Power in Venezuela

Recently, Venezuela’s socialist “man of the people” Hugo Chavez was giving a speech about the evils of capitalism when the lights went out, quite literally.



This is a appropriate metaphor for the oil rich country. Venezuela’s Bolivarian revolution is destroying what should in all rights be prospering nation.

Chavez and his defenders (and he has many of them) blame the nation’s power problems on the El Nino drought that has nearly depleted the Guri reservoir, which supplies nearly 2/3rds of the nation’s electricity. They do have a point, the output of the Guri dam has been severely impacted by the drought, but that alone does not tell the whole story. Venezuela experienced similarly sever droughts in 1998 and had associated power blackouts, but nowhere near the extent of what is seen today.

Venezuela experienced 67 “significant power outages” during the drought of 1998, now they now experience that number every month.
Venezuela’s neighbor Colombia also generates about 2/3rds of its electricity from hydro and has been hit just a hard by El Nino but hasn’t faced similarly large power outages. Colombia has managed its power sector so well that they have even offered to sell Venezuela excess power.

Considering the record prices of oil the past ten years, one would assume that the Venezuelan government would have invested in non hydro power, like its Colombian neighbors. Well, you’d be mistaken.

In what is endemic of Venezuela’s crumbling power grid, Planta Centro a 2,000MW oil and gas fired plant is in such a state of disrepair that it is only operating at 273MW. For a country whose generating capacity is only 23,600MW, a 10% reduction in capacity is sorely missed at a time like this.

And if you think that this mismanagement and corruption only applies to Venezuela’s power sector, Stratfor has an interesting analysis on PDVSA’s production discrepancies:

that if the government’s assertion that Venezuela is producing 3.3 million bpd is truthful, oil exports should be averaging at least 2.8 million bpd after netting out some 500,000 bpd of internal consumption. Based on an official average export price of $39.33 per barrel during first quarter 2005, this means Venezuela’s oil export earnings during the first quarter should have totaled slightly more than $9.9 billion.

However, Energy and Mines Minister Rafael Ramirez, PDVSA’s president, recently said PDVSA deposited only $6.43 billion at the central bank. This leaves $2.39 billion in oil export earnings unaccounted for — if the government’s official production figures are truthful.

Whether its graft or mismanagement, Venezuela’s leadership is putting itself into a hole that it wont soon climb out of and is killing its golden goose in the process.