Colombia, Venezuela: Offering Power -- For a Price

Approximately 40 percent of Venezuela will be left in the dark if the country's Guri dam's water level, which generates 63 percent of Venezuela's electricity, reaches a crisis level of 240 meters in early April, Miguel Lara, the former director of the National Center of Management (formerly OPSIS) told Venezuelan daily El Nacional March 5. The latest figures show the dam level at 254.2 meters above sea level and dropping at a rate of 11 to 16 centimeters per day. Though this rate already is alarming, Venezuelan sources claim that drop is even more severe than what the official figures suggest, especially considering that the dam is cone-shaped and thus holds less water at deeper levels. Venezuela still is in its annual dry season, but due to the el Nino effect, there is no guarantee the country will see much relief in April and May when rainfall usually picks up and fills the Caroni River. While blaming the crisis exclusively on the weather (and ignoring years of lack of investment and government mismanagement of the electricity sector), Venezuelan President Hugo Chavez has made repeated calls to his citizens to cut their shower time to three minutes, turn the lights off and reduce work hours to get through the crisis. Those that do not reduce their electricity demand have been threatened with fines and arrest. According to la Gaceta Oficial, an official government newsletter, Caracas Electricity (EDC) will initiate 24-hour power cuts to the 8,000 businesses in Caracas that have been deemed heavy electricity consumers and have failed to meet the government's demand to cut consumption by 20 percent. If the Guri dam reaches its crisis point, 80 percent of the turbines running the dam would have to be shut off since there would not be enough water to power them. At that point, the country would begin to experience electricity cuts of six to eight hours a day. In such a situation, Venezuelans will face extreme difficulty in keeping their businesses open, sending their kids to school and simply going about their daily lives. At that point, the electricity crisis will become a political crisis for Chavez. Venezuela is trying several quick-fix solutions to force citizens to cut their electricity usage while looking abroad to purchase more generators and working at home to consolidate the electricity ministry with the oil and energy ministries and Petroleos de Venezuela (PDVSA), Still, such measures will not be enough. Infrastructure upgrades can take years to complete, and a consolidated ministry will still be dealing with the same problems. Electricity demand in Venezuela also cannot be reduced overnight. Official data shows current electricity demand in the country as 1,000 megawatts (MW) above the daily supply of 16,200 MW. In a moment of irony, even Chavez publicly became a victim of a power cut when in mid-sentence, one of his regular speeches on state television was interrupted and he was left sitting in the dark. As the electricity situation deteriorates, Venezuela will have little choice but to turn to its neighbor and rival, Colombia, for help. Due to ongoing political frictions between the two countries, Venezuela imposed a de-facto blockade against Colombia, cutting natural gas imports from 179 million cubic feet per day to 60 million cubic feet per day over the past year. According to Colombia's official statistics agency DANE, the overall export flow from Colombia to Venezuela, a major portion of which (in addition to natural gas) consists of meat, vehicles, apparel, machinery and electronics, also collapsed by roughly 77 percent from December 2008 to December 2009, causing many Colombian businesses who make their livelihood on that cross-border trade a great deal of pain. Since Venezuela devalued by the bolivar by half in January, Colombian exporters cannot afford to lower prices much further to compensate with the weakening bolivar. Colombia has thus far offered Venezuela 70 MW of resumed electricity exports to supply the western portion of the country, an amount that could well increase depending on how negotiations go. Ecuador, a political friend to Venezuela, has also offered 1,000 MW of electricity to export to Venezuela, but such a deal would still require a political understanding between Bogota and Caracas since Ecuador would have to use Colombian transmission lines to reach Venezuela's power grid. These electricity exports won't eradicate the power crisis in Venezuela, but they could mitigate it. With Venezuela in desperate straits, however, Colombia's offer for electricity exports likely will come at a high political price. Colombia already has fueled a political crisis between Venezuela and Spain by supplying Madrid with information that allegedly shows Venezuelan soldiers facilitating a meeting in 2007 between Basque separatist group ETA and the Revolutionary Armed Forces of Colombia in a plot to assassinate Colombian President Alvaro Uribe during a visit to Spain. Though Chavez has told Spanish Prime Minister Jose Luis Rodriguez Zapatero that he has nothing to explain, his regime's alleged ties to these militant groups are again under the spotlight. In addition to trying to extract security concessions from Caracas to curb support for these militant groups, Colombia will also apply pressure on Chavez to reopen the border and alleviate some of the economic pain on Colombian traders. With Uribe reluctantly preparing to exit the political scene and election season taking hold in the country, the president's likely preferred candidate, Jose Manuel Santos, will need the support of these businessmen in the lead-up to the May 30 election. An official date has not yet been set for Colombia and Venezuela to meet and work out such an agreement, but STRATFOR sources say backchannel talks on these security and trade issues are taking place. Colombian Foreign Minister Jaime Bermudez said March 2 that he would soon meet his Venezuelan counterpart, Nicolas Maduro, possibly in the Dominican Republic, to prepare a meeting between their presidents. Though Chavez will be swallowing a bitter pill in engaging in such a negotiation with Bogota, his choices are running out with every centimeter the Guri dam drops.