Venezuela Begins Rationing Electricity

from Bloomberg

Venezuela’s government announced the start of electricity rationing in western Zulia state as well as water rationing in Caracas to reduce demand on the power grid, a day after Ford Motor Co. (F) halted production in Latin America’s largest oil exporter.

The second-largest U.S. automaker joins competitor Toyota Motor Corp. (7203) and Dutch truck-maker CNH Industrial NV (CNHI) in suspending assembly in the South American country because of the difficulty of obtaining dollars to import parts from the government.

Shortages of everything from water to car parts and flour to pregnancy tests come after three months of protests against the government of President Nicolas Maduro that have left at least 41 people dead. The government yesterday said it will start rationing electricity and water as drought drains hydroelectric reservoirs and water tanks.

“This is another acknowledgment that the country is not working,” Michael Shifter, president of Inter-American Dialogue in Washington, said in a phone interview yesterday. “If this spreads to the rest of the country and becomes a nationwide rationing of electricity, it will significantly cut into Maduro’s support.”

Colombia stopped natural gas sales to Venezuela last week to preserve fuel during the periodic regional dry spell known as El Nino. The last electricity crisis prompted by El Nino in 2009 contributed to six straight quarters of negative economic growth in Venezuela.

“We’re running the risk of living a new electricity crisis like the one that started in 2009 if water levels at the Guri dam do not recover in the next four months,” Miguel Lara, a former president of Venezuela’s grid regulator, said yesterday in a telephone interview.

Economic Contraction

Venezuela’s economy will shrink 1 percent this year, according to a median estimate of eleven economists surveyed by Bloomberg last month. This compares to 0.5 percent growth they forecast in February.

Venezuela, which has the world’s largest oil reserves, suspended a nationwide electricity rationing plan in June 2010 after it increased investment in thermoelectric capacity.

The energy-saving plan follows measures to ration water in the capital, where residents are struggling with shortages of basic goods including toilet paper and bottled water.

More than one in four basic goods was out of stock in Latin America’s fourth-largest economy in January, the most since records began, according to the central bank. The bank stopped publishing up-to-date scarcity data in March.

The Dearborn, Michigan-based Ford, which took a $310 million charge in the first quarter for the sharp devaluation of the Venezuelan bolivar, had already cut production in the South American nation because a shortage of hard currency made it difficult to purchase parts.

Ford, GM

“Ford’s production operations have been suspended in Venezuela due to material shortages,” Kristina Adamski, a company spokeswoman, said in an e-mailed statement May 6. “We have received a commitment from the Venezuela government to help resolve the issues and to get our production up and running by the start of next month.”

General Motors Co. (GM), the largest U.S. automaker, has two factories in Venezuela.

“Production in Venezuela continues at a reduced level given low availability of material,” Dave Roman, a GM spokesman, said yesterday in an e-mail. “We are working with Venezuela government representatives and discussions have been constructive. We have no further information to share at this time.”

GM in April reported a $419 million one-time loss for Venezuelan currency devaluation as part of its first-quarter earnings. Lower production during the first quarter in Venezuela contributed to a decline in GM’s South America market share, Chuck Stevens, chief financial officer of Detroit-based GM, said in April.

“We like Venezuela when it’s running normally,” Stevens told analysts in April on a conference call. “It hasn’t run normally for the last three quarters. Clearly that’s weighing down our results. We see no resolution in the near-term.”
Shortages, Inflation

Dollar shortages have depressed car sales in Venezuela by 86 percent in a year to March, according to Venezuela’s Automotive Chamber of Commerce. Only 1,674 new cars were sold in the country of about 28 million people that month.

The decline of industry and dollar shortages pushed inflation to 59 percent in March, the highest in the world.

State water utility Hidrocapital posted on its website yesterday a rationing plan for Caracas. No part of the metropolitan area will go completely without water, and the government is preparing rationing plans for other parts of the country, Environment Minister Miguel Rodriguez said yesterday on state television.
‘Critical Time’

The eastern business district of Chacao, home to office towers, restaurants and shopping malls, will not have water service on Tuesdays and Saturdays, according to the plan. On the remaining five days of the week, water service will only be available in the evenings, Hidrocapital said.

The rationing plan will be in place until the wet season starts and water levels stabilize at major reservoirs, Rodriguez said yesterday.

Approval for Maduro fell to a record low 37 percent in April, according to a poll from Caracas-based Datanalisis published by newspaper El Universal May 5. Datanalisis President Luis Vicente Leon declined to confirm or deny the poll.

The utility “crisis has arrived at a bad moment for the government, as it comes at a critical time for the country” Leon said by telephone from Caracas yesterday. “The problems of shortages of medicines and food are perceived much more acutely by people who are having their water or lights cut off.”