Caracas Chronicles

Juan Cristóbal says: Why does it cost 39% more than average for a Spanish company to build a power plant in Cumaná than anywhere else in the world? Why does it cost 12% more than its next most expensive project anywhere in the world? And what does it take these days to get anyone in Venezuela to take a hard look at these numbers?

These are just some of the questions arising from the deals now being struck between the Spanish government, Spanish multinationals and the Chávez administration. Using estimates from the International Energy Agency, I’ve argued there is no way the 1,000 MegaWatt (MW) combined-cycle electric plant being built in Cumaná for 1.4 billion Euros is being purchased at market rates. The multi-million dollar overcharge is out in the open.

Of course, whether or not you believe you’re being overcharged depends entirely on how reliable you think the benchmark is. If you believe the IEA is a questionable benchmark, then on the face of it, there is no way of knowing whether the Iberdrola project is based on real costs or whether something far more sinister is at hand.

As it turns out, there is another set of benchmarks available: Iberdrola’s combined-cycle projects in other parts of the world.

As we said in the previous post, Iberdrola’s project costs Venezuelan taxpayers 1,400 Euros per KiloWatt (kW) of installed capacity. To get that number, simply divide 1.45 billion Euros by the 1 million kW capacity the plant will have (1 MW is 1,000 kW, so 1,000 MW is 1 million kW).

The question that begs asking is: what were the costs of Iberdrola’s other combined-cycle projects? Let’s see.

– In Lithuania, it is building a 440 MW plant for 330 million Euros. The cost of the Lithuanian plant is 750 Euros per kW.

– In Algeria, it is building a 1,200 MW plant for 1.47 billion Euros. The cost of the Algerian plant is 1,225 Euros per kW.

– In Russia, it is building a 403 MW plant for 311 million Euros. The cost of the Russian plant is 771 Euros per kW.

– In Qatar, it is building a massive 2,000 MW plant for 1.63 billion Euros. The cost of the Qatari plant is 815 Euros per kW.

– In Latvia, it is building a 420 MW facility for 300 million Euros. The cost of the Latvian plant is 714 Euros per kW.

The numbers don’t lie. The Cumaná project is, by far, the most expensive combined-cycle power plant in Iberdrola’s investment portfolio.

There may just be a perfectly valid reason for all of this, but I doubt it. What possible explanation, other than corruption, can there be for such a difference? Are Iberdrola’s stockholders aware that, because they list their ADRs in the New York Stock Exchange, Iberdrola would fall under the jurisdiction of the U.S. Foreign Corrupt Practices Act? What does European legislation say about this? Why aren’t European MPs looking into this?

And why are Venezuelan journalists simply ignoring this issue?

Venezuelan taxpayers deserve an answer.