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Cablegate: Venezuelan Electricity Sector in Crisis After

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DE RUEHCV #1228/01 2462201
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FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 1729
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UNCLAS SECTION 01 OF 02 CARACAS 001228

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HQ SOUTHCOM ALSO FOR POLAD
TREASURY FOR MMALLOY
COMMERCE FOR 4431/MAC/WH/MCAMERON

E.O. 12958: N/A
TAGS: ECON EINV ETRD EIND PGOV VE
SUBJECT: VENEZUELAN ELECTRICITY SECTOR IN CRISIS AFTER
NATIONALIZATION

REF: A. 2007 CARACAS 59
B. CARACAS 598
C. CARACAS 1200
D. CARACAS 1209

CARACAS 00001228 001.2 OF 002


1. (SBU) SUMMARY: A power blackout that affected half of the
country on September 1 illustrates the fragility of
Venezuela's electrical power sector. The consequences of the
government's failure to invest in the sector are now clear
from insufficient generation to dilapidated distributions
infrastructure and poorly handled finances. General Electric
(GE) Venezuela executives report the power generation system
is stretched to the breaking point and they expect
large-scale blackouts to become more common in 2009. The
BRV's focus on centralizing authority in the industry by
creating a "National Electric Corporation" has stalled new
generation projects for the last two years. END SUMMARY.

--------------------------------------------- ---
NEW INDUSTRY STRUCTURE FOLLOWING NATIONALIZATION
--------------------------------------------- ---

2. (SBU) In January of 2007 Chavez announced his plans to
nationalize, among other sectors, the electrical power
industry (ref A). The government bought out all but one of
the U.S. corporations in the sector, which included AES,
Global and CMS Energy. The publicly traded U.S. company
Public Service Enterprise Group (PSEG) still maintains a
small, low profile presence in Venezuela. A Venezuelan GE
executive told Econoffs on August 13 that the privately owned
companies in the sector were happy to be nationalized as it
had been impossible to invest in their Venezuelan operations
due to the low, BRV regulated electricity prices.

3. (SBU) GE's Regional Manager for Latin American Sales
stated there has been no new power generation projects in two
years as the BRV has had its hands full trying to set up the
National Electric Corporation (Corpoelec) designed to
centralize all authority under the supervision of the
Petroleum and Energy Ministry. The BRV no longer allows the
BRV-owned Electrical Administration and Development
Corporation (Cadafe) to negotiate new projects due to
Cadafe's past ineffectiveness and current near paralysis due
to serious union troubles. Corpoelec is now responsible for
every aspect of the industry. A PDVSA-led team within
Corpoelec has taken the lead on coordinating national power
generation, distribution and transmission. (NOTE: Corpoelec
is consistent with BRV plans to centralize authority in all
"strategic" industries as evidenced by its plans for National
Construction and National Cement Companies. See refs C and
D. END NOTE.)

-------------------------
THE NUMBERS TELL THE TALE
-------------------------

4. (SBU) Power consumption in Venezuela has grown by an
average of about nine percent per annum since 2004 according
to statistics from the BRV's Office of Interconnected
Operations (OPSIS). The supply has not expanded with demand.
According to Corpoelec President Hipolito Izquierdo, in
2008, 74 percent of Venezuela's electricity is still from
hydropower, particularly the Guri dam located in the
southeast of the country far removed from the major
population and industrial centers. Thermal power generation
has actually dropped one percent from 2007 to 26 percent in
2008. The state of the Cadafe-run Planta Centro, the largest
thermal power generation plant in Latin America with 2,000
megawatts (MW) of installed capacity, is illustrative.
During the last weeks of July, all of Planta Centro's five
generation units were out of operation and only one has since
been repaired. Our sources indicate that the units simply
are beyond refurbishment and should all be replaced.

5. (SBU) Power sector analysts agree that new thermal power
generation capacity growth should average 1,000 MW each year
in order to meet demand requirements. During the past five
years it has grown at an average of 250 MW each year. The
president of a local electrical supply company told Econoffs
on July 28 that the expansion projects are almost all still
in the procurement state and are proceeding very slowly. The
BRV's most recent answer to the thermal generation deficit
has been to install a series of 15 MW generation units,
contracted through the Cuban government, across the country.


CARACAS 00001228 002.2 OF 002


-----------
THE RESULTS
-----------

6. (SBU) GE told Econoffs that there were over 100 large
scale blackouts in 2007 and 2008 will close with more, as
demonstrated by the country-wide outages on April 29 and
September 1 (ref B). Izquierdo has admitted to the press
that there have been "important power failures." In Bolivar
state, home to Guri, one of the largest hydroelectric plants
in the world, Cadafe registered over 200 outages in August,
some lasting for three days, while parts of Falcon state have
been without power for six days. Chavez' home state of
Barinas rations power four days a week. Some claim the BRV
uses the power crises in many states to hurt opposition
governors. Press reports indicate the BRV diverted power
generating plants destined for opposition controlled
Margarita to Nicaragua.

7. (SBU) Izquierdo told the press that Caracas alone consumes
500 MW more than it generates, although BRV-owned power
company Electricity of Caracas indicated the number is now
1000 MW as an additional plant has gone out of service,
making Caracas highly dependent on power transmission from
remote states. He added the BRV hasn't built new power
generation capacity in years and has instead focused on
refurbishing small plants throughout the country. Izquierdo
has a budget of USD 1.5 billion to added 1,200 MW to the
national electricity system over the next three years. In
the meantime, PDVSA is transferring some of its generators to
Caracas to relieve pressure on the system in the short term.
The BRV has also contracted with Cuba to provide expensive
and inefficient low megawatt thermal generation stations as a
stop-gap measure.

----------
OIL SECTOR
----------

8. (SBU) Due to electricity supply issues in the past, most
of Venezuela's oil sector facilities self-generate power but
use BRV generated power as a back-up. This will become an
issue in upcoming years as GE executives told Econoffs that
refinery generators, most of which are GE brand, average 15
to 20 years in age and will need to be replaced soon. GE
estimates replacing outdated generators will take about four
years. In the meantime, the oil sector may come to
increasingly rely on the already strained BRV power supply.
Although outdated GE power generation machinery would
normally represent an opportunity for GE to sell new
generators, the BRV has given preference to GE's European
competitors.

-------
COMMENT
-------

9. (SBU) The increase in power demand has created additional
pressure on overburdened generation and transmission systems.
Without immediate construction of new generation capacity at
a regional level, demand on the transmission system from Guri
cannot be sustained. Our GE interlocutors noted that the BRV
suffers from a serious lack of planning and poor execution.
This has been compounded by the fact that most qualified
staff left or were fired following the nationalization of the
industry. GE executives added that the power generation
sector is almost entirely dependent on BRV subsidies for
continued operations, as the BRV has set electricity prices
so low that in effect, power companies only get paid for half
of what they produce. The GE executives noted that the BRV,
which has not increased electricity prices since 2004 in
spite of high inflation, has no intention of raising prices
in an election year to make the sector less dependent on BRV
hand-outs.
DUDDY

© Scoop Media

 
 
 
 
 
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