Bolivarian Gallows Humor

The power crisis Venezuelans will suffer for the next two or three years (under a best-case scenario) is an unparalleled tragedy in the country’s history. Strategic sectors like petroleum, gas, steel and aluminum that were built over several decades by successive democratic governments are collapsing, literally being killed, by the awesome incompetence and economic ignorance of President Hugo “It isn’t my fault” Chavez. However, one cannot help but laugh in a grim way as the chain reactions of the power crisis ripple through the economy and populace.

Why laughter? Because it’s gratifying to watch the Chavez regime choke on its own incompetence and stupidity. Watching the increasingly desperate contortions of President “It’s not my fault” Chavez reminds one of a death tableau in which a world-renowned actor was found dead last year in a Bangkok hotel with one end of a rope tied around his neck and the other end around his testicles.

Here’s one example of a chain reaction: the new power conservation measures forced on the populace and productive sectors by the Chavez regime already are causing a spike in local demand for diesel and fuel oil. Local demand is rising because more consumers are resorting to small thermal power generation units to cover their individual electricity needs. These power generation plants burn diesel or fuel oil. Diesel currently sells for close to $3 a gallon in the United States but practically nothing in Venezuela.

It’s too early to predict how quickly, and how much, local demand for diesel and fuel oil could increase. But the national power crisis will last at least three years by the Chavez regime’s admission, so it’s plausible that there could (will) be a significant jump in local diesel and fuel oil consumption for two reasons:

First, the regime’s plans to add over 4,000 MW of new thermal power generation capacity between February 2010 and July 2012 will require substantial and growing volumes of fuel oil to generate power because Pdvsa’s gas development programs currently are running about a decade behind schedule. If the regime completes these thermal power plants on schedule (which is doubtful given its abysmal 11-year track record), they will burn diesel/fuel oil because Pdvsa doesn’t have the gas production capacity.

Second, business owners are being told to find ways to simultaneously reduce their power consumption and generate their own power supplies. In practice, this means that imports of small mobile power generators should start to rise very quickly over the coming months. However, these small generators burn diesel, mainly.

This implies that Pdvsa, which already fails consistently to fulfill its contractual export commitments by itself and so must buy oil internationally to fill its increasing supply gaps in Venezuela and abroad, has several options, all bad from a financial and/or political perspective.

(Of course, anything bad for the Chavez regime is probably good for Venezuela, eventually, if it hastens the demise of the Mad Hatter in Miraflores Cave and the tribes of parasitic gangsters embedded in the Bolivarian regime like ticks and leeches under a buzzard’s tail feathers. But we digress…)

Option #1: Increase diesel and fuel oil supplies to the local market, and consequently reduce exports, Pdvsa’s oil revenues and the regime’s fiscal take;

Option #2: Import diesel and fuel oil purchased at international prices, and sell it at local subsidized prices, placing Pdvsa financially more deeply in the red. Local fuel subsidies already cost Pdvsa about $10 billion a year, and that was before the power crisis finally boiled over.

Option #3: Impose tighter power consumption restrictions to reduce consumption of diesel and fuel oil. But this option means that Venezuela’s overall economic output would decline, with all of the accompanying chain reaction effects like higher inflation and unemployment, longer periods in darkness for many Venezuelans (days or even weeks at a time?), more crime and chaos, an unhappier populace.

About Caracas Gringo

Representing less than 0.00000000001515152% of the world population as of 31 December 2011.
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2 Responses to Bolivarian Gallows Humor

  1. Juancho says:

    Gringo wrote: “First, the regime’s plans to add over 4,000 MW of new thermal power generation capacity between February 2010 and July 2012 will require substantial and growing volumes of fuel oil to generate power because Pdvsa’s gas development programs currently are running about a decade behind schedule. If the regime completes these thermal power plants on schedule (which is doubtful given its abysmal 11-year track record), they will burn diesel/fuel oil because Pdvsa doesn’t have the gas production capacity.”

    This underscores the quandary that Chavez finds himself in today. From what I have heard first hand from friends and relatives who have worked for Cadafe (and other Ven. power companies), Chavez has driven out or demoted many of those with the technical wherewithal to actually build/assemble, and bring on-line a modern thermo energy plant, which is a real piece of work under the best of circumstances. And those that are left are so underpaid that there is little incentive to do anything but attend rallies and talk about socialismo. The culture of doing actual work has largely perished.

    From what I’m hearing, the only way to efficiently get a plant up and running is to sub-contract a large chunk of the work out to foreign companies. In the past, Venezuela would strike such deals by forming partnerships with these companies – but nobody trusts Chavez now with all the nationalizations going on. What’s more, Chavez doesn’t want to pay anyone – and when he’s forced into it, he pays in Bs or at some bullshit exchange rate.

    Bottom line: I wouldn’t expect to see any new energy plants going on line in the next three or four years. What this might boil down to is homes having to run their own little Honda generators just to keep the place lit. In terms of the many millions living in appartments and unbanizaciones – it’s looking more and more like candles will be the only option.

    JL

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  2. Lazarus says:

    Re: the natural gas situation, the government announced they will go forward to develop the Mariscal Sucre Project by themselves after there were no takers for a mixed company. Recent experiences by the heavy oil producers who were forced into similar minority ownership arrangements in 2007, include no-say-so in any operational, budget or planning decisions, inefficient and incompetent management from PDVSA, declining project value, soaring costs due to inefficiency and additional forced partnerships with Chinese and Russian service companies (who frankly don’t know squat). The fiscal terms of the projects were not attractive to begin with, and there is no upside with increasing prices. Then there is the ongoing expropriations. So why would anyone invest? So, Ramirez put on a good face and said they would go it alone… and as such don’t expect any gas anytime soon. A knock-on effect will be further dilution of national engineering skills needed to keep the oil fields and refineries operating. Not pretty…

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