Road to nowhere: traffic in Asunción has increased dramatically while road building has stalled

Paraguay's potential as a trade route is badly hampered by its poor transport infrastructure, while many of its businesses struggle to function amid frequent power cuts. The government has promised to invest in improving this situation through a series of PPPs, a welcome development but one which only begins to address the country's problems. Silvia Pavoni reports.

When looking at a map of South America, it is tempting to think of Paraguay as a small country, nestled as it is between the two behemoths of Brazil and Argentina. However, such appearances can be deceptive; Paraguay is bigger in size than Japan or Germany, though its population is significantly smaller than both countries. Most of Paraguay's 6 million people live in its eastern region while the Chaco, in the west, stretches across 60% of the country but is inhabited by only 3% of the population. Too remote and lacking of all-weather roads to enable any crop-planting industry to thrive, the Chaco's infrastructure is in dire need of modernisation, something it has in common with the rest of the country if Paraguay wishes to sustain its economic growth.

Travelling across Paraguay is not straightforward. Its outdated and limited rail network was dismantled in 2006 as roads and rivers offered cheaper and more efficient modes of transport. The road network leaves a lot to be desired, however, and Paraguay's substandard electricity transmission and distribution system has been hindering the expansion plans of many of the country's businesses for years.

Out of power

Esteban Moravito, president of Maasha, a producer of personal hygiene products in Paraguay, says that his company suffered an average of five small power cuts every day for the whole of the last year. He is one of the lucky ones. The electricity network connected to his business has recently been repaired but many other adjustments need to be made to the whole grid. Others agree. "The electricity network hasn't grown alongside the growth of the private sector," says Carlos Walde, owner of Paraguay's leading motorcycle manufacturer, Chacomer.

Fernando Leri Frizza, president of Puerto Zeballos, one of the largest port owners in Paraguay, says that his company has had to build roads to connect his ports to the national highways. Paraguay's road network is about 30,000 kilometres long, but it is estimated that only about 30% to 35% of this is paved.

A poor transport infrastructure does not only affect Paraguay's rural areas. Car ownership in Asunción has notably gone up, but no new roads have been built to alleviate the congestion caused by this increase in traffic. Only recently have a handful of construction sites sprung up, aimed at tackling this problem.

Water torture

Paraguay's lack of a rail system not only puts added pressure on the country's road network; its river transport system is also in urgent need of investment.

"All exports need river transport," says Juan Bosch, president of shipping company Compañia Maritima Paraguaya. "We have boats but we don't have government support." Mr Bosch's complaints refer to the issue of the depth of Paraguay's rivers. Often the level of water is too shallow for the use of conventional fully loaded boats. The government has recognised this problem and is embarking on a series of ventures with private companies to improve Paraguay's river transport system. However, according to Mr Leri some solutions are already available. He says that instead of adapting rivers to cater for traditional boat sizes, businesses should invest in flat-bottomed boats built specifically for the transport of heavy cargos on the relatively shallow waters.

Work on improving the navigability of Paraguay's waterways are part of the government's public-private partnership (PPP) programme, which will also focus on improving the road network and the country's airports - Silvio Pettirossi airport in Asunción, Guarani Airport in Ciudad del Este, and Mariscal Estigarribia airport in the Chaco are all slated for upgrades. A PPP law is expected to be approved at the end of the year, though because of the limited tax revenues collected in Paraguay, which are about 12% of the gross domestic product, the government is often hampered by a lack of funds when it comes to pursuing such projects.

"The fiscal situation is challenging," says finance minister Dionisio Borda. "Here we don't have [public] resources but at the same time people ask us to build infrastructure and to take care of social and security issues."

LatAm links

In addition to the government's PPP plans, Paraguay will benefit from a series of investments to develop the infrastructure supporting the large flow of trade that crosses its borders. This is part of the initiative for the infrastructure integration of Latin America, la Integración de la Infraestructura Regional Suramericana or IIRSA, launched in 2000 by 12 governments in the region. Paraguay is at the heart of the busiest trade flows in Latin America. According to some estimates, for the whole 2010 there will be more than $20bn-worth of trade moved through Paraguay between Brazil and Argentina - the highest in the region. On top of this it is estimated that $6.5bn-worth of trade will flow through the country between Brazil and Chile, while Paraguay will enjoy more than $2bn-worth of trade with Brazil and more than $1bn with Argentina. Such figures show just how important it is for Paraguay to provide a fast and efficient transport network.

Projects being built include the construction of a $55m bridge to replace the current Puente de la Amistad between Paraguay and Brazil, which at present cannot cope with the volume of traffic that crosses it. The $315m investment in the construction of 500-kilovolt power line from Itaipú to Asunción is also part of the IIRSA initiative.

Itaipú, on the Brazilian border, is home to the most powerful hydroelectric dam in the world. Paraguay's government is currently seeking private sector investment to utilise the excess electricity generated by the Itaipú Dam that is not used within the country.

Jointly owned by Brazil and Paraguay, the dam has always sparked diplomatic tension between the two countries. Both governments have access to half the dam's electricity production, but while Paraguay only uses about 6% of its share, Brazil uses its 50% and then buys the rest from Paraguay at a highly discounted price. Despite an agreement made in 2009 with Brazil to ensure that it sells Paraguay's share of electricity directly to the Brazilian market, many Paraguayans still view this relationship with Brazil as being unfair.

If Paraguay could develop an energy network to take advantage of such a cheap and plentiful supply of electricity, such concerns would disappear. However, the task of repairing or replacing Paraguay's electricity network is a daunting one. It is estimated that last year about 40% of Paraguay's electricity output was lost in transmission, about 25% lost as a result of overload, and 15% stolen through illegal connections.

Despite such alarming statistics, electricity-intensive businesses are still looking at Paraguay as a possible investment destination. Rio Tinto Alcan, part of the mining giant Rio Tinto, is considering an investment project in the country with an estimated value of $2.5bn, which would create 800 new jobs and would require the sole use of one of Itaipú Dam's 20 turbines. The consultation programme has been ongoing for the past three years and the government is very optimistic about the outcome. "[Rio Tinto Alcan] is planning to invest $2.5bn and if all goes well it might start work in 2016," says finance minister Mr Borda. "The plant will respond to the demand for aluminium [within South America]. It is going to generate a lot of employment and above all it is going to create an industrial hub."


Itaipú Dam

Recognised by the American Society of Civil Engineers as one of the 'Seven Wonders of the Modern World', the Itaipú Dam is the most powerful hydroelectric power plant on the planet. With 20 generator units and 14,000 megawatts of installed power, it supplies 18.9% of the total energy consumed in Brazil and provides all of the electricity used in Paraguay.

Located on the Brazil-Paraguay border, the construction of the dam required altering the course of the world's seventh largest river, the Paraná. More than 50 million tonnes of rock and earth were moved to create a bypass that measured 150 metres wide, 90 metres deep and two kilometres long. The channel took workers almost three years to complete.

About 40,000 workers were employed to build the dam and its construction meant that thousands of people had to be relocated. There is enough iron and steel in the Itaipú Dam to build 380 Eiffel Towers and the project used enough concrete to construct five Hoover Dams. The dam is 196 metres high and is almost eight kilometres long.


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