Lights Out in Venezuela

Despite huge oil and gas reserves, Venezuela lurches into a power crisis caused by years of infrastructure neglect

Angela Marquez should be pleased, considering the long line of customers at her paint store in the central Venezuelan city of La Victoria, an hour west of the capital of Caracas. There is only one problem: She can't ring up any purchases because the city is having another one of its frequent power blackouts. "This is completely ridiculous," Marquez fumes, as customers weigh whether to wait for the power to return. "It's impossible to run a business in conditions like this. And it's only getting worse."

Although Venezuela has the region's largest oil and natural gas reserves, its electrical system has been neglected for years by successive governments. In April, large parts of the country, including the capital of Caracas, were without power for hours, resulting in chaos. Huge traffic jams clogged the city, subways did not operate, and many people were trapped in elevators. "We are on the edge of a grave crisis," says Andres Matas, a Caracas electricity analyst. "We are on the edge of nationwide power rationing. Some parts of the country already have partial rationing, like in the east."

Venezuela has the region's highest power consumption per capita as well as the lowest rates, with about 40% of all users paying a subsidized tariff of about 80¢ per month for up to 200 kw/hour. When coupled with an economic expansion, the power demand is, not surprisingly, surging. "Growth in annual power demand has been about 5% to 7% during the past few years, and we expect that to continue, particularly in a high oil-price environment," says David Voght, an analyst with IPD Latin America, an energy consultancy in Caracas.

Aging Plants

The uptick in demand hasn't been accompanied by increased government spending in new power plants. Most of the country's oil- or natural gas-burning power plants are now 25 years or older, says Voght.

The government of President Hugo Chávez has focused on a socialist revolution and social goals, such as education, public health, and food programs. Infrastructure has been largely left in the domain of various government funds, which make periodic announcements of new projects but whose track record has proven spotty. As a result, trouble with water supplies, sewers, roads, and housing are common.

"They're simply not investing enough to meet demand," says Robert Bottome, an analyst at Caracas consultancy Veneconomia. "We are headed for trouble. They make announcements, but few projects move forward."

Power outages are frequent and growing in number. According to the Center for Economic Studies, outages of more than 100 megawatts totaled 113 last year, up from 55 in 2000. Because of the severity and sensitivity of the problem, the government has stopped publishing figures, saying only that the number of outages is falling. That assertion isn't believed by many especially as the state oil company, Petróleos de Venezuela, is planning to build its own power plants in the face of repeated outages.

Reliance on Hydroelectric Power

As with cheap gasoline, which at 12¢ per gallon is the world's least expensive, Venezuelans have come to regard low electricity rates as their birthright. About 72% of the country's power comes from the giant Guri hydroelectric complex in the southeastern state of Bolívar. But analysts warn that the country's reliance on hydroelectric power could be drawing to a close. In 2012, the Tocoma power complex, the last phase of the Guri complex, will be finished, meaning that additional power will have to come from thermoelectric plants.

Voght, for one, says the country has been lucky, as heavy rains in the past few years have allowed the Guri complex to produce more power, meeting rising demand. "A prolonged drought, however, could create a serious power deficit," he says.

Changing government policies have also taken a toll.

In the 1990s, Venezuela embarked on a program of selling state power companies to private investors in a bid to attract the needed investments. Chávez ended that program when he was inaugurated in February, 1999. Last year, Chávez nationalized the country's two remaining private power companies, which were owned by U.S. outfits CMS Energy (CMS) and AES (AES), and created a new state power company to oversee the development of the industry. Concrete results have been slow to appear.

Power Wasted, Lost, or Stolen

Chávez froze power rates in 2003, a move that has stymied conservation efforts. In addition, about a third of all generated power is never billed, lost through transmission line faults, houses with no meters, or simply stolen from power lines by enterprising Venezuelans who hook up their own cables to siphon off electricity.

In May, Chávez said his government would invest $10.3 billion in 42 projects through 2013 to boost power generation by 8,635 megawatts, or about 33%. Chávez said the investment would correct two decades of paralysis for the hydroelectric industry. "This investment will allow us to meet demand for the next 15 years," the President said, calling the project part of the socialist revolution he is leading. "Venezuela is continuing on the road to being a world energy power."

Yet skeptics abound, especially as outages occur almost daily in some eastern cities. And in some rural areas, farmers and residents buy portable diesel-fuel generators to overcome the constant outages. The government has repeatedly announced billions of dollars of investments with no noticeable improvement. "Power isn't a priority for this government," says Matas, the analyst in Caracas. "The government reacts to problems but doesn't anticipate them. They only move when something happens."

For Marquez, improvements can't come soon enough. "I mean, it's bad enough for me when the lights go out," she says. "But I only sell paint. Imagine if I had a grocery store. I couldn't survive."

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