Bolivarian Socialism: No oil, electricity, steel, aluminum…

President Hugo Chavez has systematically destroyed Petroleos de Venezuela and wrecked the national electricity sector since coming to power 11 years ago. Now Chavez is in the final stages of dismantling the basic steel and aluminum industries in the Guayana region, and is blaming it all on El Nino and global warming stoked by capitalist imperialism. Chavez justifies his wholesale destruction of Venezuela’s most important strategic assets with the claim that he is “rescuing” the “sovereignty of the people” from the “imperialist invaders.” However, the Bolivarian revolution has only brought ruin to all the strategic industries which are critical to Venezuela’s present and future.

Pdvsa struggles today to produce about 2.13 million b/d of crude oil compared with about 3.5 million b/d in 1998. Crude oil production capacity has shrunk by about 1.5 million b/d in the Chavez era. But the company’s payroll has ballooned to over 90,000 at end-2009 from about 20,000 in 2003 after Chavez purged half its work force for political reasons. Its refineries are falling apart, and the four Orinoco upgraders nationalized in 2007 suffer frequent operating problems. All of Pdvsa’s expansion plans announced in 2005 (Siembra Petrolera) are years behind schedule; not a single major project has been commissioned yet. Since 2003, the new Pdvsa’s total debt has soared to over $23 billion. Pdvsa also owes about $20-25 billion more to the former foreign/private owners of the Orinoco upgraders, oil services companies and other assets Chavez has nationalized since 2007. Also, Pdvsa’s debts to services firms and contractors reportedly total about $8-10 billion. But Energy Minister Rafael Ramirez claims that Pdvsa’s operational/financial health has never been better.

The power sector, nationalized by Chavez in first-quarter 2007, also has collapsed. Venezuelans rang in the New Year with mandatory restrictions on power consumption. Shopping centers, casinos and bingo parlors, and roadside billboards are operating under strict schedules, and any violation of those schedules will be punished. Commercial and industrial consumption is capped at 2 MW and 5 MW, respectively, per client, but the regime wants these large consumers to install their own power plants. Residential consumption caps also will be set. Anyone who exceeds their monthly quotas will be slapped with a surcharge and power could be shut off for 24-72 hours per “infraction.” The regime also reportedly will set consumption limits for manufacturing companies in processed foods, beverages, textiles, automotive, pharmaceuticals and metalmechanics producers. But it doesn’t stop there.

The Chavez regime also has cut power supplies to the basic (aka strategic) steel and aluminum industries in the Guayana region, ordering steelmaker Sidor, and aluminum smelters Alcasa and Venalum, to reduce power consumption immediately by 200 MW, 59 MW, and 300 MW, respectively, for total cuts of 559 MW that will remain in effect indefinitely. As a result, Sidor has shut down about 60% of its liquid steelmaking capacity, plus its flat products mill and most of its rolled products mill. The company’s liquid steel output for 2010 is estimated at 2.9 million metric tons, the lowest level since 1997. Sidor also reportedly lost over $410 million in 2009 and its losses in 2010 could easily double despite the plunge in liquid steel production. The regime also shut down Alcasa’s Lines I and II, which used energy-intensive 1960’s-era technology, and taking about 30% of 210,000 mtpy smelting capacity out of service permanently, since there are no plans (or money) to build Line V. And over at Venalum, 360 reduction cells (40% of its smelting capacity) were shut down until the regime decides the national power crisis is over. However, the power crisis won’t end soon.

Venezuela is suffering a severe drought due to El Nino. The Guri Dam’s water level reportedly has dropped over nine meters in the past year. If the rains don’t start before end-February, Guri’s water level could drop to the point where electricity generation also declines. About 2,500 MW of Guri’s 10,000 MW hydro-electric capacity already reportedly is offline due to programmed maintenance and equipment malfunctions. If Guri’s power generation drops, the regime probably will expand power rationing and consumption restrictions because it has no other options.

Venezuela doesn’t have any spare thermal electricity generation capacity because the Chavez regime doesn’t maintain the power grid and hasn’t finished/commissioned even a quarter of the “new” thermal generation projects that originally were announced back in 2001-2003. President Chavez has announced at least a half-dozen expansion “plans” for the sector since 2006, each new plan repeating the previous plans, but deadlines are always missed. “Catching up” would take at least five years and cost over $20 billion, according to former energy ministry and Edelca/Cadafe engineers. However, the regime doesn’t have the management, technical or financial capacity to fix the problem, so it is turning to its new “strategic” partners.

The Chavez regime has signed hundreds of economic, security and other agreements since 2005 with countries like Iran, China, Russia, Cuba, Belarus, Algeria, India, Brazil, Argentina, etc. For example, on 22 December 2009 Corpoelec and its Chinese counterpart signed an agreement to discuss development of joint hydro-power generation and transmission projects in Venezuela. In 2008, Russia’s government said it would help Venezuela develop a nuclear power program for peaceful purposes.

In 2009, Spanish contractors Duro Felguera, Iberdrola and Elecnor were awarded two turnkey projects to build combined cycle thermal power generation plants of 1,620 MW (Duro Felguera) and 1,000 MW (Iberdrola/Elecnor), respectively. The projects awarded to the Spanish contractors were grossly overpriced (for someone’s benefit). At year-end 2009, an Argentine/Spanish consortium won a $760 million turnkey contract to build the 500 MW combined cycle Termozulia III plant in Zulia, of which $600 million is already guaranteed by the Andean Development Corporation (CAF). However, none of the generation plants are scheduled to be commissioned until 2013-2014, assuming the gas and/or fuel oil supplies are available.

Meanwhile, all Venezuelans increasingly will suffer hardships enforced by Chavez and his incompetent/corrupt regime. However, no one should expect Chavez’s new Cuban, Iranian, Chinese and Russian partners to end the multiple crises affecting the oil/gas, electricity, steel, aluminum and other state-owned industries. The governments of these countries are milking the Bolivarian regime for their own economic and/or geopolitical advantage. These countries have signed dozens of agreements with the regime which are easily worth perhaps $200-250 billion if all the proposed/planned joint ventures, Bolivarian giveaways to these regimes, arms buys, etc. announced since 2005 are lumped together. But a closer look reveals that there’s no beef in the bun… “No se le ve el queso a la tostada.” Not a single joint venture has actually been incorporated and launched yet with any of these strategic partners. But maybe things will be different in 2010.

About Caracas Gringo

Representing less than 0.00000000001515152% of the world population as of 31 December 2011.
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4 Responses to Bolivarian Socialism: No oil, electricity, steel, aluminum…

  1. Juan says:

    My youngest daughter was a forengn exchange student in what was formally East Germany, and a few years back the host family visited us in Venezuela for Christmas. They were amazed that Chavez was trying to make socialismo work, when history has incontrovertibly shown it to be a total bust as a funcional governmental system. “It will never work,” the Germans told us. “We know.”

    If anyone could make socialism work, it would have been the Germans, who have superior disipline, education and infrastructure. And yet East Germany, under socialist rule, was perpetually broke. It never worked. They simply survived.

    Now we have Chavez tanking the homeland, as detailed by Caracas Gringo. Nationalizing industry was a disaster – but perhaps few will really belive how bad it is till the lights go out, there’s no gas at all, the shelves of the supermercados are nigh vacant and every bank is insolvent. We’re certainly heading in that direction.

    And Jesus wept . . .

    Juan

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  2. Steven M says:

    An acquaintance in Venezuela texted me last night, from the east coast of Lake Maracaibo. The shelves are empty of imported goods, his electricity goes off for one hour a day, and there are rumors of gasoline rationing and war with Colombia.

    Odd thing: He asked me if there was gasoline rationing (in the USA). Apparently that is another rumor.

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  3. Gerry says:

    To annex ‘strategic’ industries is a good concept provided the industries are really strategic, like air and only air. Every other industry thrives on competition and adequate compensation to its owners and workers to keep it functioning. Owners and workers know a percentage of income has to be applied to maintain current levels of production and profit and a little more to expand capacity.
    Socialism is socialism, twenty first century or not. It does not work.
    But the President (of Venezuela) can, and does, choose the meaning of the words he utters.
    I choose to interpret twenty first socialism as feudalism.
    The military command, who have been doing very well, have just, with the devaluation lost fifty percent of their hard (?) earned holdings.
    The President is playing a very dangerous game with these people unless he has some privileged understanding with them.
    What the Lord giveth the Lord can taketh away. – Food for thought! – Rewards promised in the new shell game maybe?
    It is important, to the leader, that the people have only one recourse for their survival, the whim of the Lord. There is no provision for anyone to better themselves.
    It was the Barons (army) who forced the signing of the Magna Charter and enforced the covenant.
    Perhaps those days should be here again to spell belief in the original un-augmented constitution.
    How long do we have to wait for “the right of first night” to be re-introduced before we act?
    It would be a boon if we could have blogs outlining improvements we could make along with these which are negative by nature and not constructive.

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  4. CuervoBlanco says:

    Nice bomb, 4 hours of power rationing each two weeks by zone. This get odd

    Like

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