The first step in the inevitably long process of rebuilding Venezuela’s electricity sector will be to initiate a dialogue with the multiple stakeholders, aiming to develop a flexible programme of priorities for electricity and to plan how it can be integrated with energy production.
In conducting the background research for this paper and interviewing key informants, three key observations emerged. The first was how much remains unknown about the current operational state of Venezuela’s electricity system. Even the information contained in the most recent studies (such as the two IDB reports cited above) risks being out of date, since there are known to have been developments that indicate the further degradation of the system. In addition, official statistics and reports are generally unreliable. The second notable point is the complexity and uniqueness of Venezuela’s electricity crisis: more broadly, this reflects the overall collapse of the Venezuelan state, but there are a number of sector-specific issues. These include equipment malfunction and misuse; a lack of maintenance; corruption; the use of inappropriate fuels to power thermal plants; drought, which has affected the country’s considerable hydro base; the insufficient capacity among both technical staff and state management; and the centralized, politicized state-centric structure that oversees the entire system – and does so within the context of the dire humanitarian crisis that the country is suffering. The third significant factor is the sheer range of stakeholders, local experts and engineers, potential donors and advisers, and private sector interests and investors that will need to be involved in the reform process.
For this reason, an initial recommendation is that a process of broad discussion about the contours of the current electricity crisis in Venezuela will need to be relaunched. This will include consideration of the actors that will need to be involved, the potential pitfalls (some of which may well parallel those described in the case studies on Iraq and Romania – see Boxes 1 and 2) and options for upgrades and ‘easy wins’.
This is a discussion that – even given what is still unknown about the current context – can start immediately. As a first priority, participants will need to focus on the points that follow.
- Discuss with MDBs priorities for the power sector and resources that may be available, taking into account other humanitarian objectives. Ahead of any project start, formulate an emergency plan with agreed financing and a contracting strategy that can be implemented by a dedicated project management team in the first couple of months, when there is political will.
- Ensure close integration between plans for the oil and gas and power sectors, particularly plans for gas supply.
- Identify critical gas treatment and pipeline infrastructure repairs and flaring reduction opportunities. The former should include repairing the grid from Guayana control region, operating the Termozulia CCGTs, completing the Tocoma dam and restoring grid control operations at the national dispatch centre.
- Plan for the long-term reform of the structure and regulation of the sector, including necessary legislation. However, certain immediate actions should be prioritized for quick implementation, such as unbundling CORPOELEC and forming an independent TSO.
- Make an immediate start on eliminating subsidies for commercial and industrial customers, and indicate the path for assessing and collecting tariffs for residential customers. Any effort to roll back subsidies, however, should be done in a carefully calibrated fashion so as not to increase pressures for the country’s debilitating hyperinflationary crisis and reduce access to electricity for small businesses and individual consumers. Plans for residential customers will take time and will require consultation to avoid a disproportionate impact on the poorest.
- Finally, it will be important to set the expectation that new electricity generating capacity, with the possible exception of gas that is low-cost or diverted from flaring, will consist of solar or wind renewables. The standards regarding renewable generation should be established before auctions are initiated, to ensure that the bids and costs are competitive. Liquid-fuelled thermal assets should be phased out at the end of their economic lives on cost and environmental grounds, and hydro assets should be operated, but with an eye towards drought risks.