Energy loan throws down gauntlet for Guaido

Venezuela's US-backed opposition leader Juan Guaido is considering a controversial $350mn electricity recovery loan ahead of a January 2020 legislative poll that will determine the fate of his constitutional claim to the interim presidency.

The proposed loan would be issued by Caracas-based Andean development agency CAF, which has long been seen as enabling President Nicolas Maduro, Guaido's nemesis who is not recognized by dozens of Western countries. Debt-ridden Venezuela is effectively severed from commercial and multilateral credit because of chronic defaults and US sanctions. Aside from state-to-state lending, CAF is an outlier.

Under the credit proposal, the funds would be managed and administered by the UN Development Program (UNDP), which has not responded to requests for comment.

More than 1GW of generation capacity would be installed or repaired in Zulia, Tachira, Merida and Nueva Esparta states and Caracas. Some opposition deputies in the National Assembly, which has been headed by Guaido since January 2019, argue that the CAF-funded grid project is overpriced and would be exploited by Maduro to prolong his rule. Among the outspoken detractors is Primero Justicia party (PJ) assembly deputy Angel Alvarado, who says the CAF is a discredited agency seeking to whitewash its books. Even if the project wins assembly approval, opponents say it would need modifications or a waiver to clear US sanctions restrictions.

Eleven months from Guaido's proclamation of an interim presidency and the imposition of US oil sanctions, Maduro has not budged. And the oil-based economy, now effectively dollarized, has quietly turned a corner, with lower inflation and sturdier oil production. But most Venezuelans are still enduring severe hardship and millions have fled. Proponents of the CAF-sponsored project inside and outside Venezuela say the funds are desperately needed to get the lights back on, especially in the western oil-producing state of Zulia.

Crude production in state-owned PdV's western division has plunged to less than 150,000 b/d, partly because of relentless blackouts.

Zulia is home to former governor and Maracaibo mayor Manuel Rosales of Un Nuevo Tiempo (UNT), a member of Guaido's political coalition that controls the assembly. His support is critical to ensuring that Guaido retains the assembly presidency when the parties elect a new 2020 legislative board around 5 January. If Guaido is edged out, his claim to the interim presidency would crumble.

In a session yesterday, the assembly recognized "the humanitarian crisis in Zulia state caused by power outages" and tasked two assembly committees with appointing experts to consider the CAF-funded project.

Guaido is walking a fine line. "We are looking for solutions to the country's crisis…whatever way is necessary, whatever way is possible," Guaido told reporters in Caracas yesterday, reiterating blame for the crisis on the "usurper" Maduro.

A main sponsor of the electricity project is former Venezuelan lawmaker Pedro Diaz-Blum, local coordinator of the Boston Group, a defunct gathering of US and Venezuelan legislators promoting bilateral ties dating from the early 2000s. A source close to the group says it is now a fully Venezuelan organization uniting opposition and pro-government legislators.

The electricity project is endorsed by Francisco Rodriguez, a Venezuelan economist and founder of Oil for Venezuela, a group that advocates a modified oil-for-food program. Rodriguez says the CAF funds would derive from a rollover of existing Venezuelan debt maturities to the agency.

CAF has not commented.

Power price

Guaido says he has ample support to retain the opposition mantle that he assumed in January 2019. But corruption scandals and a perceived lack of progress in unseating Maduro have eroded his political capital. Marches he called for 16 November drew only a modest turnout.

If Guaido endorses the CAF loan for short-term political gain, he risks alienating members of his fragile coalition, potentially including some in his own Voluntad Popular party (VP). They would back the deal if the CAF recognized Guaido's interim presidency, but that remains a remote proposition.

Assembly approval of the power proposal could lead to consideration of other projects, such as PetroDelta, a dormant joint venture that PdV's minority partners are seeking to reactivate with a $800mn three-year development plan.

The 40pc stakeholder in PetroDelta is CT Energy, which is promising to produce 100,000 b/d of crude from mature eastern Venezuela fields in exchange for full operational control and 100pc of the offtake.

CT Energy acquired its PetroDelta stake from Houston-based Harvest Natural Resources in October 2016 for $122mn, including the write-off of $30mn in debt owed by Harvest to CT Energy.

CT Energy's principals include Panama-based Element Capital Advisors president Francisco D'Agostino and Venezuelan telecommunications magnate Oswaldo Cisneros.