The collapse has arrived: Venezuela suffers its longest blackout in recent years

Beginning the afternoon of March 7, 18 of the 23 states of Venezuela suffered a power outage that lasted for five consecutive days. Although the Venezuelan electrical grid has suffered numerous collapses in its operation since its nationalization under the regime of socialist leader Hugo Chávez in 2007, with programmed cuts and blackouts of up to four days recorded in recent years, the March 2019 blackout is unprecedented in scope. According to the president of the Venezuelan Association of Electrical, Mechanical and Allied Energy (Aviem), the blackout was caused by a fire in the sub-station “Malena”, located in the El Guri dam, causing two of the three lines of the electrical system to collapse. This latest outage occurred in the context of a complete lack of maintenance of the entire electric power generation and distribution system in Venezuela(1).

Figure 1, Source: Netblocks.org Collapse Figure 1.jpg

During the days without electricity, preliminary reports state that at least 21 people, including six newborns, died as a result of lack of electrical power in hospitals and the total collapse of the mobile telephone lines, the underground transport system, and the country’s electronic payment system (2). Looting was observed in supermarkets and shopping centres in various cities. Empresas Polar, the largest producer of processed foods in Venezuela, reported a loss of US $5.6 million from looting in the city of Maracaibo.

Since Monday, March 11, electric service has been partially, gradually, and intermittently restored throughout Venezuela. As of March 13, there were still reports of outages in some areas of the western states of Apure, Merida, Táchira, Trujillo and Zulia, and several blackouts in central and south-western Caracas were reported on March 15(3).

Problems with telecommunications and potable water service have also persisted. It has been reported that in recent days, in the face of persistent failures in water supply exacerbated by faults in the supply of electricity, residents of Caracas have resorted to collecting water from the Guaire river, which is not suitable for human consumption(4).

The banking system has been restored, though it is operating with reduced hours. Service on the underground transport system in Caracas was restored on Wednesday March 13, but suffered a crash after three wagons derailed. Despite the restoration of electric service, experts expect that another major blackout will recur in the coming days due to the persistent serious deficiencies of the electrical system and the fact that the generation of electric power in the country is insufficient to meet internal demand(5).

More difficulties: Plummeting oil production and increasing oil restrictions for Venezuela

The economic outlook for Venezuela continues to deteriorate. In its monthly report, OPEC reported that Venezuelan oil production stood at 1,008,000 barrels per day, a decrease of 12.3% compared to last January, and a decrease of 14% compared to December 2018. These levels of production represent a historical minimum since January 2003, when Venezuelan crude production collapsed by 78.9% as a result of an oil strike that began in December 2002(6).

Figure 2: Monthly Oil Production, Source: OPEC, Thomson-Reuters Collapse Figure 2.png

The Maduro regime is also facing increasingly complicated external financing conditions. This situation is aggravated by the fact that the Maduro regime faces payments for compensation for past expropriations: they must pay ConocoPhillips the sum of US $8,140 million for the seizure of its oil and gas assets in 2007, during the regime of Hugo Chávez(7). At the same time, continuing pressure towards the socialist regime in Venezuela, the government of India has ordered that its companies stop buying oil from the Maduro regime to avoid US sanctions. After the United States, India is the second largest recipient of Venezuelan crude and also one of the few purchasing countries that pay in cash. In the first half of February 2019, shipments of crude oil to India reached 620,000 barrels per day, a 66% increase compared to the end of January 2019(8).

The Guaidó administration consolidates its international position

On March 15, the Inter-American Development Bank accepted the appointment of Ricardo Haussman as Venezuela’s representative in the institution, becoming the first multilateral international body to recognize the parliamentarian Juan Guaidó as president in charge of Venezuela as the country faces an increasingly critical economic and social situation. President of the IDB, Luis Alberto Moreno, had previously expressed his willingness to work with Guaidó and his delegation on various investment and development projects for Venezuela. Hausmann was the IDB’s chief economist between 1994 and 2000, as well as Minister of Planning and member of the board of directors of the Central Bank of Venezuela during the second term of former Venezuelan President Carlos Andrés Pérez in 1992 and 1993. Following Professor Hausmann’s appointment, plans will be carried out to restore Venezuela’s access to external financial markets.

(1)See: http://globovision.com/article/winston-cabas-explico-las-razones-de-la-crisis-electrica-que-afecta-a-toda-venezuela (2)See: https://www.theguardian.com/world/2019/mar/11/venezuela-blackout-deaths-latest-news-caracas-opposition-claims- (3)See: https://www.elnuevoherald.com/noticias/mundo/america-latina/venezuela-es/ article227502069.html,http://www.venezuelaaldia.com/2019/03/15/caracas-se-volvio-a-quedar-sin-luz-este-15mar/ (4)See: https://elcomercio.pe/mundo/venezuela/venezuela-caracas-venezolanos-desesperan-agua-estragos-apagon-nicolas-maduro -juan-guaido-photos-news-617009 (5)The engineer Víctor Poleo estimates a deficit of about 3,000 megawatts in electricity generation in Venezuela. (See https://www.infobae.com/america/venezuela/2019/03/15/un-ex -minister-of-energy-chavista-alert-that-other-apagon-is-imminent-in-venezuela /) (6)Source: Thomson-Reuters, Monthly Reports of the OPEC, own calculations. (7)See: https://lta.reuters.com/articulo/venezuela-politica-conocophillips-idLTAKCN1QP21H (8)See: https://es.panampost.com/sabrina-martin/2019/03/12/maduro-india-crudo/?cn-reloaded=1