Venezuela Plans to Ration Electricity Because of Recurring Power Outages

Venezuela's Businesses Wary of Energy Rationing

June 16, 2011

AP – Business leaders on Thursday warned that the government's plans to ration electricity because of recurring power outages could curb production and thereby slow Venezuela's economic recovery.

Venezuela's largest business chamber, Fedecamaras, said government measures aimed at reducing demand, including rolling blackouts, hefty fines on consumers that use excessive electricity and a resolution requiring businesses to install fuel-powered generators will curb industrial production and retails sales.

"It should be made clear that there's a correlation between production levels and energy consumption," Fedecamaras said in a statement.

Energy Minister Ali Rodriguez announced on Wednesday that he had ordered Venezuela's state-run utility company, Corpoelec, to start scheduling rolling blackouts in several regions. He did not provide details or say how many of Venezuela's 24 states would be affected.

The plan was presented three days after Venezuelan officials announced measures aimed at saving electricity. They say power consumption must be reduced by 10 percent and have warned that hefty surcharges will be imposed on consumers who don't reduce usage.

Rodriguez has denied the measures would hurt the economy.

Venezuela's economy expanded 4.5 percent for the first quarter of this year, extending a growth trend after nearly two years of recession. Growth in both the public and private sectors contributed to the recovery, even as the key oil industry contracted 1.8 percent, according to the Central Bank.

Some economists believe the country's electricity problems will curb industrial production and hurt businesses, although they say it remains unclear exactly how much of an impact power outages, coupled with government-imposed energy-saving initiatives, will have.

"The fact that we don't have a reliable electricity supply is bound to have a negative effect on the economy," said Robert Bottome, editor of the newsletter Veneconomy, said in a telephone interview. "These measures are undoubtedly going make doing business much more costly."

Miguel Octavio, executive director of BBO Servicios Financieros, a Caracas-based brokerage, predicted that many small and medium-sized companies will encounter problems obtaining U.S. dollars through Venezuela's bureaucratic state-run currency exchange office, known as Cadivi, to import costly diesel-powered generators.

"Demanding that businesses purchase generators, which are imported, and the fact that Cadivi is so slow in approving purchases, appears to be a difficulty that will be tough to resolve," Octavio said.

Asdrubal Oliveros, an analyst at the Caracas-based Ecoanalitica think tank, predicted the measures "will have a negative effect, making the government's goal of 4 percent economic growth more difficult to reach."

Ecoanalitica is forecasting 2.5 percent growth for 2011.

Venezuela had to cope with rolling blackouts for months last year, when President Hugo Chavez's government said cutbacks were forced by a severe drought that sharply dropped water levels at Guri dam. The facility produces 70 percent of the country's electricity.

"I don't think the root of the problem was related to water levels at Guri, rather the lack of maintenance on distribution centers and insufficient investment in power plants," Bottome said. "The fact that blackouts are still occurring seem to provide evidence that drought was not fully responsible for the problems we are experiencing."

Government authorities concede that delays in several initiatives designed to boost electricity output are partly to blame, but they also claim that rising demand is causing repeated power outages in many regions.