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  HOME | Opinion (Click here for more)

VenEconomy: Symptomatology of a Debacle in Venezuela-Owned Companies

From the Editors of VenEconomy

The Hugo Chávez administration is like a plague; it destroys everything it touches, damaging it, causing its collapse or wiping it out, particularly when it comes to matters economic.

PDVSA is irrefutable proof of this. The state-owned oil company of old, managed in accordance with business criteria for the benefit of the Venezuelan State, has declined into a dilapidated rust-riddled wreck with its coffers practically empty.

Venezuela’s agricultural is also showing signs of the Chavista administration’ negative hand. The production drought is apparent in the skeletal shelves in markets, grocery stores, and supermarkets, including the Mercal and PDVAL establishments, and in the need to massively supply the domestic market with all kinds of imported goods.

The most recent example of this pernicious Chavista influence is being experienced by the legendary and efficient Electricidad de Caracas. This formerly buoyant, competitive company has just posted its second year of losses in the 114 years since its foundation.

It announced its first losses more than 25 years ago, when the government of the day did not allow it to raise its charges, despite the fact that inflation was pushing up operating costs. Since it was a private company at that time, it was the shareholders who absorbed the losses and the situation went practically unnoticed by the public at large.

Now, on May 29, the state-owned Electricidad de Caracas, after a five-year-plus freeze on its charges, presented its Annual Report for 2008 to the ordinary shareholder’s meeting two months late and, what is worse, posting a loss of Bs.F.301.9 million versus a profit of Bs.F.130.7 million in 2007.

Part of the problem revealed in this deficitary balance sheet is that income from electricity sales fell from Bs.F.2.07 billion in 2007 to Bs.F.1.6 billion in 2008, despite the fact that it sold 2.5% more energy in 2008 than in 2007, going from 11,749 GWh to 12,048 GWh. This suggests that the company is not collecting what it is owed from a large number of its users, because neither the volume nor the charges have changed.

Another problem detected is that accounts receivable went from Bs.F.249.7 million to Bs.F.792.2 million, whereas debts rose from Bs.F.65.4 million to Bs.F.77 million between 2007 and 2008. This deterioration is reminiscent of what is happening at PDVSA, where debt is increasing and profitability is declining.

Even more important is the fact that operating expenses fell by Bs.F.69.6 million to Bs.F.1.40 billion. At first glance, one might think that this was due to the company optimizing administration. But a closer look reveals that this is a false saving. What it is really due to is to the elimination of the municipal business tax because the company changed its status from a privately owned enterprise to a state-owned entity and to the fact that it is purchasing energy from another state-owned company, Edelca, at a discount.

The issue here is no longer simply that the people whose responsibility it is to efficiently operate the companies belonging to the nation are leading them to financial ruin, which should be sanctioned. The point is that, now, since Electricidad de Caracas is a company that provides a basic service, it will not be long before the population feels the effects of the havoc wrought by bad, opaque administration as it adversely impacts their standard of living.

VenEconomy has been a leading provider of consultancy on financial, political and economic data in Venezuela since 1982.

Click here to read this in Spanish

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