Venezuelans Brace for Rolling Blackouts as Power Output Falters
Daniel Cancel
Jan. 13 (Bloomberg) -- Venezuelans will face rolling blackouts for the next five months starting today as the worst drought in 50 years threatens to shut the nation’s biggest hydroelectric plant and collapse the power grid.
The government will cut electricity for four hours every other day across the country after previous measures failed to slow the drop in water levels behind the Guri hydroelectric plant, which supplies 73 percent of Venezuela’s power, Electricity Minister Angel Rodriguez said yesterday on state television.
The blackouts are another economic blow after President Hugo Chavez devalued the nation’s currency by as much as 50 percent on Jan. 8 as he struggled with an outflow of dollars and growing budget deficit. The economic drag caused by the shortage, combined with a likely surge in inflation from the devaluation, may keep Venezuela mired in recession and erode Chavez’s popularity in the run up to legislative elections in September.
“The drought has exposed what was already a seriously overstretched grid and years of underinvestment,” said Patrick Esteruelas, a New York-based analyst at Eurasia Group. “The government is going to try to soften the blow by spending very aggressively from now until voters go to the polls.”
Collapse of Guri
Rodriguez said the El Nino weather phenomenon has caused the drought and that failure to cut electricity use by 20 percent may put the Guri plant out of commission and plunge the country into nationwide blackouts.
Hospitals, trains and airports will be exempt from the power cuts, Javier Alvarado, president of Electricidad de Caracas said yesterday.
Chavez halted production lines at state-run aluminum and steel companies in December in an attempt to save 558 megawatts of electricity a month. The metals companies, which form part of the state holding firm, Corp. Venezolana de Guayana, use 18 percent of the Guri output.
“If we don’t ration electricity we could be entering a situation of no return,” Rodriguez said on Jan. 11. “We may see a drop in economic activity, but that’s preferable to a complete collapse.”
Venezuela’s economy shrank 4.5 percent in the third quarter from a year earlier after contracting 2.4 percent in the second quarter.
‘Bombing Clouds’
Chavez has called on Cuban experts to try and stimulate rain by “bombing clouds” from jet planes, instructed Venezuelans to take three-minute showers and restricted the hours for public offices to five-hour days in an attempt to mitigate the effects of the drought.
Blackouts will begin today nationwide, including in Zulia, the country’s most populous state and a major oil producing region.
Petroleos de Venezuela SA, the state oil monopoly, said that power cuts won’t affect operations or output as refineries have their own generators, a spokesman said yesterday in a telephone interview.
The government’s failure to invest in energy infrastructure, and the nationalization of utility companies since Chavez took office in 1999, has left the nation vulnerable to energy shortages as electricity demand grows, Esteruelas said.
‘Disingenuous’
Chavez nationalized Electricidad de Caracas in 2007, paying AES Corp., a U.S. power producer, $739.3 million for its 82 percent stake in the company.
“There should have been a concerted effort to reduce dependency on hydroelectricity,” Esteruelas said. “It’s disingenuous for the Chavez administration to say it’s exclusively due to the effect of El Nino and the current drought.”
The devaluation will quicken inflation this year to 40 percent, according to Boris Segura, an economist at RBS Securities Inc. in Stamford, Connecticut. Consumer prices rose 27 percent in 2009, the highest rate among 78 economies tracked by Bloomberg.
The government will receive a fiscal boost of as much as $25 billion from the devaluation by doubling the amount of bolivars it receives for every dollar from oil exports, which Chavez will use to boost spending ahead of elections for all 167 seats in the National Assembly, Esteruelas said.
Election Boycott
Chavez’s United Socialist Party or its allies controls almost every vote in the legislature after the opposition boycotted elections in 2005 in a bid to isolate Chavez internationally.
Venezuela, South America’s biggest oil producer, fell into a recession last year after oil revenue and factory output atrophied due to cuts in crude production in line with OPEC and a fall in imports to save international reserves.
Rationing of electricity and water are new problems for Venezuelans, said Jose Manuel Puente, an economist at the Center for Public Policy at the IESA business school in Caracas.
“The government makes these announcements in a very difficult macroeconomic context. The government has had extraordinary oil income, and with such a bonanza, has evidently not planned correctly,” he said. “Venezuela has a lot of problems but we’ve never had these.”
--With assistance from Alex Cuadros and Jose Orozco in Caracas. Editors: Fred Strasser, Patrick Harrington
To contact the reporter on this story: Daniel Cancel in Caracas at +58-212-277-3712 or dcancel@bloomberg.net.
To contact the editor responsible for this story: Joshua Goodman at +55-21-2125-2535 or jgoodman19@bloomberg.net
-0- Jan/13/2010 06:00 GMT