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P 022201Z SEP 08
FM AMEMBASSY CARACAS
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UNCLAS SECTION 01 OF 02 CARACAS 001228 
 
SIPDIS 
 
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