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Boston, MA -- (SBWire) -- 05/21/2013 --Our relatively bearish view on Venezuela's power sector remains unchanged on account of macroeconomic, political and sector-specific dynamics. Imbalances between supply and demand in Venezuela's National Electricity System (SEN) continue to plague the country's electricity market. In addition, a devaluation of the Venezuelan bolivar in February 2013, is likely to erode consumers' purchasing power and thus real GDP growth, impacting power consumption. That said, the current administration is expected to continue to pursue Chavez's expansionary policies, with a focus on social spending as a main strategy to retain the ruling party's popularity, leaving room for investment in the power sector.

In spite of repeated promises by the government, delays and problems with funding continue to represent an obstacle to capacity development and improvements to the transmission and distribution (T&D) system in Venezuela, effectively capping short-term potential:

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- Venezuela continues to rely largely on a combination of imported energy and programmed power cuts to cope with demand as the system displays its inadequacy. Delays in project implementation are also widespread, losses during power transmission are a concern, and theft is a considerable issue, with 30% of electricity illegally stolen, according to government calculations.
- The country has a bleak short-term outlook, which is added to by Venezuela's macroeconomic and political outlook, as well as by the country's poor business environment. BMI's Country Risk analysts anticipate a new presidential election in Venezuela within months and believe Vice President Nicolas Maduro of the ruling Partido Socialista Unido de Venezuela will win, effectively continuing Chavez's interventionist policies. Social tensions are expected to remain elevated, fuelled by a polarised electorate and political uncertainty, while a devaluation of the Venezuelan bolivar in February 2013 will erode consumers' purchasing power, negatively affecting real GDP growth and, consequently, power consumption.
- Additionally, low levels of transparency, and liberalisation, coupled with high corruption and a volatile political picture will continue to hinder investment, as highlighted by Venezuela's tail ender position in BMI's Power Risk/Reward Ratings.
- Medium and long term, upside and downside risks are both at play, influenced by a number of interrelated variables. Most notably, the growing gap between demand and supply is likely to force the government into action, especially as the devaluation will increase fiscal capacity by boosting the amount of local currency the government receives per petro-dollar. Yet, the cohesiveness of any intervention is far from assured.

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