Boston, MA -- (ReleaseWire) -- 04/15/2014 -- Despite a small number of power projects coming online over the past year, Venezuela continues to significantly underperform compared with its regional peers. The country's business environment is notably unattractive, with high levels of corruption, an opaque tendering process and extremely low levels of liberalisation within the power market, while the political environment remains precarious, as evidenced by recent protests. Furthermore, electricity output from successfully commissioned plants is at the mercy of Venezuela's ageing and inefficient T&D infrastructure - with power outages still a pressing concern for the majority of the population.
Over the past year, Venezuela's power market has swelled in terms of capacity. For instance, according to a report from Bnamericas, 1.07 gigawatts (GW) have been brought online since energy minister Jesse Chacon announced the short-term plan at the beginning of May 2013, after President Nicolas Maduro declared a state of emergency for the power sector for 90 days in April.
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This notwithstanding, our grim outlook for the Venezuelan power sector remains in place. In order to meet demand, which averages between 17GW and 18GW, Venezuela has an installed capacity of approximately 28GW; however, only 20GW are currently operational. The country's business environment continues to present sizeable risks to investment (both industry and country specific). Under Chavez, private enterprise was asphyxiated and rigidly controlled tariff rates led to a lack of capital for investment in sufficient capacity. As detailed below, the situation has hardly improved in the past year. In addition, despite repeated promises from the government, delays and problems with funding continue to obstruct capacity development and improvements to the transmission and distribution (T&D) system in Venezuela.
More specifically, we note that:
- Macroeconomic and political risk factors continue to weigh heavily on the sector. BMI's Country Risk analysts expect near-recessionary economic conditions to prevail over the coming quarters, characterised by a slowdown in private consumption and exports. Additionally, they believe recently-elected President Nicolas Maduro will struggle to exert his grip on power in a highly polarised political landscape, a cocktail far from conducive for significant long-term investments.
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