Paraguay-Brazil Itaipú Annex C negotiations stall at the Mercosur summit as the December 2026 deadline approaches

Summary

Paraguay and Brazil have not reached a formal revision of Annex C of the Itaipú Treaty as of July 2026, and the June-July Mercosur summit in Asunción produced no breakthrough. Two parallel agreements expire December 31, 2026: the May 2024 Peña-Lula bridge tariff (US$19.28/kW-month, set for a two-year interim), and the 2007 Operational Agreement that grants Paraguay's electricity utility ANDE preferential access to Itaipú surpluses at low cost. ANDE has publicly acknowledged the dual expiry forces a "new form of negotiation" for power supply from January 2027. The 2024 bridge deal, which both governments described as "historic," generates approximately US$1.25 billion per year for Paraguay, but Paraguay has long argued its fair share of Itaipú's output is worth significantly more under market pricing. A civil society proposal circulated in April 2026 called for sextupling Paraguay's compensation and restructuring ownership into a Paraguay-Brazil-Argentina holding company. A separate US-backed energy deal for Itaipú output is reportedly under discussion, which would potentially allow Paraguay to sell its electricity share to buyers outside the bilateral treaty framework. Foreign ministers Rubén Ramírez Lezcano and Mauro Vieira met in March 2026 to restart talks frozen by a 2025 espionage scandal, but the Mercosur summit produced no tangible result.

The split

Paraguay's government, led by President Santiago Peña, has insisted the current bridge tariff is a floor, not a ceiling, and that a formal Annex C must deliver materially higher revenue. Brazil under President Lula has resisted price increases that would raise electricity costs for Brazilian industry and has insisted Itaipú is a bilateral matter that cannot involve third parties (a position directed at US deal-making proposals). The Paraguayan opposition and civil society groups have criticised negotiations conducted without public transparency, citing the 53-year treaty's anniversary as a moment for structural rethink. The US angle, potentially allowing Paraguay to sell power to international buyers, is the most disruptive element: if Asunción pursues it, it challenges the treaty architecture at a fundamental level.

By the numbers

• US$19.28/kW-month, bridge tariff set in the May 2024 Peña-Lula agreement
• US$1.25bn, approximate annual Itaipú revenue for Paraguay under the 2024 terms
• December 31, 2026, expiry of both the 2024 bridge tariff and the 2007 Operational Agreement
• 53 years, age of the Itaipú Treaty as of April 26, 2026
• 14 GW, Itaipú's total installed generating capacity (one of the world's largest hydroelectric plants)
• 1, Mercosur summit in 2026 (Asunción) at which Annex C produced no outcome

Why it matters

Itaipú is the single most important infrastructure asset in Paraguay's economy. The electricity revenue it generates is a meaningful share of Paraguay's GDP and funds significant public investment. If Paraguay and Brazil reach January 2027 without a successor agreement, the legal and financial framework for Itaipú's operations enters undefined territory. The US energy deal option, if pursued, would be the first time Asunción has sought to operationalise Paraguay's treaty right to sell its electricity outside the bilateral arrangement, a move Brazil would likely contest legally and diplomatically.

What to watch

• Whether Paraguay and Brazil reach a formal Annex C agreement before December 31, 2026.
• Whether Paraguay advances formal talks with US counterparts on redirecting Itaipú electricity output to third buyers.
• Whether the Mercosur summit failure triggers a harder Paraguayan negotiating posture or a political crisis at home.
• Whether ANDE secures alternative power supply contracts for 2027 in case the Operational Agreement is not renewed.