Venezuela Ends 19-Year Power Monopoly, With Oil Fields First in Line

Venezuela is opening up its electricity sector to private capital for the first time since Hugo Chávez nationalized it in 2007, in a reform passed this week primarily to benefit oil producers and large businesses that can afford euro-pegged tariffs, while the state keeps the hydroelectric dams and main transmission lines that supply most households living with daily blackouts.The law, which the National Assembly passed unanimously on Tuesday, lets oil producers build power plants for their own fields without state authorization, as long as those plants stay off the national grid. Other private generators need a concession from the Ministry of Electric Energy for any plant above 50 megawatts. National Assembly president Jorge Rodríguez, the interim president’s brother, said those generators will sell mainly to large consumers, at tariffs the government has yet to publish. Households that cannot pay the full price keep a subsidized rate on a state grid that experts estimate generates about 12,000 megawatts, against demand that reached 16,400 MW in September. Their best prospect for more power is the repair deal with GE Vernova and Argentina’s Impsa, and Caracas has yet to guarantee payment to the suppliers it needs for that work.Aging terminals, crude-quality problems and grid failures held Venezuela’s oil exports near 1.25 million bpd through the summer, with tankers waiting as long as 30 days to load. Repsol, which holds 40% of the Petroquiriquire joint venture with PDVSA on Lake Maracaibo, had launched open requests to source its own power plants and supplies by May, Reuters reported. Power expert Miguel Lara told Reuters at the time that he did not know “which power supply will support the economic reactivation they are talking about.”Venezuela’s US-backed oil expansion will need power that does not depend on the grid. On August 31, the White House announced that North American Blue Energy Partners, a privately held company controlled by Venezuelan businessman Alejandro Betancourt, had received 100-year concessions over 17 fields in the Lake Maracaibo region and the Orinoco Belt. The fields hold about 65 billion barrels of proven reserves, roughly a fifth of Venezuela’s total. The company has given the Pentagon’s Office of Strategic Capital a 35% stake in its parent and says it will invest up to $100 billion in new oil infrastructure. Chevron pumps about 290,000 bpd in Venezuela and plans to spend more than $7 billion through 2031 to raise that to about 600,000 bpd. The country as a whole produces 1.1 million to 1.2 million bpd.Outside the oilfields, the law lets private and mixed-ownership companies generate, transmit, distribute and sell power through joint ventures of up to 25 years. A new superintendency will oversee tariffs, service and self-generation, and the law offers guarantees to private participants whose terms have not been published.Siemens Energy and GE Vernova met Venezuelan officials in April to discuss grid repairs. The government, citing legal obstacles, rejected a proposal from foreign firms seeking prepayment for initial repairs and spare parts. Promissory notes Caracas had issued to suppliers in the past went unpaid, and many were sold at steep discounts. “They still have no clue on how we would get paid,” an executive at one equipment supplier told Reuters. Interim President Delcy Rodríguez said on October 8 that the government plans to add 7,400 MW through its agreements with General Electric and Impsa, and 600 MW from unit 6 of the Planta Centro power station in partnership with China.Lara puts the cost of stabilizing the grid at no less than $15 billion over three years. The Inter-American Development Bank, which stopped lending to Caracas in May 2018, is owed more than $2 billion. Venezuela is weighing a US-backed Qatar bridge loan to clear those arrears, and the bank’s president is seeking approval for a $2.5 billion loan that some board members oppose. Foreign companies working with the Venezuelan state, in power and in oil, operate under US sanctions licenses that Washington can change at short notice.Residents in Zulia, Mérida, Aragua, Guárico and Portuguesa blocked roads and burned tires over power cuts in September, with people in Maracay describing outages of up to 16 hours a day. Venezuelan factories spent an average of 214 of their 488 working hours without power between April and June, according to the industry association Conindustria, and plants in Zulia lost 333 hours.By Alex Kimani for Oilprice.com More Top Reads From Oilprice.comCentral Asia’s B20 Message to Washington: Let’s Make DealsEurope Enters Winter With Its Lowest Gas Inventory of the 2020sMore Drilling Won’t Shield U.S. Consumers From Oil Price Shocks