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VenEconomy: The yardstick of destruction


By dint of nationalizations and state takeovers, the Hugo Chávez administration has destroyed the country's productive capacity. Its insistence on putting political criteria before technical, managerial, and economic considerations has resulted in unthinkable levels of deterioration in every company that has been taken over by the Venezuelan State.

Right now there are two cases in particular of Venezuelan companies that, after having passed from private to state hands, are showing a dramatic decline in their efficiency, productivity, and profitability, with the consequent repercussions for the standard of living of the Venezuelan population.

The first of these companies is Siderúrgica del Orinoco (SIDOR), privatized in 1997 when the majority shareholding passed into the hands of the Argentine group Techint. Under the management of the Ternium-SIDOR consortium, liquid steel production jumped from 2.4 million metric tons a year to more than 4 million mt a year in 2007.

In 2008, SIDOR returned to the hands of the State, and in just three years under Chavista management, steel production has dropped to 1.8 million mt a year, bringing the state-owned steel company to the point of collapse, overwhelmed by labor crises and consumed by far from transparent management. Today, SIDOR's poor productivity has resulted in shortages of rebar for the construction of the millions of homes the government has promised and that are urgently needed by thousands of Venezuelan families.

The other dramatic case is that of Electricidad de Caracas (Elecar). From the time it was founded and for 112 years, Elecar was an efficient private company that provided a good service and was highly profitable. In 2007, Elecar was nationalized and has been declining steadily ever since.

In terms of profitability, things are going very badly for the company. From a net profit of Bs.F.132.4 million in 2007, Elecar closed 2010 Bs.F.926.8 million in the red, according to its annual report. Apart from that, today Elecar shows a 41% reduction in its net worth (from Bs.F.2.2 billion in 2009 to Bs.F.1.3 billion in 2010) and an increase in its payroll burden of 134% in 2010 alone.

Equally serious is its poor performance in the area of electricity generation. Tacoa Power Station is experiencing outages owing to the lack of maintenance and excessive demand on its equipment and two of its units are out of service.
Today, Elecar is not generating sufficient power to supply the capital region, as it was capable of doing prior to nationalization.

The deterioration of Elecar, and that of many other state-owned companies, will continue to erode the standard of living of all Venezuelans.

 

 


VenEconomy has been a Venezuela's leading specialized publisher on financial, political and economic data since 1982. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by Veneconomy , on April 07, 2011. Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld News 08/04/2011

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