Power Suppliers Hesitate as Venezuela Grid Repairs Stall Without Payment Guarantees
By Marianna Parraga, Mircely Guanipa and Mariela Nava
Challenges Facing Venezuela's Electricity Grid and Payment Uncertainties
Concerns from International Power Suppliers
PUNTO FIJO/MARACAIBO, May 4 (Reuters) - When potential providers and financiers for Venezuela's electric industry, including Siemens Energy and GE Vernova, held meetings with officials in Caracas in April, questions of how they might get paid to shore up the country's deteriorated grid were top of mind, two sources involved in the talks said.
Those executives came away hesitant, the sources said, as the nation tries to jumpstart a $100 billion reconstruction plan pushed by Washington.
Securing stable electricity is among interim President Delcy Rodriguez's top priorities since she replaced deposed President Nicolas Maduro in January, but the cash-strapped country has so far failed to guarantee timely payments to suppliers that would help key industries - like its oil-and-gas sector - recover.
"I returned very skeptical from Venezuela," said an executive from an equipment provider that worked with the government and state energy firm PDVSA, who attended one of the Caracas meetings. "The power plants have not been properly repaired in 10 years, so the needs are almost infinite. But they still have no clue on how we would get paid."
Current State of Venezuela's Power Generation
Less than 40% of Venezuela's generation capacity is currently available, leading to frequent outages and limiting the nation's manufacturing capacity. The country's thermal plants were expanded under late President Hugo Chavez through 2013, but the projects left billions of dollars in unpaid bills to contractors, some of whom are now being asked to return.
A lack of clarity over which projects will be prioritized and supplies needed to reinforce the country's transmission lines and fix its thermal and hydroelectric plants remains. That, coupled with uncertainties about payments and authorizations needed from Washington and Caracas, will delay investment, the sources said.
Venezuela's communication ministry, state utility Corpoelec, and state-run oil company PDVSA did not reply to requests for comment.
No Payment Solutions in Sight
NO PAYMENT SOLUTIONS IN SIGHT
Following the April meetings with foreign executives, Rodriguez's government approached firms including Siemens Energy, GE Vernova and Mitsubishi Power about repairing the grid.
Siemens Energy and GE Vernova confirmed meetings with government officials. "We are motivated to meet the moment in supporting the people of Venezuela," a spokesperson for GE Vernova said. Mitsubishi Power did not reply to a request for comment.
Generation Capacity and Repair Efforts
Of the 36,000 megawatts (MW) of Venezuela's installed generation capacity, less than 13,000 MW are currently available, mainly due to the bad condition of its fuel-powered plants, which are only contributing some 2,500 MW, or about 13% of their capacity, according to independent data.
Rodriguez has not elaborated on her plans, saying early efforts are focused on repairing two large thermal plants that have been underperforming for years.
"Solutions won't come overnight," she said last week in a rally in Valencia, one of many cities hit by frequent power cuts.
Historical Challenges with Multinational Contractors
The experience of multinationals from the Chavez era has made some wary about returning to Venezuela. Several companies who went unpaid filed for arbitration or resorted to legal action abroad after taking promissory notes Venezuela gave them instead of cash. Many traded those at large discounts.
None did further work in the ensuing years, in part due to U.S. sanctions that are now being eased.
Rodriguez's government recently rejected a proposal from a group of foreign firms seeking to be prepaid for initial repairs and spare parts, citing legal obstacles, according to the source.
Some proposed getting direct payments from U.S. Treasury-supervised accounts that are collecting the country's oil sale proceeds, said an executive from a potential financier.
Venezuela also has existing debts with multilateral institutions and banks, another obstacle for financing, the sources said.
Lengthening Blackouts and Rationing
LENGTHENING BLACKOUTS AND RATIONING
The power issues have hamstrung Venezuela's oil and gas sector, its most important industry.
At the Paraguana Refining Center, one of the world's largest with 955,000 barrels of daily installed capacity, several blackouts this year have prevented PDVSA from restarting gasoline-making units. That has delayed distribution, leaving long lines of drivers waiting for fuel.
PDVSA is assessing its needs for repairs and equipment, one of the sources said. But the company he represents "won't repeat past mistakes," he added, referring to its position on extending any credit to Venezuela.
Financial Needs and Infrastructure Problems
At least $15 billion is needed to repair the grid through a three-year stabilization plan. Without it, only minor repairs will be made, according to power expert Miguel Lara. "It's a very complex problem, a puzzle," he said. "I don't know which power supply will support the economic reactivation they are talking about."
Demand last year was 14,700 MW, leaving a deficit of at least 1,500 MW, Lara said. The grid had 35 large outages in the first quarter, compared with a historic average of three to five events per year. Theft and misuse of spare parts are also contributing to the infrastructure problems, he added.
Potential Solutions and Industry Responses
Bernerd Da Santos, executive vice president at U.S. utility AES, warned at an online conference in March about the urgent need to reinforce Venezuela's transmission lines. If the government adjusts tariffs to ease subsidies and provides legal certainty for contracts, investment could be possible, he said.
Some energy producers, including Spain's Repsol, have already launched open requests to source their own power plants and related supplies, a company document seen by Reuters showed. Repsol did not reply to a request for comment.
Residents, meanwhile, endure increasingly long str