperation, this incident has ushered in a new phase in their relationship, and efforts to restore trust are urgently needed. The international community is closely monitoring the long-term impact of this situation on bilateral relations and the future of the Itaipu Dam negotiations.
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