Venezuela's Bid to Revive Key Power Plant Hits a Snag

(Bloomberg) -- Venezuela, back in the dark again, is struggling to find help for its failing electric system.

Another blackout was enveloping Caracas and much of the nation Tuesday, but U.S. sanctions and opposition from the Inter-American Development Bank have derailed the regime’s plans to woo an Argentine turbine maker to activate two units at a hydroelectric plant that would provide a modicum of relief, according to people with direct knowledge of the matter.

Venezuela’s state-run power company Corpoelec met in December with representatives of Mendoza, Argentina-based Impsa SA to revive an old contract for the Tocoma power plant in the southeastern state of Bolivar. The project, which has been halted since 2014 and whose price ballooned to nearly $9 billion, would relieve a strained grid that’s collapsing amid a lack of investment and maintenance.

But during the meeting, Impsa told the officials that the company needed $30 million to complete the installation of two turbines. It never got a firm reply from Venezuela. A month and a half later, National Assembly President Juan Guaido declared himself the legitimate leader and was immediately recognized by the U.S., Argentina and dozens of other countries. The IDB, a multilateral lender based in Washington, voted to recognize Guaido instead of Nicolas Maduro on March 15, further complicating any work on Tocoma.

Not only is the IDB a lender to Venezuela, but it’s an indirect stakeholder in Impsa after a debt-for-equity swap in April to save the company from bankruptcy. Even if the IDB approved a deal, it could be hampered by opposition from Argentine President Mauricio Macri’s government and restrictions on using the U.S. financial system for business with Venezuela.

The Venezuelan Information Ministry and an Impsa spokesman declined declined to comment. The IDB said it doesn’t participate in the administration or management of the company and added that it’s just “an economic beneficiary of a trust of shares.”

The timing couldn’t be worse for Maduro, who is clinging to power with the support of the military and strategic allies globally like Russia, China and Turkey. A crippling week-long power failure this month plunged most of the nation into darkness and sparked looting in Maracaibo, the country’s second-largest city. On Monday, another blackout hit more than half the nation, including the capital, and the government suspended school and told workers to stay home on Tuesday.

A fault in a high-voltage line shut down 11 of 12 turbines at the Macagua hydroelectric plant, cutting 1,810 megawatts from the national grid, according to a report from the state power company seen by Bloomberg. The system operates on a total of 10,000 megawatts.

Much of the country remained blacked out Tuesday, but in downtown Caracas -- which houses Venezuela’s presidential palace and ministries -- the lights were back on by noon. Most businesses remained closed and light traffic flowed across highways and main avenues.

In Catia, a slum in west Caracas, power returned at midday and food stores opened to sell what they could. Liz Guillen, a 49-year-old merchant who had lost everything in her home freezer, tried to buy chicken at a butcher, but credit-card machines didn’t work.

“This is inhuman,” she said. “We have to get the president out, even with a gringo invasion. He says it was a cyber attack -- the cyber attack was to his brain," she said.

Police presence was strong at every corner in Catia. Motorcycle officers of the national police’s feared Special Actions Force, known by the Spanish abbreviation FAES, patrolled in ski masks.

Maduro and his officials have been quick to blame the outages on sabotage and U.S. cyber attacks. However, industry experts and opponents point to years of neglect and insufficient investment to finish projects like Tocoma or perform simple tasks like clearing flammable brush around distribution towers. Food, medicine and machinery are in short supply and the country’s foreign reserves, which are mostly in physical gold, stand at $8.7 billion, down from $22 billion five years ago.

Guaido said the people no longer believe the government’s excuses.

“In the middle of the angst of darkness, when our people need to be assured during another blackout, how can they pretend to keep repeating the same excuses of ‘electrical war and sabotage?” Guaido wrote on his Twitter account. “They’re corrupt liars.”

Chavez-Kirchner

Under Venezuela’s socialist presidents, the nation has fallen into disastrous disarray thanks to mismanagement abetted by plunging oil prices.

The relationship between Venezuela’s Corpoelec and Impsa is complicated, mired in politics and scandal for more than a decade. While led by businessman Enrique Pescarmona, Impsa landed several contracts in Venezuela while then Argentine President Cristina Fernandez de Kirchner and her husband, Nestor Kirchner, maintained close ties with her Venezuelan counterpart, Hugo Chavez. In 2007, the Tocoma contract to build and install 10 turbines was one of Impsa’s biggest projects.

But Corpoelec and Impsa fell behind due to inflation, surging costs and problems with other contractors. The utility was late making payments and the manufacturer installed only two turbines. The project was halted and the company suffered a $1.1 billion default in 2014.

Creditors seized control of the board post default, and Impsa has been on the hunt for new contracts to turn around its balance sheet ever since. As part of this effort, Impsa had been urging Venezuela to renegotiate its old contract, the people familiar with the situation said.

Based on a March 20 Corpoelec document seen by Bloomberg, the utility wanted to hire Impsa to complete the installation of the two turbines as part of a $71 million project to reactivate a quarter of the plant, about 430 megawatts out of a 2,160-megawatt capacity. Impsa would receive about $30 million for 18 months of work.

But no firm offer was made to the company, according to the people who knew of the plan.

--With assistance from Alex Vasquez.

To contact the reporters on this story: Fabiola Zerpa in Caracas Office at fzerpa@bloomberg.net;Pablo Gonzalez in Buenos Aires at pgonzalez49@bloomberg.net

To contact the editors responsible for this story: Daniel Cancel at dcancel@bloomberg.net, Stephen Merelman

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