The true measure of Venezuela’s water and electricity problems

November 8, 2009

donkey

While Hugo Chavez was worrying today about a US invasion, he should ahve really be paying attention to the problems of the country. Because two or three months ago there was little mention of water and electricity problems by him and his Government and all of a sudden they have taken center stage and they represent a sign of things to come.

Because these problems are not isolated, but represent the result of eleven years of mismanagement and incompetence. Take electric problems as an example. When Chavez got to power, there was a plan. Whether good or bad is besides the problem.Two large dams were going to be built. One was finished four years later than expected and the other one is still under construction.

The second is Tocoma, a dam that would have generated 14% of the electric needs of the country. This project is being financed by the IDB, but delays have made the project much more expensive, not only because times is money, but also because fixing the currency at Bs. 2.15 per US$, combined with 30% inflation has made cost simply soar.

At the root of the delays are the constant changes in management of the electric sector. While Rafael Ramirez has been Minister of Energy and Oil since 2003, there has been a string of Generals presiding over Edelca, CADAFE and Corpoelec. Corpoelec was a typical unnecessary step, it was simply a copy of CADAFE, a holding company for all electric companies underneath. But nobody told Chavez about it. And even worse, there were no economies of scale. Corpoelec was created and additional structures were formed. And now we have the Ministry for Electric Power or whatever it is it is called.

And part of the problem for Corpoelec, was that rather than being concerned with planning, funding, financing, investment, it had to worry about all of the companies that Chavez was nationalizing. Who would run them? Who to appoint? And more military was called in, as if that guaranteed anything.

But imagine now the funding problem at the Tococa dam. You get US$ 750 million to build it, but there are delays as General after General goes through the Presidency of Cadafe. The project has two parts, the turbines and equipment that is bought abroad and local costs. Unfortunately. local costs increase by local inflation, so any delays add to the cost of the project like you would not believe. And on top of that, the currency has been held constant for five years.

Take, for example, an engineer in the project. He cost you Bs. 2,150 a month five years ago, but you have given him or her, 25% salary increases every year. Except that those Bs. 2,150 five years ago, were $1,000 from IDB, but now have to be $3,015 from the same source and the project was not completed. And now, despite the huge windfall, Venezuela is going back to much hated IDB to get more. Mismanagement, overvaluation and inflation are coming back to haunt Hugo, but he does not seem to know it.

Because the problem is even more complex than that. While new infrastructure is being delayed, old infrastructure can barely be maintained, because electricity rates across the board have been held constant for seven years. This implies two things: First, electric companies have not kept up their revenues with inflation. This means they have to ask the Government for more or cost costs. You can bet they decided to implement cuts. Second, the few that pay (I count myself among them for both water and electricity) pay so little, that there is little incentive to save (I do collect all rain water to water my orchids). In the end, it is like a vicious circle, every policy is aimed at making sure that the whole system will collapse.

And when I say “everything”, I mean everything. Gas (oline) is being subsidized, it is a huge subsidy, if PDVSA did not have to fund it, it would not have had to issue any debt this year. Chavez nationalized a bunch of companies, including Sidor, which will have losses of US$ 410 million this year. Not only did he have to pay US$ 1.4 billion for it, but the company ahs to come up with the money to finish the year, satisfy unions and the like.

It’s the same everywhere, housing, ditto, health care, ditto, mining, ditto, all mired in a sea of mismanagement, lack of funding and investment and ideological BS that will force a collapse one day.

So, while many of us were expecting the symptoms of the collapse elsewhere (in the financial system), they are sprouting everywhere else, in the real economy for once. Not the usual way things collapse in Venezuela.

But sadly, the truth is that there is nothing, other than the fact that Chavez has increased awareness of the plight of the poor, that has improved in the last eleven years under Hugo. So, rather than worry about an implausible US invasion, he should be paying attention to real problems, from no maternity wards, to no water, to no electricity. Everything is simply malfunctioning and I see no way out, other than a huge spike in oil prices.

The fanatics, the hard core cheerleaders of Chavez and his fake revolution always say that we have been predicting disaster for the last eleven years. They forget that Chavez was forced in February 2002 to allow the currency to float freely and devalue sharply  and that oil prices have saved the day ever since. But water and electricity rationing are the symptoms and not the cause. The crisis has arrived, the water and electricity problems are just an indication, a true measure,  of the country’s problems.  Attacking them today (It’s funny to hear Ramirez talking about increasing electric rates after seven years of neglect) will not solve the problem as long as the economy is mismanaged. Overvaluation, inflation and only worrying about the swap rate are the real problems, while Hugo worries about a US invasion an his 100 year war and blaming the opposition and Colombia  for the problems of his revolution.

What revolution?

10 Responses to “The true measure of Venezuela’s water and electricity problems”

  1. JuanCristobal Says:

    ow,
    Russia has the same cost “distortions” as Venezuela, and yet our plants still manage to be twice as expensive as Russian plants. You’re free to justify the unjustifiable, but don’t try to pass it on as serious, fair-minded analysis.

  2. island canuck Says:

    “Chavez has said that US access to the Colombian bases poses a direct threat to his oil-exporting country.

    But Washington and Bogota say the deal is aimed solely to create a joint force to fight drug cartels.”

    Isn’t that the same thing??

  3. Susan Says:

    Take a look at this from Aljazeera.org
    Venezuela’s president has told his armed forces to “prepare for war”, saying a military pact between neighbouring Colombia and the US could set the stage for an invasion.

    The comments by Hugo Chavez at the weekend were prompted by the presence of US troops gaining access to Colombian military bases.

    Colombia has responded by saying it will protest to the UN security council and the Organisation of American States.

    Chavez’s comments also sparked clashes on Sunday on the Colombia-Venezuela border, where Colombians fought with Venezuelan border guards who responded by firing tear gas.

    “The best way to avoid war is preparing for it”

    Hugo Chavez

    Chavez has said that US access to the Colombian bases poses a direct threat to his oil-exporting country.

    But Washington and Bogota say the deal is aimed solely to create a joint force to fight drug cartels.
    s.

  4. Otro Roberto Says:

    Miguel,

    regarding the question that closes your post.

    I believe that you should start talking about the involution rather than the so-called revolution. In such a case you can talk about a real thing.

  5. GeronL Says:

    Yes, I was being sarcastic.

  6. GeronL Says:

    I guess Chavez needs to spends a trillion dollars he doesn’t have on infrastructure. That’ll do it.

  7. ow Says:

    Glad you explained why costs of foriegn financed projects are so high in Venezuela – the people at Caracas Chronicles don’t seem to get that and hence don’t understand why it costs so much in foriegn currency terms to build a plant in Venezuela.

    So they assume money is being stolen. Now, it may be that money is being stolen. But that isn’t the principal problem. The great majority of Venezuela’s oil generated resources aren’t being stolen, they are being wasted in plain sight.

  8. Gringo Says:

    Re Chavez beating the war drum against the US: didn’t President Garcia of Peru point out in some regional meeting that Chavez sells his oil to his archenemy?

    Just like Chavez beat the war drums in March of last year after the FARC’s #2 bought the farm in Ecuador, only to have the tanks get caught in traffic jams on the way to the border.

    Chavez figures someone may believe him. Maybe he believes it himself. In a sense he does believe it himself, in that he considers his long term war with the US much more important than a trivial matter of electricity. After all, he does see himself in a long term war against the US, and has accumulated- or better said paid for – allies throughout the hemisphere in support of that long term war. He has devoted much more energy to that than to domestic issues.

    In one sense, Obama and Chavez are mirror images of each other regarding foreign policy. Obama considers foreign policy a distraction from achieving his domestic goals. Chavez views domestic policy as a distraction from advancing his foreign policy goals.

    Which may explain why he responds to a domestic crisis in electricity by beating the war drums. It is almost as if he is saying, “Why do you have to bring up this trivial issue of electricity when I need to focus my energy on Honduras etc.? Of course electricity is a trivial matter. After all, I get electricity any time I turn on a switch. “

  9. GWEH Says:

    correction: for a living

  10. GWEH Says:

    I think those cheerleaders on the inside like Golinger are in this just to make money. They all know what’s up… they live a lie for living. I’ll pass.


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