VENEZUELA - The Power Sector.

The Chavez regime is reversing the previous government's opening of the crumbling power sector to private investors and foreign companies. Under-investment in recent years has left available thermal power capacity well below demand and installed capacity. In Aug. 2000, much of Venezuela was plunged into darkness for two days after a technical fault at the Guri dam shut off hydro-power supply and no alternative sources were available to feed the national grid.

The Chavez government in early 1999 had announced plans to privatise the power generating companies and sell several regional power distribution firms. Independent power producing (IPP) ventures were allowed. On Feb. 3, 1999 then Energy and Mines Minister Ali Rodriguez said: "There will be private investment in power transmission and distribution and we will study projects of new generation in various parts of the country". He said the government would privatise two regional power companies, Semda and Enelven/Enelco, even before a legislative framework was approved.

On Aug. 8, 2001, however, President Chavez said the power sector would only by restructured and not privatised as earlier planned. He said investments required to repair existing power facilities, totalling about $5 bn, would come from state funds and not from private investors.

In September 1998, under the previous regime, the power company which serves Margarita island Sistema Electrico de Nueva Esparta was privatised and a 70% stake in it was won for $63m by a consortium led by CMS Energy, of the US, and including two private Venezuelan companies, Casa Paris and Consultores Occidentales. Several others were then earmarked for sale.

The first new IPP venture was launched in early 1999 by a consortium led by Public Service Enterprise Group (PSEG Global) of the US and the private Venezuelan Corporacion Industrial de Energia (CIE). Turboven, a 50-50 JV of PSEG Global and CIE, on April 25, 1999, began construction of three gas fired power plants in Venezuela's central-northern industrial belt and invested $150m in them and related distribution and marketing units. Eventually to have a combined capacity of 360 MW, the plants will supply industrial clients in the cities of Valencia, Maracay and Cagua, where for years blackouts have averaged 40 hours per month. Turboven's electricity rates, not subject to government regulations, have been negotiated directly with its clients.

At first phase start-up in late 2000, about 80 MW were made available to Valencia and 60 MW for Maracay and Cagua. Each of the plants was connected to an independent distribution system comprising about 25 km of power lines.

Turboven's CEO Francisco Baquero said in May 1999 a further $150m will be invested for an expansion of the IPP's business in the industrial Aragua and Carabobo areas and elsewhere.

However, there has been concern among other private quarters that the Chavez government may eventually regulate power tariffs. It has refused to raise tariffs being charged by the state's loss-making firms. The previous governments had repeatedly delayed contractual tariff hykes, increasing uncertainty in a poorly regulated sector. The state-owned regional power companies are inefficient and nearly all of them have incurred losses.

Latin American Energy Integration: Chavez wants to integrate the energy sector of Venezuela with fellow Latin American countries. He has discussed power inter-connections with Brazil, Mexico and Columbia. He has also proposed a unified Latin American grid, including inter-connections with Cuba and the rest of the Spanish-speaking world on the American continent. He has proposed a gas pipeline between Venezuela and Brazil, the latter being the biggest market for natural gas in Latin America. He has also proposed that PDVSA operate in integrated energy ventures in Brazil in return for similar ventures in Venezuela for Petrobras.

A high-tension electricity pylon to carry power to energy-strapped Brazil, in a $400m project three years behind schedule and $85m over budget, was switched on in August 2001 by President Chavez and his Brazilian counterpart Fernando Henrique Cardoso. The 200 MW line stretches 680 km from Venezuela's Guri dam to Boa Vista in northern Brazil. It is a timely, if small, contribution to help ease Brazil's power shortage and a step forward in Chavez's aim of deepening economic integration with Brazil. But it has collided headlong with Venezuela's indigenous communities, mainly the Pemon group, and drawn sharp criticism of the state-owned power firm Edelca. These communities are threatening to disrupt the line, with more than 30 pylons having been knocked down during construction.