Archive for March 2010
Venezuela has crossed the rubicon from democracy to totalitarianism. President Hugo Chavez has criminalized opinions. Thoughtcrime finally has become reality.
Former Zulia Governor Oswaldo Alvarez Paz, a very senior figure in the Christian Democrat Copei party and an elder statesman of Venezuelan democracy, was arrested the night of 22 March by agents of President Hugo Chavez’s new Bolivarian National Intelligence Service (Sebin).
A criminal court ordered his detention on charges of disseminating false information, instigating hate and fear, conspiracy, and potentially even treason against the nation if government prosecutors wish to go that far. Alvarez Paz is being held at Sebin’s Helicoide headquarters, formerly the headquarters of the Interior & Justice Ministry’s political police (Disip).
The criminal charges against Alvarez Paz are based entirely on remarks he made on 8 March during an appearance on Globovision’s “Alo Ciudadano” opinion program, which always is balanced, objective and deservedly critical of the Chavez regime.
Briefly, Alvarez Paz expressed his opinion that the Chavez regime was doing a very poor job of fighting drug trafficking and terrorism. Very few (mostly Chavez and gang) would disagree with that opinion. There is an abundant and always growing public record of the Chavez regime’s official and unofficial (i.e. criminal) alliances with the FARC, ETA and other bad state and non-state actors. ETA’s top man in Latin America works in the security department at the National Lands Institute (INTI); a Basque terrorist in Venezuela actively sought by Spain’s judiciary is serving the Bolivarian revolution with a badge and a weapon.
Alvarez Paz said what he thought a week after a Spanish court issued an arrest warrant against 13 FARC and ETA members on charges that they conspired in Venezuelan territory to assassinate Colombian President Alvaro Uribe Velez, former President Andres Pastrana, and former Foreign Minister Noemi Sanin in Spain. The indictment also charges that they cross-trained each other in the manufacture of homemade explosive devices, mortars and urban terrorism tactics. The indictment also states that some meetings in Venezuela between the FARC and ETA were facilitated with the help of some officials in the Chavez regime’s intelligence services.
Indisputably, all this is public record. Alvarez Paz, like any other Venezuelan protected by the Constitution of Venezuela, had every right to express his opinions about an issue of critical national importance. However, for saying what he thinks, Alvarez Paz was slapped with criminal charges that could send him to prison for up to 16 years if convicted. Reportedly, the court also ordered that he must remain under arrest until the investigation and trial conclude, which could take years if the regime wishes.
Interior & Justice Minister Tarek al-Assaimi claims that President Chavez did not give orders that Alvarez Paz be arrested and jailed indefinitely.
The Minister said, “No one can stand here and defame, lie through a news media without anything happening. This individual states some premises or says something as serious as trying to link the government to drug trafficking and terrorist networks; and just as he has the responsibility of standing up in a (news) media to state this, so must he assume the consequences of what he says.”
However, Alvarez Paz expressed his opinion about a criminal indictment issued by a court in Spain. Alvarez Paz did not fabricate false allegations or spread any disinformation; and he certainly was not conspiring or seeking to instigate fear and hatred in the general populace.
But Chavez clearly has a political motive for putting Alvarez Paz in jail indefinitely. The criminal case against Alvarez Paz was officially requested by several members of the National Assembly, which Chavez controls. The Attorney General’s office, also controlled by Chavez, took the case to a court controlled by Chavez, which accepted the baseless charges recommended by the public prosecutors and issued the arrest warrant against Alvarez Paz.
Does Chavez want a conviction? If so, Alvarez Paz could spend some years in prison. Chavez was not boasting idly when he reportedly told a group of visiting Latin American Socialist/Marxist scholars very recently that in Bolivarian Venezuela, Chavez is the three branches of government.
The Chavez regime has persecuted and prosecuted dissenting and independent opinion for years. Alvarez Paz isn’t the first individual arrested and confined illegally for expressing critical opinions of the Chavez regime. He also isn’t the first person to be sent to jail for years on manufactured criminal charges because President Chavez wished it to be so.
But the bogus criminal case against Alvarez Paz is thoughtcrime, and Sebin is the supreme state security agency charged with fighting crimethink.
Royal Dutch Shell’s Chief Financial Officer Simon Henry told reporters on the sidelines of a press conference in London this week that international oil majors have mostly lost interest in investing in Venezuela.
“They are desperately inviting people back in, but no one’s going there,” Henry was quoted as saying by Reuters.
Today, Shell Venezuela issued a statement saying that what Henry meant to explain was the challenges for international oil companies with regards to access to global markets, and how decisions are made based on several factors, including “the availability of capital for mega projects.”
Was it a reporter’s misinterpretation, an executive’s wrong choice of words and phrasing, or was it deliberate?
Pdvsa awarded a project in the Orinoco oil belt’s Carabobo section on 10 February to a consortium led by Chevron.
A consortium led by ONGC of India and Spain’s Repsol was awarded a second project in the Carabobo section.
Pdvsa also has signed Orinoco strategic agreements with the Russia Consortium (LUKoil, OAO Gazprom, TNK-BP, Rosneft, and Surgutneftegaz), with CNPC, Sinopec and CNOOC of China, and with Italy’s Eni.
Pdvsa has a 60% stake in all of these planned joint ventures, which on paper are worth over $80 billion, according to President Hugo Chavez and Energy Minister Rafael Ramirez.
But Pdvsa also has been tasked with developing Junin 10 and Carabobo Project 2 by itself, together costed at over $40 billion.
Pdvsa also is responsible for funding some $26 billion of basic infrastructure in the project areas including pipelines, roads, electricity, communications, potable water and sewage, thousands of housing units and related health care and education facilities.
Chavez dreams of urbanizing the Orinoco River Basin and simultaneously making it a great energy, agricultural and ranching region.
But the revolution can’t do it without the international oil companies, Chavez said on 10 February.
However, the list of international majors which have decided to not do any new business at all with Venezuela, at least for now, includes Shell, ExxonMobil, ConocoPhillips, and BP.
Total of France and Norway’s Statoilhydro also withdrew in January from joint venture talks with PdV in the oil belt’s Junin 10 block.
Brazil’s state-controlled Petrobras also has decided to not invest in Venezuela, although it did bring in Pdvsa as a 40% stakeholder in the Abreu de Lima refinery in Pernambuco. But Pdvsa still has not made the first $300 million payment that it owes Petrobras for its share of expenses accrued in the refinery’s construction.
Pdvsa’s relations with China’s oil companies are not as glowing as Chavez claims. A big problem is Pdvsa’s chronic inability to fulfill its oil export commitments to China.
Chavez said recently that Pdvsa currently exports 300,000 b/d to China. But official Chinese government data shows that China’s oil imports from Venezuela have averaged about 80,000 b/d during the past several years.
Still, China’s oil companies aim to be in Venezuela for the long haul.
The Russia Consortium also may be seeking to build a large presence in Venezuela. But Russia, unlike China, does not have any urgent need for Venezuela’s oil and gas resources.
The expanding Russian footprint in Venezuela – built on arms and energy deals, and soon nuclear cooperation – reflects Russian leader Vlamidir Putin’s determination to restore Russia’s status as a global power and bring the US down a peg or two in its own hemispheric backyard.
How quickly these partnerships break ground on planned projects depends on many global and local economic, political and social factors. Capital is one of the biggest factors, and certainly could be Pdvsa’s biggest obstacles to advancing these planned Orinoco projects.
Pdvsa has to come up with $48 billion for its 60% share of the $80 billion dollars of Orinoco joint ventures it hopes to launch with Chevron, ONGC, Repsol, Eni, the Russians and Chinese.
But Pdvsa also has to find another $66 billion to develop the Junin 10 and Carabobo 2 projects by itself – unless, as Ramirez has indicated, another successful public auction is held. However, Pdvsa likely will not risk another auction unless it is 110% certain that it will get firm proposals from foreign oil companies.
Pdvsa’s total Orinoco investment obligations, on paper, work out to $108 billion over the coming six years, approximately.
However, this total does not include additional planned investments worth tens of billions more in new refining capacity in Venezuela (4 refineries), China (4 refineries) and at least a half-dozen other countries including Ecuador, Nicaragua, Vietnam, Syria, and Brazil, among others.
It also does not include Pdvsa’s ambitious offshore gas production, liquefied natural gas and associated petrochemicals investments.
And it doesn’t include up to $30 billion of potential liabilities created by Chavez’s wholesale nationalizations since 2007.
But Pdvsa is a collapsing (collapsed?) oil company, even with oil prices at over $70/bl.
Like Shell said: it’s all about capital, which Pdvsa doesn’t have.
A curious thing happened in Washington, D.C. last week.
The shadow of Ana Belen Montes appears to have made a brief appearance on Capitol Hill, but perhaps it was only a reflection from the windshield of a passing car.
On 10 March, Assistant Secretary of State for Western Hemisphere Affairs Arturo Valenzuela told US legislators that there have been some signs that Venezuela’s government is cooperating with the Revolutionary Armed Forces of Colombia (FARC). Valenzuela said he could not talk about this at a public hearing, but offered to speak with US legislators behind closed doors.
On 11 March, Southcom commander General Douglas Fraser (Air Force) told US legislators that his command has not seen any evidence “of any specific relation that could verify that there is a direct link between the government (of Venezuela) and the terrorists.” Fraser added that Southcom “has maintained a close monitoring of any connection with some illicit or terrorist organization in the region… (but) we’re concerned, skeptical and will continue monitoring” the situation.
General Fraser’s remarks caused great surprise among civilian and military intelligence professionals from several countries including the US, Colombia, Trinidad & Tobago, Spain, Brazil, the Netherlands, and France.
Then, on 12 March at 5:08 p.m., General Fraser posted a clarification of his remarks the previous day at Southcom’s web site:
“Yesterday I testified before the Senate Armed Services Committee and fielded a question from Senator McCain pertaining to the Government of Venezuela (GoV) facilitating contacts between the Revolutionary Armed Forces of Colombia (FARC) and the Euskadi Ta Askatasuna or ETA (Basque Homeland and Freedom) during the planning and attempted assassination of Colombian officials, including President Uribe, during their recent visit to Spain. The Senator also asked about other activities where the GoV was engaged in enabling or supporting terrorist activity in our area of responsibility. Assistant Secretary of State Arturo Valenzuela was asked a similar question one day earlier during testimony before the House Foreign Affairs Conference on 10 March.”
“Assistant Secretary Valenzuela and I spoke this morning on the topic of linkages between the government of Venezuela and the FARC. There is zero daylight between our two positions and we are in complete agreement: There is indeed clear and documented historical and ongoing evidence of the linkages between the Government of Venezuela and the FARC. We track this and continue to monitor the amount and level of direct support in the form of money, networks, and providing a safe haven for operations and personnel. In this view and pursuit, we are in direct alignment with our partners at the State Department and the Intelligence Community.”
Southcom is “in direct alignment” with its “partners at the State Department and the Intelligence Community.”Good to know everyone is aligned. However, it doesn’t answer the troubling questions raised by the complete contradiction of General Fraser’s original remarks vs. Assistant Secretary Valenzuela’s statements to US legislators.
Was it a case of General Fraser being poorly prepared by his staff? Or was it something else inside Southcom? And what does this say about the rest of the US intelligence establishment’s perceptions and views about Chavez, the FARC, ETA, Cuba, Iran, and his other unsavory terrorist and criminal associates now stretching their wings across Latin America? Does Latin America have any priority for US intelligence – and by extension, diplomacy?
These are fair questions. The Obama administration has invested much time and effort in Honduras since 28 June 2009 basically trying to undo the legitimate removal from power of former President Mel Zelaya by the Supreme Court and Congress of Honduras. But the Obama administration has hardly reacted at all to Chavez’s systematic destruction of democracy and freedom of expression, to his regime’s increasing human rights abuses, and to the enormous official presence that Fidel Castro’s regime has established in Venezuela.
Viewed from Venezuela, the Obama administration’s apparent obsession with Honduras, contrasted with its exaggeratedly benign indifference to what Chavez is doing in Venezuela and regionally, is frustrating to say the least.
Historically, US leftists (liberals) and rightists (conservatives) have always agreed, albeit for different reasons, that the US government has never (rarely) gotten anything right in Latin America. But nowadays the traditional US myopia with respect to Latin America appears to have worsened considerably.
Caracas Gringo asked several longtime US sources who know about these matters, because they spent years “inside,” for their thoughts on the contradictory statements by General Fraser and Assistant Secretary of State Valenzuela, who – de facto – is hierarchically superior to the general in the US government. At some point during our separate conversations with these sources, all of them said “Ana Belen Montes.”
Ana Belen Montes was a senior analyst at the Defense Intelligence Agency (DIA), where she worked for 16 years with a Top Security Clearance – until she was arrested on 20 September 2001 on charges of spying for Cuba. Belen Montes already had been recruited as a spy by CuIS when she was hired in 1985 by DIA. Nicaragua was her first assignment, but in 1992 Belen Montes was moved to the Cuban desk. Over the years she rose to become the US intelligence establishment’s top analyst on Cuba. A former colleague says, “She was the person to go to on Cuba when a briefing was needed.”
As the Defense Department’s (DoD) top intelligence analyst on Cuba, Belen Montes was in a unique position to influence the National Intelligence Council reports issued annually, which combined the findings of separate US intelligence agencies. In 1998, Belen Montes was the lead author of a DoD that concluded that Cuba posed no military threat to the United States and was harmless to US national security. At end-1998, Chavez was elected president of Venezuela. When Chavez assumed power formally in February 1999, Fidel Castro already had been his closest international ally and chief political mentor for over four years.
In 2002, Wall Street Journal’s Mary O’Grady wrote: “Ms. Montes had done her job well. Top U.S. military brass enthusiastically embraced the report. Marine General Charles Wilhelm, then head of U.S. Southern Command, was quoted in the Miami Herald saying that the Cuban military ‘has no capability whatsoever to project itself beyond the borders of Cuba, so it’s really not a threat to anyone around it.’ In a long-winded op-ed piece in the Palms Beach Post in 1998, retired Marine Gen. Jack Sheehan told of a trip to Cuba where he shared rum and cigars with Fidel. He argued that the U.S. needed a kinder, gentler attitude toward the regime. ‘Our intelligence data also supported the conclusion that Cuba was not a military threat to the U.S.,’ Mr. Sheehan wrote… But that is a long way from saying that Castro is a benign presence or is incapable of doing harm to the U.S. through indirect means.”
Only eight years later, 2010, some analysts routinely describe the Chavez-Castro alliance as “Cubazuela.” Chavez is the officially anointed heir to Fidel Castro’s mantle of leader of the Latin American revolution. The Chavez regime keeps the Castro regime afloat with over 100,000 b/d of crude oil and other cash benefits worth collectively over $5 billion a year to Havana. In exchange, the Castro regime has deployed upwards of 50,000 Cubans in Venezuela on official missions.
There are Cuban officials today inside every key Venezuelan government agency including the national passport and identification authority (Onidex), the tax authority (Seniat), the banking superintendent (Sudeban), the national mercantile and civil registry, the seaport authority (Bolipuertos), and the education, labor, public works and housing, planning, economy and finance, energy, electric power, and the environment ministries, Corpoelec and Pdvsa, among others.
Dozens of Cuban military advisers are deployed in the armed forces, including many with the military intelligence directorate (DGIM) headed by general Hugo Carvajal, who was designated a FARC collaborator in September 2008 by the US Treasury. Cuban intelligence experts also are working in Venezuela with the Interior & Justice Ministry’s political police (Disip), and with other state intelligence and security services including the recently created National Police.
Caracas Gringo asked several sources about Fraser’s shop: Southcom. How do they get their intelligence?
The response was: “Mostly from open sources, news and magazine articles, academic, think tank and university research papers, conferences where the panelists are regional or country-specific experts. They never visit any blogs because blogs are not official media. They never meet with non-U.S. citizens under any circumstances. Instead, they contract US companies that are owned, managed and staffed by former US military intelligence personnel who are now civilians. These contractors usually sub-contract third parties, who then sub-contract other experts, often academics, to do the actual in-country field work under rigid parameters; for example, zero contacts with active duty and retired military, security or political figures in these countries.”
No real human intelligence from in-country, then? No native sources on the ground? No clandestine moles, spies or whatever inside the Chavez regime? Response: Apparently, none.
Meanwhile, Cuba’s intelligence service (CuIS) has been running rings around the US intelligence community for decades, and continues doing so up to the present.
On 4 June 2009, the FBI arrested former State Department official Walter Kendall Myers, 72, and his wife, Gwendolyn Steingraber Myers, 71, on charges of conspiracy to act as illegal agents of the Cuban government, and to communicate classified information to the Cuban government (i.e. espionage). The couple also was charged with acting as illegal agents of the Cuban government and with wire fraud.
According to an affidavit in support of the criminal complaint, Kendall Myers began his work at the State Department in 1977, initially serving as a contract instructor at the Department’s Foreign Service Institute (FSI) in Arlington, Va. By mid-1979 he had been recruited by CuIS. From July 2001 until his retirement in October 2007, he was a senior analyst for Europe for INR, where he specialized in intelligence analysis on European matters and had daily access to classified information through computer databases and otherwise. An analysis of Kendall Myers’ classified State Department work computer hard drive revealed that, from 22 August, 2006, until his retirement on 31 October, 2007, he viewed more than 200 sensitive or classified intelligence reports concerning the subject of Cuba, while employed as an INR senior analyst for Europe. Of these reports concerning Cuba, the majority was classified and marked Secret or Top Secret.
DIA and State were penetrated successfully at very top secret levels by CuIS for almost two decades. FBI agent Robert Hansen spied for the Soviets and Russians 22 years until he was caught in 2001. Undoubtedly, just tips of the iceberg. “The crisis in US intelligence is much worse than is generally realized,” says a retired US general who spent much of his career in the intelligence business.
Watching President Hugo Chavez “manage” Venezuela’s electricity supply crisis reminds Caracas Gringo of King Arthur’s battle with the Black Knight in Monty’s Python’s Holy Grail. Denial, denial, denial until, finally, a Black Knight left without arms, legs and severed at the waist says, “All right, then; let’s call it a draw.” We’re reminded of that fight scene because the Black Knight’s motto is “None Shall Pass.” But when it’s over, the Black Knight has been reduced to a loud mouth on a bleeding stump.
Monty Python’s Holy Grail is a great British comedic satire of the legend of King Arthur, Camelot and the quest for the Holy Grail. The only thing legendary about Chavez is the ruin he has brought down on all Venezuelans in just one decade. Otherwise, Chavez is just the political equivalent of a lethal pestilent disease like, say, the Black Death in Middle Age Europe. But there is a certain grim humor to the antics of Chavez and his senior ministers. For example:
*Chavez says that God is a Bolivarian, which means that heavy rains will sweep Venezuela and the power crisis will be over as the country’s reservoirs refill quickly.
*Chavez says there isn’t any power crisis, but if there is one it isn’t his fault. The responsible parties are wasteful Venezuelan consumers infected with the evil virus of capitalism, the old Fourth Republic “squalid ones” who did not invest in the power sector for over three decades, and a drought brought to Venezuela by El Nino and the global warming caused by the Evil Gringo Empire.
*Electric Energy Minister Ali Rodriguez Araque says the power crisis will be over by end-May, because the regime is spending $4 billion in 2010 to commission 4,000 MW of new power generation capacity. This $4 billion expenditure is part of a larger regime plan to spend $14 billion through end-2015 to commission 14,000 MW of new thermal power generation capacity. These are nice round numbers, but otherwise meaningless.
*Vice President and Agriculture & Lands Minister Elias Jaua announces that a “ring” of thermal power generators will be built around Caracas to keep the lights lit in Venezuela’s capital city of over 6.5 million residents. Some units are being installed at Electricidad de Caracas’ Tacoa Plant, and other units apparently will be small 5 MW diesel-burning power generators.
*Electricidad de Caracas President Javier Alvarado says there isn’t a power rationing program. But a regime resolution warns that clients who don’t cut consumption by 20% in less than a month will pay 200% more for their electricity and could lose their power supply completely. Meanwhile, the Centro de Gestion Nacional (CGN, formerly Opsis) reports that in the roughly the first three weeks of the government’s “power rationing” program to reduce consumption by 20%, the actual “savings” were less than 5%. The CGN report also says that key thermal power generation units have been shut down and the start-up of other units is delayed.
*But Corpoelec is rushing to install 1,000 MW of thermal power generation capacity based on small diesel-burning units that generate at best 4.5-5 MW per unit. Pdvsa also is rushing to become self-sufficient in power generation, spending $1.2 billion to import 900 MW of thermal power generation capacity from the US, Europe and China. Of course, the fuel oil and diesel needed to run all this new generation capacity will be subtracted from Pdvsa’s exports of fuel oil and diesel. Caribbean clients of Pdvsa will get less fuel oil and diesel in coming months, says Ramirez.
It’s classic Bolivarian entertainment at its best, a dog-and-pony show where Ringmeister Chavez and all of his subordinates are constantly in movement, or at least projecting the appearance of movement, purpose, direction, effectiveness, control, professional management. But it just isn’t so.
Venezuela’s power crisis didn’t just happen. It was 11-plus years in the making. It won’t be solved quickly. The Caroni River Basic (95,000 km2) is suffering the worst drought in many years. Other Venezuelan river basins and water reservoirs associated with those systems are also at their lowest levels in this blogger’s memory. Chavez says there’s plenty of time. Guri has at least five months left before the situation gets alarming, not critical, only alarming, says Chavez.
But independent voices within Edelca warn that the Guri Dam’s water levels have dropped into what they call “the emergency zone,” a point where the wisest course of action is to start shutting down some power generation capacity to conserve the turbines and slow the rate at which the reservoir’s water level is falling. However, Corpoelec’s orders are that Guri should continue operating flat-out. Only 63% of its 10,000 MW rated generation capacity is operational, but Guri reportedly is operating this reduced generation capacity above the maximum recommended levels for safe turbine operation.
Edelca’s says the “emergency zone” is when the water level is between 256/9 meters and 248 meters above sea level. The last CGN report put’s Guri’s water level at 254.07 meters, but that was over a week ago and new (still-unconfirmed) reports suggest the Guri reservoir’s rate of descent has accelerated from about 10-12 cm a day to about 16-18 cm a day. If these reports are accurate, the “national collapse” predicted by Edelca in December 2009 could arrive sooner than between end-April to end-May.
The CGN’s latest report says that Edelca’s Lower caroni complex is generating 216.78 GWh per day, of which Guri accounts for 122 GWh. Guri should nto be generating over 107 GWh, say some critics. But Corpoelec has to continue squeezing all the power it can generate from Guri and the other Loer caroni River units because the country doesn’t have thermal generation capacity to offset any reductions in hydro-power generation.
This is the nub of Venezuela’s power supply crisis. There isn’t enough thermal power generation capacity to offset any reductions at all in hydro-power generation. It’s a structural crisis that only can be solved by (1) repairing the existing power generation and transmission grid, and (2) building new power generation plants and transmission systems. It doesn’t matter what Chavez says. The “national collapse” that Edelca forecast due to the power supply crisis is unavoidable, inevitable, and imminent.
Venezuela’s economy will be forced to tighten its belt at every level. Four-day work weeks, reducing production and assembly operations by at least 50%, switching off every possible electrical device including air conditioners – all this and more will be seen everywhere in the country. Think of the electricity system as an immense tree with millions of branches, stems and leaves. Each branch, stem, and leaf is a user of electricity. Electricity is the “water” of the economy and society. However, put the tree in the equivalent of the Sahel Desert or Chile’s Atacama Desert where there is zero moisture, and the first to die are the leaves, stems and branches. Keeping the tree analogy in mind, cut off power supplies to Venezuela’s economic and social sectors and they will wither and die quickly, like the tree’s leaves, stems and branches if deprived completely of water.
We’re not suggesting that all of Venezuela could black out. The Chavez regime will do everything in its power to keep the lights lit in Caracas. The regime is definitely scared of the possible popular consequences of prolonged blackouts in Caracas. But the rest of Venezuela outside the greater Caracas metro area likely would be abandoned by the regime as power supplies are channeled to Caracas and to essential oil industry operations. Some analysts have suggested that at least 40% of Venezuela’s population faces days and even weeks without electricity if Edelca is forced to shut down 5,000 MW of generation capacity at Guri.
And it’s not just Guri. Edelca also operates two dams and hydro-power complexes downriver from the Guri Dam – Macagua and Caruachi. If Guri has to reduce water volumes and shut down generation capacity, there would be a cascade effect downriver as Macagua and Caruachi also would have to reduce their power generation levels. First Guri will shut down half its generation capacity, but the cascade effect of falling water levels then will reach Tocoma (not commissioned yet), and then will continue further downriver to Caruachi and, finally, Macagua.
Edelca’s Lower Caroni River hydro-power complex has a total nominal generation capacity of 16,136 MW, but currently is producing only 7,000 MW, says Miguel Lara, a former Opsis director and acerbic critic of the Chavez’s regime’s policies in the electric sector. Lara puts Guri’s nominal capcity at 7,850 MW, Caruachi at 2,196 MW and Macagua at 2,930 MW. But an Edelca source says that if Guri is forced to shut down turbines with a nominal generation capacity of 5,000 MW, its total power output will drop to about 3,000 MW, and immediately Caruachi and Macagua will be forced to reduce their power generation by at least 20%, or almost 1,000 MW.
Cascade is a good descriptive word to describe the immediate national impact of taking 5,000 MW to 6,000 MW of hydro-power generation capacity offline on the Lower Caroni River. Every economic activity in the country would be affected. State-owned potable water aqueducts and wastewater disposal/treatment systems would not work properly. No electricity means that there also would be no refrigeration to conserve frozen and refrigerated perishable products including food and many medicines.
Health care services, especially state-owned health services, would collapse. Service stations cannot pump gasoline and diesel without electricity. Banks cannot operate efficiently and securely without their integrated online/computer systems. Public transport systems (traffic lights, etc.) would shut down, worsening vehicle congestion. The hills around Caracas would no longer glitter with millions of points of lights at night, but instead would be black. Telecommunications services including cell phones would go dark as well. Commercial and passenger activities at land borders, seaports and airports would be disrupted. Radio communications would black out too if there isn’t electricity to recharge radio batteries. Fedecamaras economists estimate each day the private sector does not work costs over BsF2.5 billion in lost production and sales, almost $1 billion a day at the official exchange rate, or $52 billion a year if a four-day work week is in effect for 12 months.
But the large mainstream economists are still playing it conservative. The Chavez regime says the economy will grow 0.5% in 2010. Independent forecasts concur roughly on a contraction of about 3%. But a handful of forecasters in Caracas think the economy could shrink at least 8% in 2010 due to the power crisis. And it won’t be over in 2011, either. The power crisis will hurt Venezuela’s economic growth prospects for at least three to five years.
How will Venezuela’s populace react when the lights go out? Parts of the country already are without electricity for up to 14 hours a day, and in these areas daily protests are occurring although they are not reported by a mainstream news media obsessed with self-censorship to avoid being persecuted or shut down by the regime. But 14-hours without electricity every day soon could be the norm everywhere in Venezuela, including Caracas. It’s possible that a new national season of nightly “cacerolazos” will start soon. More frequent and larger street protests are likely too. Chavez and his propagandists will try very hard to distract the public’s attention, but nothing the regime does will whitewash the long hours that everyone will spend in darkness every day.
Pdvsa auctioned two Orinoco joint venture projects in the Carabobo bidding round held on 28 January-10 February 2010, and since October 2009 has signed strategic agreements with Russian, Chinese and Italian oil companies to develop three more projects in the oil belt’s Junin section.
Pdvsa estimates that these projects will require combined investments of $40 billion in the two Carabobo projects, and another $40 billion roughly for the three planned Junin joint ventures. PdV is responsible for funding 60% of these investments.
But this is just the start – for PdV, which has accumulated some very substantial investment obligations in the oil belt. For example:
*Pdvsa has been ordered to develop the Junin project by itself after the proposed minority partners, Total (France) and Statoilhydro (Norway), withdrew from negations because they could not reach an agreement on terms and conditions with Pdvsa. Estimated cost: $20 billion.
*Pdvsa also reportedly plans to develop the Carabobo 2 project by itself, unless Pdvsa decides to hold another auction and perhaps include the Junin block that Total/Statoil dropped out of. Estimated cost: another $20 billion.
*Pdvsa is responsible for building the oil pipelines, solids terminals, power generation/transmission infrastructure and other fixed assets required by the planned production/upgrader joint ventures. Estimatede cost: Unclear, but let’s say $3 billion.
*Pdvsa also is responsible for funding and developing the Orinoco/Apure Development Pole that is dear to President Hugo Chavez. Estimated cost: Another $26 billion.
That’s a huge pile of cash: $48 billion (60%) for the two Carabobo and three Junin projects, plus another $69 billion to fund the other obligations listed above. In all, $117 billion spread over six to ten years?
Where does Pdvsa expect to raise so much cash? Central Bank reports that Venezuela’s oil GDP – i.e. Pdvsa – contracted 10.2% in fourth-quarter 2009 when oil prices averaged over $70/bl. Oil GDP was down 5.8% for all of 2009, even though the average price of Venezuela’s oil basket was $57/bl.
Pdvsa says this year will see the official launch of its Carabobo and Junin joint ventures in the oil belt. But Pdvsa appears to be suffering a critical cash shortage. Energy Minister Rafael Ramirez and senior company officials are scrambling to raise cash everywhere they can. For example:
*All minority joint venture partners in the oil belt’s Carabobo and Junin projects are required to (1) pay front-end cash bonuses for the “rights” to participate in the joint ventures, (2) provide front-end financing of $500 million to $1 billion per project, and reportedly (3) accept (commit to?) Pdvsa’s demand that the minority partners must take the lead in arranging 100% of any project financing.
*Ramirez flew to Moscow and Beijing at end-January/start-February to urge Pdvsa’s Russian and Chinese joint venture partners to speed up the payment of, reportedly, about $1.2 billion owed for participation rights bonuses and other front-end payments required by Pdvsa.
*President Chavez announced a few days ago that Caracas and Beijing are in talks to raise the capitalization of the Venezuela-China joint infrastructure fund to $20 billion from $12 billion (of which over $10 billion has been spent). When first created in 2007, the fund was set at $6 billion, but it was doubled to $12 billion in 2008, with China putting up $8 billion as a loan payable with Pdvsa oil shipments. Now Chavez wants to hike it to $20 billion, likely in another debt-for-oil deal.
*Ramirez threatened on 1 March that Pdvsa could suspend its lease to operate Isla Refinery on Curacao, and terminate its operations there because the governments of Curacao and Aruba allegedly are “helping US military aggressions against Venezuela.” In fact, the Chavez regime appears to be creating an international political crisis with Curacao to give Pdvsa an excuse to suspend the lease, which does not expire until 2019. A Curacao court ordered Pdvsa in May 2009 to spend over $1.6 billion to reduce emissions at the 92-year-old Isla refinery. Pdvsa doesn’t have the cash, and it doesn’t want to risk getting saddled with any legal claims for cleaning up the environmental disaster zone that surrounds the refinery.
*Petrobras officials in Brazil say that Pdvsa to date has not paid $300 million that it owes as part of the joint venture agreement to take a 40% stake of the Abreu de Lima refinery. Pdvsa also hasn’t made a move yet to assume its 40% share of the 9 billion Reais debt on the refinery project. Why? Pdvsa doesn’t have the cash.
*Pdvsa’s debts are also impressive. The company’s direct financial debt climbed to over $21 billion in 2009 from $15 billion at end-2008. Moreover, Pdvsa owes $8 billion worth of oil shipments to China, not including any new debt acquired if the joint fund is increased to $20 billion. Pdvsa also owes 76 expropriated services companies about $3 billion, by some estimates. Pdvsa also is in international arbitration proceedings with Exxon and Conoco, which together reportedly are pressing compensation claims of at least $20 billion against Pdvsa.
Pdvsa expects to rake in over $6 billion in cash from the front-end bonus payments and loans provided by the minority joint venture partners. This will help Pdvsa cover part of its 60% portion of any development costs. But $6 billion is a drop in the bucket compared to the $117 billion of Pdvsa investment obligations listed above.
Higher oil prices won’t help Venezuela. The regime’s “break-even point,” the oil price at which its fiscal revenuers and crazed spending balance out, is now estimated at over $90/bl and that’s a low-ball estimate. Anyway, Pdvsa’s crude production has collapsed below 2.3 million b/d, for a net output loss of at least 1.5 million b/d of crude oil (over 20,000 production wells are shut down from zero maintenance). The numbers say that 1.5 million b/d of lost crude production capacity x a price of $70/bl today x 365 days = over $38.32 billion of oil export revenues that Venezuela cannot realize.
Pdvsa can issue more debt, and make more deals involving fresh debt-for-future oil shipments. But there are limits to Pdvsa’s borrowing capacity, and the more that Pdvsa borrows, the more expensive that borrowing will be in terms of cost-of-money, risk premiums and other fees/surcharges tacked onto each new debt contract.
Pdvsa’s prospective joint venture minority partners might be able to help out. But what will the oil companies seek in exchange from Pdvsa? Right now, Pdvsa rejects international arbitration, is reluctant to eliminate the windfall profits tax, is lagging on the legislative follow-through to its pledge to reduce the royalty rate from 33.3% to 20%, and won’t let the foreign companies carry on their books the Orinoco crude oil reserves in their respective project areas.
It’s very doubtful that Pdvsa’s Orinoco joint ventures will advance on schedule if Pdvsa doesn’t have the financial resources to cover its 60% stake in the joint ventures, plus also cover 100% of the other obligations listed above.
The foreign oil companies know this. They will leverage Pdvsa’s financial weakness to their advantage if at possible, which is only natural. But the companies also know that Pdvsa is, at bottom, unreliable and not to be trusted.
Petrobras officials say privately that their company has no desire to do any business deals or joint ventures with Pdvsa, but was pushed into the Abreu de Lima joint venture by President Luiz Inacio “Lula” da Silva. Likewise, a poll of Spanish multinationals found that they view Brazil as a good place to do business and Venezuela as very bad business, a place not worth risking investment capital.
China and Russia have strategic reasons for sending their state-owned and state-controlled oil companies into Venezuela. China needs every drop of crude oil it can get to drive its economic development. Vladimir Putin’s Russia wants to bring the US down a few pegs, particularly in its own back yard in Latin America/Caribbean.
But even Chinese and Russian oil companies are literally held captive by Pdvsa’s financial deficiencies. Without money in hand, Pdvsa can’t pay its way – period, and that means that the development of its Orinoco joint ventures quickly will fall behind schedule.
Many hints that President Hugo Chavez and his Bolivarian revolution are in trouble. Enough trouble to predict that the Bolivarian revolution will implode? That’s impossible to say with any hope of accuracy, given that internal conflict and turmoil always have been constants in the Chavez-led revolution. But recently, there have been many hints that some kind of reckoning could be at hand.
There appears to be recently a flock of canaries singing in the Bolivarian coal mine.** For example, and in no particular order of priority:
Cacerolazo in El Los Jardines del Valle: Los Jardines del Valle in Caracas erupted spontaneously on 27 February in a “cacerolazo”– ordinary folks protesting against Chavez by loudly banging their pots and pans together inside their homes. The protest lasted almost the entire time that President Chavez was giving a speech there to celebrate the 21st anniversary of the “Caracazo” of 27 February 1989. Of course, the regime showed very poor judgment in picking Los Jardines del Valle as the site for the president’s anniversary speech. The area’s older residents still remember how army troops commanded by officers that later participated in Chavez’s failed coup in February 1992 were merciless during the 1989 “Caracazo” in restoring order to Los Jardines del Valle.
The event’s staging also tends to confirm that Chavez is scared. Army troops occupied Los Jardines del Valle in large numbers 48 hours before the president spoke on 27 February. Area residents were told to do or say nothing that could be construed as a protest or complaint against Chavez. The regime’s military thugs warned that anyone who protested would be sanctioned severely. So people stayed inside their homes in Los Jardines del Valle on 27 February, while the regime bused in its “supporters” from different parts of the interior. But when Chavez started to speak, many of the residents of Los Jardines del Valle spontaneously started banging their pots and pans together to register their public disapproval of the president.
Warnings of imminent economic collapse: Eighteen of the country’s most respected economists issued a joint statement warning that Venezuela is headed towards a collapse that cannot be avoided with higher oil prices. The Chavez regime’s insistence on imposing a “socialist scheme similar to the former Soviet Union” will plunge Venezuela into “economic failure, poverty and the loss of freedoms.” Central Bank’s most recent macroeconomic data bear out this grim warning. Venezuela’s GDP contracted 3.3% in 2009. However, the economy’s plunge deepened in the fourth quarter of last year as GDP fell 5.8%, led by a 10.2% drop in oil GDP despite an average Venezuelan oil price of just over $70 a barrel. Price sector GDP contracted 7% in fourth quarter 2009, the seventh consecutive quarter in which negative or flat growth has been reported.
Strong price inflation: Inflation averaged 1.6% in February and 1.7% in January, for a two-month cumulative rise in the CPI of 3.3%, compared with 3.6% in the first two months of 2009. This yielded annualized inflation of 24.7% in the first two months of 2010 compared with 28.8% annualized rate at end-February 2009. Inflation in full-year 2009 was 25.1%, and it held steady in the first two months of 2010. But inflationary pressures will increase in coming months. The regime just authorized price increases of 25% to 35% for rice, sugar, chicken and other basic foodstuffs, and lifted controls on other products like mayonnaise, margarine and ketchup. However, letting some food producers raise their prices won’t halt the worsening scarcity of many food products in supermarkets and abastos. Chavez’s decision to kill trade with Colombia hurt the Venezuelan food supply, as did his wholesale expropriation (theft) of productive private farm and ranch lands.
The power crisis: It’s real, inevitable and unavoidable. The Chavez regime cannot contain the power crisis even if it rains 24 hours a day every day for the next 12 months. The Caroni River Basin, an area of some 95,000 km2, is suffering its worst drought in decades. If hydropower utility Edelca is forced to shut down 5,000 MW of power generation capacity at Guri, which reportedly now generates power at only 63% of its installed capacity of 10,000 MW, it’s lights out across most of Venezuela. And it’s not just the Guri Dam that will suffer. Edelca’s other hydropower complexes further downriver – Caruachi, Macagua, etc. – also could be forced to reduce their generation of hydro-power.
President Chavez boasts that his regime has the power crisis under control. But he jests. State-owned mega-utility Corpoelec does not have any thermal power generation capacity it can bring online to offset the impact on Venezuela of the sudden loss of at least 5,000 MW of power generation capacity. At best, perhaps 40% of Corpoelec’s total installed thermal power generation capacity is operational. The rest is junk. The Chavez regime did not invest for 11-plus years in maintaining the existing national power grid. Cadafe, Edelca and other state-owned utilities that now are bundled together in Corpoelec did not invest sufficiently in new generation and transmission capacity. Chavez says he spent over $16 billion on power projects since 1999, but the results aren’t apparent anywhere. Cadafe in 11 years has never finished even 25% of its planned generation and transmission projects.
The regime’s forced consumption cuts to conserve power aren’t working. The official goal is to reduce power consumption by 20%, but the available information so far is that consumption has been reduced, on average, less than 10%. The private sector is talking about cutting back the work week to four business days, in effect creating a three-day weekend, which perhaps for some Venezuelans sadly will be celebrated in typical “Viva la Pepa” tradition with more “birras” at the beach – if they have the disposable cash to buy beer, and if there is power to run icemakers and refrigerators at abastos, restaurants and liquor stores.
When – if – Edelca is forced to pull some switches to the off position at Guri, it’s a given that the Chavez regime will do everything possible to keep the lights burning in the greater Caracas area, although it means that most of the interior of Venezuela will spend days in the dark, that what’s left of the CVG’s basic steel/iron and aluminum industries will shut down completely, and that private economic activity in the interior would suffer huge disruptions. None of that will matter as the Chavez regime focuses on maintaining power (and water) supplies to the greater Caracas area. God forbid that Caracas should go dark for any length of time. The barrios could boil over with unpredictable consequences for everyone.
Lights – Water – Food: A chain reaction is building up, but most Venezuelans have not perceived this yet. However, taking 5,000 MW of power generation capacity offline will impact immediately on potable water and food supplies nationally. The country’s decrepit water aqueduct systems (40% of the water is lost en route to end users) cannot operate without electricity (30% of which is also lost en route to end users). Refrigerated buildings that store and transport perishable food – fish, poultry, beef and pork, produce and vegetables and countless other items – will not refrigerate without power. Some may have their own power generation equipment, but most do not.
**Early coal mines did not feature ventilation systems, so miners would routinely bring a caged canary into new coal seams. Canaries are very sensitive to methane and carbon monoxide, which made them ideal for detecting any dangerous gas build-ups. As long as the canary in a coal mine kept singing, the miners knew their air supply was safe. A dead canary in a coal mine signaled an immediate evacuation. Today, the whrase “canary in a coal mine” is used to describe a harbinger of the future. One small event in an isolated area may not seem especially noteworthy, but it may offer the first tangible warning of a larger problem developing.
Unofficially, 16,047 persons were murdered in Venezuelan during calendar year 2009, up over 8.4% or 1,247 murders when compared with the 14,800 homicides reported unofficially in 2008.
In 1998, officially reported murders totaled only 4,500, says the Observatory of Violence, a private NGO that monitors homicides and violence in Venezuela.
Imagine: Over 256% more homicides happened in the 12 months of 2009 than in the year 1998. But when the major daily newspapers of that year are “repasados,” one finds numerous articles on how Venezuelans in 1998 viewed violent crime and insecurity as one of their top concerns.
Eleven years later Venezuelans in droves are being murdered.
President Hugo Chavez has always proclaimed that his Bolivarian revolution is for poor Venezuelans.
But the vast majority of homicide victims in Venezuela are male, young…and poor. The “barrios” are the principal killing grounds.
Of course, violent crime happens everywhere in Caracas and the rest of Venezuela, but the data confirms that over 80% of all homicides happen in the barrios.
The observatory’s data also shows that 91% of homicides are never cleared – meaning that hardly any arrests, trials or convictions. In brutally real terms, 9 out of 10 murders in Venezuela are never solved, and the murderers are never caught.
The observatory says that in 1998 authorities arrested 5,017 persons in connection with 4,500 homicides, but in 2009 only 1,491 persons were arrested in connection with over 16,000 reported homicides.
“The poor are killing the poor,” says the observatory’s director, Roberto Briceño-León.
But all these numbers are unofficial… because the Interior & Justice Ministry stopped issuing official reports on homicide and other violent crimes about two years ago.
The observatory also says that Caracas registered 140 deaths per 100,000 residents in 2009, compared with 18 murders per 100,000 residents in Bogota last year. A Bogota that is immensely safer than Caracas?
Yet when family and friends from Colombia have visited Caracas Gringo in recent years, they always have shortened their visits, longing for the safer streets of Medellin and Bogota.
Chavez ignored the issue of violent crime and insecurity for a decade, literally. Some folks who keep track of these things say that Chavez for years never mentioned crime and insecurity during hundreds of hours of televised presidential speeches, tirades and interminable ramblings.
But recently Chavez has been pledging that he will crack down on violent crime with the new National Police, which he has described as socialist, revolutionary and Bolivarian. Code words for crushing dissent, perhaps. But fighting real violent crime professionally?
Violent crime is out of the government’s immediate control for many reasons, all traceable to Chavez. For example, for years Chavez’s permanent violence-laced populist rhetoric has validated violence as a legitimate mechanism for settling diffrerences and obtaining things. The Chavez regime also has deliberately armed irregular groups of civilians who proclaim revolutionary loyalty to Chavez but operate, with impunity, like organized crime gangs.
While stoking violence and arming thousands of thugs whose professed “loyalties” to Chavez serve as cover for criminal activities, the president also has systematically politicized, corrupted, disarticulated and de-funded all of Venezuela’s civilian law enforcement agencies.
As a result, security sources who find kidnapped people proferssionally say for years now, the great majority of express kidnappings and abductions for ransom in Caracas and other Venezuelan cities have been perpetrated by criminal gangs that include active law enforcement personnel.