Power Outages Continue in Venezuela, Threaten Oil Production

| May. 13, 2011 |

Published by Minyanville

Venezuela was yet again hit by power outages this week, leading to electricity rationing across much of the country and forcing the closure of one of its largest oil refineries, located in Paraguana. The plant has the capacity to produce 900,000 barrels of crude a day.

Tuesday saw country-wide electricity rationing after a 3,000 megawatt cut in the national grid. Rationing was in the form of rolling blackouts across 20 of the country’s 23 states.

High temperatures are thought to be to blame this time round. Electricity shortages are a perpetual problem for Venezuelans, including those in the capital Caracas. A drought last year led to a decrease in output at the country’s main hydroelectric dam. President Hugo Chávez claimed the problems over, however, the recent blackouts have raised concern that the crisis has not been resolved.

Chávez will be keen to prevent electricity problems, not solely for the financial repercussions but also the loss of popular support before next year’s elections. Opposition leaders will pounce on the problems as a demonstration of Chávez’s incompetence in power.

Critics have suggested that it's a lack of investment in Venezuelan’s power infrastructure that's to blame. Foreign investment in Venezuela has dropped substantially, according to a recent Economic Commission for Latin America and the Caribbean (ECLAC) report. The news makes Venezuela the only country in the region with a negative balance, with inflows declining $1.4 billion.

Nationalization Policy Criticized

The government’s nationalization policy is also under attack. ECLAC’s Economic Affairs Officer Alvaro Calderón said: “There is not another similar (strategy) in Latin America. The goal is to put industrial development in the hands of the State. These are strategic options carried out by governments.” He added: “Latin America is attractive as a market and for its production costs."

Oil Quotas Unchanged, Inflation Still High

With oil lubricating the country’s economy, fluctuations in its price led Venezuela’s oil minister Rafael Ramirez to insist that no change in quotas was needed. "Oil prices have risen a lot. It goes up and down. It is the typical characteristic of the instability of the market and what is happening in Libya also influences a lot," he said, talking of a $12 drop in crude last week, which was down to fears over the US economy.

Ramirez continued to add that the fluctuations were not up to OPEC to control, having to do with “the violence in North Africa.” That violence, with attacks on Libya by a number of western nations, have been criticized by the Venezuelan government, though it will reap the rewards of the escalation in oil prices they have caused.

State-oil company Petróleos de Venezuela (PDVSA)—which Ramirez also heads—has been hounded with criticism over its lack of transparency and apparent declining production over recent years.

The 27% inflation that Venezuela has seen in the year to March coupled with currency devaluations has meant the real value of the minimum wage has dropped a staggering 37.1% since 1980. This renders Chávez’s recent announcement of wage hikes of 15% this month followed by a further 10% in September meaningless for many.

The figures come from the country’s central bank and its National Statistics Institutes. Most wage increases since 1980 have exceeded 20% annually. The basic wage in real terms looks to end at 3.7% below its level in 2006, the highest during Chávez’s presidency.

Columbia and Venezuela Cooled

Relations between Colombia and Venezuela, warming in part thanks to the extradition this week of alleged Venezuelan drug trafficker Walid Makled to his home country rather than the US, cooled slightly as a report from the International Institute for Strategic Studies (IISS) linked Chávez and Colombia’s FARC rebels.

Colombian president Juan Carlos Santos has warmed to Chávez over recent months, hoping to increase bilateral trade to high previous figures. Last year, Santos accused Chávez of attempting to assassinate him. Now he calls him his “new best friend.”

Hunger Strike Ends in Death

A former worker at PDVSA has died after a hunger strike, protesting for his re-enlistment with the company and requesting a meeting with company representatives. Jesús Malavé, 29, died last week outside the offices of the National Assembly. His death demonstrates the anger of staff at the oil company towards bosses.