Through The Past, Darkly
First up today we have BNN Bloomberg reporting that Venezuela is in talks with Siemens Energy AG, a global energy giant, to repair power plants as part of a government plan to rebuild a crumbling electrical grid plagued by constant blackouts and lack of maintenance. Siemens is working with the government on potential contracts aimed at repairing gas and diesel generation facilities that serve Caracas and oil infrastructure.
They were granted licenses by the US Treasury Department to work with PDVSA (government-owned oil company) which owns the plants, via third parties and with Corpolec (government-owned electric utility). The repairs could boost power generation of the two plants that serve Caracas and thermoelectric plants in Merida state. Maduro says he plans to spend $1.5 billion to recover some of the 9,000 megawatts of lost production by 2025. The country’s power generation system has a capacity to produce 32,000 megawatts but today struggles to produce 10,000.
OK, time for a reality check. While we applaud Nicolas Maduro actually acknowledging there is a problem, which the Chavistas rarely do, his plan is way too little and way too late. To understand we have to take a little trip “Through The Past, Darkly” (ref. The Rolling Stones).
We here at TFT have done extensive research into power generation and distribution in Venezuela, after the massive, week-long blackouts of 2019, which the Maduro regime blamed on terrorists hacking into the Guri system, which produces 80% of Venezuela’s electric power, and attacking the transmission lines. We covered it in detail in Venezuela : Down The Rabbit Hole so I won’t get too deep in the weeds here but let me paint the overall picture for you.
The massive blackouts were three years ago and the Maduro regime has done little to nothing to address the problem. The blackouts were due to a major turbine failure at the Guri hydroelectric complex, a massive facility once the envy of the world (much like PDVSA was once the envy of the world… before the Chavistas destroyed that too). The blackouts were not caused by hackers because the Guri facility is an old analog system and since it’s not digital it can’t be hacked (although the Chavistas stuck to that story even after being advised of this fact).
It was caused by a fire along one of the three main transmission lines due to lack of routine maintenance (you have to keep the power lines clear of brush and trees etc… I thought everybody knew that but I guess not…). Oh, and it’s worth noting that the main thrust of Maduro’s initial response to the emergency was to increase patrols along the transmission line to protect them from terrorist attacks, which never existed. The fire caused an overload on that main line which caused a turbine shut-down which overloaded the other two main transmission lines causing them to shut-down as well and BOOM…80% of Venezuela’s power was out…and would stay out.
At this point it’s important to understand that when a situation like this occurs you can’t just send Jose down to flip the circuit breaker back on. It takes a team of experienced, high-level engineers and technicians to restart the turbines. The Maduro regime (and Chavez before him), having chased off all the competent, experienced employees in the electric industry, as they did with the oil industry, and replaced them with Chavista loyalists (who might know a lot of ideological slogans but not much else) was incapable of solving the problem. There are only four companies in the world capable of dealing with a situation like this and, until now, none of them were contacted.
Energy experts estimate it will take a minimum investment of $10 billion to address the situation and then a serious commitment of both money and time to maintain it. Does a serious commitment of time and money sound like something the Chavistas are willing to do? This $1.5 billion over the next three years will not even come close to solving the problem. We’ve said it before…Welcome to the new normal. Oh, and a suggestion to Siemens…get paid in advance.
Then we have this from Americas Quarterly…The apparent recovery in Venezuela, even a slight improvement, seems to generate positive headlines. This optimism seems to forget the government achieved it’s apparent recovery, not with meaningful reforms or policy changes, but through sudden, informal deregulation (Thank you).
In 2019, the most trying year in recent memory in Venezuela (along with 2017, we contend) the government all but disappeared. It stopped applying price and currency controls and allowed the dollar to circulate freely and stopped enforcing tax and labor laws that strangled the economy, (As we say here, it turned away from socialism/Marxism and toward capitalism) Even through the pandemic things began to get “less bad” as the private sector, informally, led the recovery.
At the center of it all is the Anti-Blockade Law, designed to lure in foreign investment (and increase Maduro’s power). It is essentially a marketing device that promises confidentiality and favorable business conditions (like the new “economic zones”, with no guarantees, we would add). The loopholes provided by the Anti-Blockade Law run contrary to the actual laws still in place, guarded by Chavista ideologues in Maduro’s National Assembly, who resist privatization of Venezuela’s key industries, even though the government obtained control of them through expropriation and then destroyed them.
What we see with today’s “Madurismo” is positive progress with the government’s (Maduro’s) erratic behavior remaining as a threat, like Maduro’s recent foreign currency/cryptocurrency tax (called the “Tax on large financial transactions”). For now the recovery is allowing the international narrative to focus on the economy and not on the humanitarian (and Human Rights) crisis.
We here at TFT think that’s what most of those driving the narrative want anyway, to forget the horrors of Chavismo and 21st Century Bolivarian Socialism (as they do with Cuba and China) and focus on the “virtues” of socialism, which is a false narrative, as has been proven every time people fall for the false promises of socialism.
If Madurismo is allowed to provide reasonable assurances to international partners and investors and follow through with them the fragile recovery may continue. This will depend more on internal party politics than negotiations with the opposition or international parties.
Then we have Rio Times reporting that Nicolas Maduro proposes “a bi-national productive, commercial, and economic zone” with Colombia. (This should slow down the border re-opening as Colombia’s new Petro government tries to figure out what Nico is up to)
And we have Law 360 reporting that the 11th Circuit Court, in a 3-0 decision, will send the $318 million case of the Venezuelan businessman with ties to FARC (Colombia paramilitary group) to a jury, reversing a Florida district court ruling that the assets of Samark Lopez Bello be liquidated to satisfy the judgement against him. We’ll add this to our list of cases to follow…it’s getting kinda’ long.
Then we have Merco Press telling us that Venezuela Tourism Minister, Ali Padron, announced a European cruise ship will dock at Margarita Island, for the first time in 15 years, on January 3rd. The vessel will carry tourists from Spain, Germany, Belgium, France, and Italy. (There was no mention if the Venezuela government- mandated and government-supplied “vaccine passport” will be required) He also announced 5 direct weekly flights between Moscow and Porlamar, Margarita Island’s international airport, will begin in October. FYI, back in the day there were regular flights direct to Porlamar from New York and Canada…my how times have changed. Each flight is supposed to carry 440 Russian tourists. He went on to say the Mukumbari Cable Car Tourist Transportation System is expected to be fully operational in November. (Hmm…it wasn’t working when I was there over 10 years ago) This all sounds good but in a country with only one out of 10 buses in operation I remain skeptical.
And Oil Price.com reports that Chinese defense firm CASIC (Chinese Aerospace Science and Industry Corporation) has been using 3 tankers to transport Venezuela crude to China since 2020 totaling 25 million barrels worth an estimated $1.5 billion. I guess with Venezuela’s tanker fleet in shambles and international transporters not wanting to be involved in “sanctions busting” (you know, those guys running around the globe with their transponders off and doing ship to ship transfers), the Chinese had to transport it themselves, that is if they want Venezuela to pay down it’s huge debt from all those oil for loans deals with the Chavistas. (At one time the tab was $60 billion)
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