Girish Gupta

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Power Outages Return to Haunt Chavez Before Election
Jun. 17, 2011

Published by Minyanville

Recovering in Cuba after an operation, Hugo Chávez has another headache to deal with: the third set of power outages in three months.

Power outages are yet again rearing their ugly head in Venezuela, at a rough time for President Hugo Chávez who will be keen to show voters that things are running smoothly in the months leading up to next year’s presidential election.

This third set of blackouts in the last three months will do nothing to placate voters -- fueled by opposition rhetoric -- who see the problems as a sign of the administration’s incompetence.

It was a transformer in oil-producing Zulia state that was to blame this time towards the end of last week. The weekend then saw further failures in the western states of Trujillo, Merida, Tachira and Barinas. Chávez’s government has put the blame on saboteurs. Following May’s outages, two state electricity company workers being charged with sabotage and will face up to eight years in prison.

Rolling blackouts have been ordered in the west of the country and new measures have been introduced which force both individuals and companies to reduce consumption by 10% or face hefty fines. Vice president Elias Juaa announced the penalties this week, with businesses and residential customers having to cut down by 10% or face fines of up to double the value of their bill if usage increases by more than 10%.

The Financial Times points out that these outages come at a time when the government is heavily subsidizing both electricity and gas. Public coffers are struggling to keep up with demand, it says, “even though high international oil prices have been pouring money into one of the world’s biggest producers.”

"The subsidy is hugely inefficient," Boris Segura, economist at investment bank Nomura in New York, told Reuters. "It has a hugely negative impact on (state oil company) PDVSA."

Cutting the subsidy is near-impossible for Chávez. When the government attempted this in 1989 fatal riots known as the Caracazo left hundreds dead.

"The subsidy is why domestic consumption of gasoline in Venezuela only goes up. Nobody has any incentive to save on gas use," Segura added. "This is a Catch-22... Nothing will happen."

Paolo Batori of Morgan Stanley offered some explanation this week of the “Venezuela Paradox”, explaining why the country’s financial situation is in dire straits while oil prices rise rapidly. He said that although the price of oil is going up, so too are import costs. Meanwhile, the state oil company Petróleos de Venezuela (PDVSA) is being mismanaged, and oil is being sold not for cash but rather for agreements or simple diplomatic favors.



The government clearly doesn’t agree with Batori’s thinking, as it was announced that PDVSA will be receiving $1.5 billion in loans from various Japanese banks, to be repaid with 3 million barrels of light crude every year for the next five years. The deal is designed to help Japan’s own electricity generation problems after this year’s devastating earthquake.

Canadian Company Suing
After the state unilaterally decided to cancel a 2002 contract with Canadian gold mining firm Crystallex last week, the company is seeking compensation of up to $3.8 billion. The contract allowed the company to develop the Las Cristinas gold mine in Venezuela, one of the country’s largest gold deposits.

Peru's Leader To Visit a Recovering Chavez
Peruvian president-elect Ollanta Humala will include Venezuela in an upcoming tour of the region, stoking opposition claims that he's in fact in bed with Chávez. Humala has distanced himself from the socialist president in order to win the recent election. Humala touted himself as aligned with the more moderate -- and extremely popular -- former president of Brazil, Luiz Inácio Lula da Silva.

Chávez has had a relatively quiet week recovering from surgery in Cuba for an abscess in the pelvis which was discovered towards the end of his recent tour of Latin America. He remains in Cuba following the surgery which comes just after a knee injury postponed the Latin America tour.

In perhaps even more dramatic language than usual, Chávez said on Friday: “I will happily die in the service of the suffering people.” He told Venezuelan TV station Telesur last week that he is now in possession of his “full faculties”.




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© Girish Gupta