The story of how power failures can plague Venezuela even though it boasts some of the world’s greatest natural gas reserves and massive hydroelectric dams is the Chávez years in miniature — a heady cocktail of ideological rigidity, corruption and mismanagement.

The problems started when the government nationalized the electric sector in 2007. It eventually consolidated the utilities as a single state-owned firm known as Corpoelec. The revolutionary socialist government was determined to protect people from the depredations of capitalism by freezing electricity rates.

The trouble is, inflation has been running at 15 to 35 percent a year, meaning that every year, electricity has been getting that much cheaper in real terms (when it isn’t stolen from high-power mains outright, which is common).

That, in turn, means two things. One, in a country where power bills seldom give you a reason to turn off the light when you leave the room, demand keeps rising at rates that even the government admits are unsustainable. Two, perversely, Corpoelec is chronically short of cash. As of August this year, payments from customers couldn’t cover the company’s payroll, let alone the billions it takes to build new power plants and dams or upgrade the rickety national grid.

A severe drought in early 2010 pushed the government to take drastic action. An emergency decree rationed the supply of electricity to users while simplifying the bureaucracy needed to buy power-generating equipment abroad. But that decision gave rise to several scandals, as ghost companies in Venezuela landed contracts worth hundreds of millions of dollars to supply gas turbines and other equipment at shamelessly inflated prices, with the difference ending up in well-connected pockets.

Much of the underlying issue has to do with natural gas. Although Venezuela has enormous reserves, making gas an ideal fuel for generating electricity for the entire country, it doesn’t have a proper delivery system. It has more gas than it knows what to do with in the east but faces a chronic shortfall in the west, where many power plants are located.

Well aware of the problem, in March 2006 the government signed a $350 million contract to link up the two systems — with a pipeline and three gas-compression stations — by 2008. Here we are in 2012 and the project has still not been completed and its price tag has risen to nearly $900 million [pdf].

http://latitude.blogs.nytimes.com/2012/09/21/chavezs-electric-power-problem/?_r=0