Venezuela expects power emergency plan to be presented soon

Jul 13, 2001 02:00 AM

The lights soon may go dim in Venezuela, the third largest producer of OPEC and a major source of energy to the US. An unexpected drought during the regular rainy season has resulted in a sharp reduction of Venezuela's hydropower generation, which produces the bulk of the country's electricity.
President Hugo Chavez is expected to present an emergency plan soon. Chavez will appeal to 24 mm Venezuelans to start using energy in a rational way. He is also likely to announce an immediate investment of $ 340 mm to avoid a sudden and major power crisis, Energy and Mines Ministry officials have said over the past days.
Hydropower generation accounts for about 70 % of Venezuela's total electricity supply. The Andean nation's problems mirror those of Brazil, which depends for 90 % of its electricity needs on hydropower generation. The Brazilian government has asked its citizens to slash electricity use by 20 % following a dismal rainy season.

Chavez, aware of the plunge in popularity his Brazilian counterpart took due to the power crunch, will be eager for a short-term resolution to Venezuela's problems. Cancelling late night baseball matches or cutting television viewers off from a closely watched soap opera won't keep him up in the popularity polls.
"If we don't take measures, we could be obliged in a few months to start rationing energy supply," Chavez said. Although the situation isn't that critical yet, the problems are likely to continue and get worse since electricity demand isn't expected to fall soon.
During the 2001 first quarter, when the economy grew 3.2 %, electricity demand rose 6.2 % over the same period last year. The government forecasts that the economy will expand 4 % to 5 % this year. And with the economy growing, demand is likely to increase.
Also, residential rates are low compared to commercial tariffs which triggers wasteful use of electricity at homes, on top of the illegal "hook-ins" that are fairly common in slum areas. So far, fourteen power blackouts have occurred nationwide over the past six months. The nation's capital, with around 5 mm inhabitants, has remained relatively free from power outages but Zulia, Falcon and Merida State have had serious problems.

Oil-rich Zulia State has become vulnerable as it depends on Caroni's hydroelectric dam. Electricity supply is periodically interrupted in Falcon State, which hosts Petroleos de Venezuela's Paraguana refinery complex where around 900,000 bpd are being processed.
Two months ago, a major power outage halted production at the Paraguana complex. In May, Falcon State Governor Jesus Montilla declared a state of emergency due to the outages. (The Paraguana refinery complex is of vital importance to the US because Paraguana makes up a huge part of the daily exports of around 300,000 bpd of refined products to the US, especially gasoline.)
Venezuela's overall energy infrastructure simply isn't equipped to meet increasing demand, said Hugo Hernandez Rafalli, president of the local Petroleum Chamber. Rafalli praised the process to open up the country's natural gas sector to private investment in an effort to diversify its energy supply, but it won't be enough in the short-term. "We will need two to three years," Rafalli said.

It's a sad record for a country sitting on top of 147 tcf of natural gas, the eighth largest reserves worldwide. But the emergency situation is the result of tampering with the process of privatisation, industry observers say.
Much-needed private investment for an upgrade of Venezuela's ailing electricity system hasn't materialized and instead onerous state control with low tariffs continued. So far, only the electricity utility Seneca, based at Margarita Island, has been sold, for $ 90 mm to US CMS Generation. But industry observers noted the bidding process took place just before the previous government handed over power to Chavez.
There's still talk of selling majority shares in utility companies such as Semda, Enelven and Enelco and Enelbar. Venezuela wants strategic partners who have controlling interests in the utilities they take over. But so far, nothing has been finalized although a self-imposed deadline of September 21 is nearby.
"These companies are currently in a state of collapsing owing to lack of investment... which makes privatising them necessary," it said. "From 1997 until now, investment in Venezuela's electricity sector has been frozen. Given the additional oil revenue that came in over the past two years, we can react to the crisis on the short-term," Rafalli said.

But for the long-term alternative sources of energy and billions of dollars in private capital are needed, he added. The president of Cadafe, the holding company for state-run electricity utilities, has estimated $ 7 bn is needed over the coming five years to improve the electricity infrastructure.
Oil Minister Alvaro Silva acknowledged that investment has been lacking but stopped short of saying an energy crisis is looming. "We'll have to take measures, but we don't have to start rationing (supply). Just use energy in a rational way, that's all," Silva said.

Source: Dow Jones
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