Energy in Venezuela

The local press has recently published articles referring to the presentation by the National Executive to the National Energy Commission of a document which will lay out the plans to finally eliminate Venezuela’s rentist mentality. This means, basically, that increases in tariffs and prices of fuel are around the corner.

It seems clear that this document, in addition to establishing the bases for justifying new sources of income for the central government, will once again promote the thesis that the principal rentists of Venezuelan society are the common citizens, not its politicians and governors.

The identity card debacle is still fresh in our minds. This is a classic example of parasitic behavior. The Government was ready to dish out a macro-investment of US$ 500 million to solve the problems with our national identification system rather than putting just a little bit of effort into developing realistic and sane administration of the latter.

One of the main arguments used in the aforementioned document has to do with efficient use of our natural resources. The gist of the matter is that we are basically to forego the comparative advantages given us by nature in the form of abundant oil, gas and hydroelectric energy. Faced with high utility bills, companies and citizens alike must learn how to optimize and make more efficient use of these resources. The prime example of inefficient use of energy the authors of the document could come up with is that the Venezuelan aluminum and steel industry uses three time the amount of energy used in Japan.

This logic does not necessarily make sense, since Venezuela has abundant energy resources while Japan does not. The mix of production inputs such as capital, raw material and labor are usually established according to the conditions in each country. Surely most people would much rather see our comparative advantages be biased in favor of cheap energy rather than on cheap wages. It seems we don’t see eye to eye with the current or previous Governments on this.

On top of this both the aluminum and the steel industry have been managed by the State. Could it not be possible that this supposed inefficiency in the use of energy resources be related more than anything else to poor government administration?

The final blow was the publication in the press (on the same day the news of the document broke) of the invitation to prequalify for the privatization process of the power generation system of the State of Nueva Esparta. The basic terms of the invitation clearly stipulates that 100% of the shares will be sold to the highest bidder, on a strictly cash basis and without financing by the Venezuelan State.

This undoubtedly means that the power generation system will be allocated to the candidate who guarantees maximum income for the Central Government (which basically means charging higher rates to insure a return) rather than to the bidder that offers the Margariteño the best service and the lowest tariffs. Again, as far as I can see, this is just another example of the parasitic fiscal planning that has cost Venezuela immense amounts of financial resources and time. Why should Margarita pay tariffs that are higher than the in the rest of the country and might even be higher that what Venezuela will charge Brazil and Colombia for our exports of electricity? This makes no sense either.

For example, the implications of drastic increases in electricity rates for the hotel industry are horrible. A hotel needs a supply of abundant and continuous energy and there are preciously few ways to increase efficiency unless there is an unlimited amount of capital available which, for example, would allow for the importation of efficient but costly airconditioners. Today, faced with depressed room rates due to a flood of state owned supply and the lack of steady transportation due to Viasa’s exit, Margarita’s tourism industry simply does not have these resources.

Finally, as a sweetener, the Government most generously promises to limit its fiscal appetite to levels established by export values. This implies that it is it’s intention to at least not take undue advantage of the monopolistic conditions that tend to skew prices. We will live, eternally gratified with the hope that our average Venezolano will not one day pay more for each kilowatt of power than the average citizen in Tokyo.