Argentina raises tensions on the Paraná River
Diplomatic tensions between Argentina and Paraguay regarding a new toll for vessels navigating the Paraná-Paraguay Waterway have reached an all-time high.
On 18 September 2023, Paraguayan congressman Rubén Rubin said during a congressional session that he would be willing to go to war with Argentina over the issue, proposing a bigger budget for military technology. Following Rubin’s speech, social media networks were flooded with videos from both countries that allegedly showed Paraguayan armed forces being mobilized near the border with Argentina. Rubin quickly retracted and apologized for what he had said.
While the congressman’s words may have been taken out of context and exaggerated on social media, diplomatic tensions between the two South American nations are undeniable. Below, we take a look at the complexities of the diplomatic standoff between Argentina and Paraguay, what it could mean for the future of trade along the Paraná-Paraguay Waterway, and potential implications for newly appointed Paraguayan President Santiago Peña and Argentine Economy Minister (and presidential hopeful) Sergio Massa.
Background
The Paraná-Paraguay Waterway is a 3,400-kilometer long natural river transport corridor that extends across the Paraná and Paraguay rivers. It allows continuous navigation between the ports of Argentina, Bolivia, Brazil, Paraguay, and Uruguay. In 1992, these five countries signed the Santa Cruz de la Sierra Treaty establishing “the freedom of navigation and transit through the waterway for vessels, goods and people of the signatory countries.” The treaty also established the Waterway Commission, an intergovernmental body formed to regulate all matters relating to the waterway.
More than 40% of the waterway (1,477 kilometers) is in Argentine territory, with the remaining 60% split between Bolivia, Brazil, Paraguay and Uruguay. The stretch in Argentina is known as Vía Navegable Troncal (VNT). VNT is divided into three sections (from north to south) Paraná superior, Paraná inferior, and Río de la Plata. Approximately 80% of Argentina’s exports reach the Atlantic Ocean through Paraná inferior (port of Rosario) and Río de la Plata (port of Buenos Aires). Meanwhile, Paraguay, a landlocked country, is one of the main countries using the Paraná superior portion of the VNT.
In 1995, the Argentine government granted the concession for VNT’s maintenance, dredging, and beaconing tasks to the Hidrovía consortium. The group is made up of the Belgian company Jan de Nul and the Argentine company Emepa. On 1 July 2021, this concession expired and was not renewed or granted to another private-sector partnership. Instead, Argentina’s Port Authority (Administración General de Puertos or AGP) took over VNT’s control. Today, AGP administers VNT and subcontracts Jan de Nul to carry out maintenance tasks.
Escalation
In January 2023, the Argentine government began enforcing Resolutions 625/2022 and 1023/2022 of its Transportation Ministry. The resolutions established a new toll of USD1.47/ton for foreign vessels navigating VNT’s Paraná superior stretch, and of ARS1.47/ton for national vessels (a rate approximately 350 times less than foreign vessels at the time of this report). Before these resolutions, there were no tolls associated with navigating VNT’s Paraná superior stretch.
The Argentine government argued that it implemented the toll to collect the necessary USD to pay Jan de Nuul for maintaining the waterway. Argentina’s Transportation Minister Diego Giuliano argued that since Argentina had been absorbing the cost of VNT’s maintenance for more than a decade, and it was fair to establish a toll to share these costs with the other countries benefiting from using the waterway.
Whether the increase in toll prices was warranted or not, the new tolls have caused a diplomatic standoff because they disproportionately affect Paraguay. Approximately 70% of Paraguay’s exports and 50% of its imports pass through the Paraná superior stretch of the VNT. According to Paraguay’s Centro de Armadores Fluviales y Marítimos (CAFym) General Manager Mario Aníbal Romero, 90% of the vessels that circulate through the Paraná superior stretch are Paraguayan. Thus, projections suggest that Paraguayan vessels navigating this stretch of VNT would pay a total of USD50 million per year in tolls.
On 26 January 2023, the Paraguayan government complained before the Waterway Commission about the toll Argentina unilaterally imposed. Although Bolivia, Brazil, and Uruguay are not nearly as greatly affected by the toll, their governments backed Paraguay’s complaint. However, the Argentine government did not remove the toll.
On 31 July 2023, the Paraguayan government complained to the Argentine ambassador about the embargo and interdiction of the Paraguayan tugboat HB GRUS, which refused to pay a USD4,232 toll to navigate VNT’s Paraná superior stretch. The Argentine government also seized the Bolivian tugboat HB Phoenix for the same reason. Both HB GRUS and HB Phoenix were carrying Brazilian goods and triggered a request to the Brazilian Foreign Ministry to take steps to free the seized vessels.
On 24 August 2023, an Argentine delegation led by Economy Minister Sergio Massa held a private meeting with Paraguayan President Santiago Peña and other government officials in Asunción. According to those Paraguayan officials, the Argentine delegation committed not only to lifting the toll for vessels navigating VNT’s Paraná superior stretch but also to fully paying a USD92 million debt for energy Paraguay produced and sold to Argentina via the Yacyretá dam in 2022 and the first half of 2023. However, the Argentine delegation claims that the waterway toll was never discussed. They said that although they agreed to start negotiating debt payment, they had not committed to paying the debt.
Differing stories about what transpired at the meeting generated a strong reaction in both countries. The day after the meeting, Paraguayan newspaper La Nación wrote on its cover “Massa came, lied, and left.” Similarly, Paraguay’s Minister of Foreign Affairs Rubén Ramírez Lezcano said that Argentina’s sudden change of posture was an “unpleasant surprise.” This repudiation of Argentina created a climate of nationalism that has favored Paraguayan President Santiago Peña, who started his term on 15 August 2023. Meanwhile, in Argentina, many news outlets that favor the opposition interviewed Santiago Peña about “Massa’s lies.”
On 10 September 2023, the governments of Bolivia, Brazil, Paraguay, and Uruguay once again demanded that Argentina suspend the unilateral toll on vessels navigating the Paraná superior stretch. In a joint communiqué, the four South American countries claimed that Argentina was violating the Santa Cruz de la Sierra Treaty.
On 14 September 2023, Paraguay announced that it would stop selling its half of the electricity supply from the Yacyretá dam to Argentina until pending debts were settled. The dam was built by Argentina and Paraguay and is administered by Entidad Binacional Yacyretá (EBY) a public-private bi-national company. Although each country is entitled to 50% of the energy proposed by Yacyretá, Paraguay has historically sold most of its share to Argentina. Between the 50% Argentina is entitled to and the energy it buys from Paraguay, Yacyretá provides 15% of Argentina’s energy. The decision to stop selling electricity to Argentina can be interpreted as retaliation to the toll imposed over the Paraná superior stretch, as well as the embargo and interdiction of Paraguayan vessels that refuse to pay the toll.
Meanwhile, the Argentine government has complained. It claims that although Yacyretá is equally owned by both countries, Argentina has disproportionately invested in its construction and later renovations. Official figures indicate that EBY still owes Argentina USD28.4 billion for constructing the plant. Meanwhile, Argentina has invested USD494 million to construct new turbines, while Paraguay has only contributed USD15 million.
On 16 September 2023, the US-Paraguay Chamber of Commerce (USAPACC) called on the US Department of State and the US Department of Commerce to assess the impact of Argentina’s toll on foreign trade between the US and Paraguay and mediate the dispute if necessary.
On 19 September 2023, things started looking up as the governments of Argentina and Paraguay reached an agreement. Argentina committed to settle its USD36 million debt to Paraguay for energy bought in 2022. Argentina has reportedly made the first of the three payments. Meanwhile, Paraguay agreed to continue selling the energy it produces at Yacyretá to Argentina.
On 1 October 2023, a new meeting between an Argentine delegation and Paraguayan government officials in Asunción once again heightened tensions between the two countries. Following the meeting, Paraguayan authorities claimed that their Argentine counterparts had agreed to pay monthly installments of USD30 million to settle the USD92 million debt for energy sold to Argentina between January 2022 and August 2023. However, Argentine authorities gave a different version of the events. They said that during the meeting an agreement to settle the USD36 million debt for energy bought in 2022 was reached and that the USD56.2 million debt for energy bought between January and August 2023 was yet to be discussed.
Impact
The toll negatively impacts Paraguay’s imports and exports, increasing prices for goods along the entire supply chain. According to CAFyM, the business conglomerate that groups all river and sea logistics companies that transport goods to and from Paraguay, the toll increases its transportation costs by 5%. CAFyM is one of the biggest lobbyist groups in Paraguay and has been pressuring the Paraguayan government to take a stand against Argentina’s toll. CAFyM also said that it would not bear the increased cost of transportation for imports. Instead, it warned that Paraguayan consumers would end up paying for the cost. This could severely affect the consumer price index (CPI) of Paraguay, a country with a year-on-year inflation rate of 2.9% as of August 2023.
Similarly, increased transportation costs could make Paraguay’s exports (such as soy, wheat, corn, rice, and sugar) less competitive compared to regional competitors, such as Argentina. This raises the question of whether the toll was a deliberate move by the Argentine government to obtain much-needed foreign currency and make their exports more competitive.
Looking ahead
Argentina and Paraguay are both unlikely to back down in the next two months. As a presidential hopeful, Massa cannot show weakness by allowing the current administration to lift the toll. Moreover, Argentina’s dire need for USD makes it highly unlikely that it would eliminate the toll for foreign vessels. On the other side of the border, private interests represented by CAFyM and USAPACC will continue pressuring the Peña administration to push back against the toll. And since Peña’s performance during his 100 first days in office will be marked by how he navigates this situation, giving in to Argentina would be unwise.
Compromise is the most likely way forward. Through the Waterway Commission, the Paraguayan government is likely to continue pressuring the Argentine government to lift its unilaterally imposed tax and replace it with a charge that the five member countries of the Santa Cruz de la Sierra Treaty approve. Arbitration is also likely due to the effects of the toll on trade between the US and Paraguay. As such, an agreement is unlikely to occur before 2024.
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