Chavez's electricity savings plan will hurt Venezuelan economy, business leaders warn

CARACAS, VENEZUELA — President Hugo Chavez's energy saving plan for easing severe electricity shortages will hurt Venezuela's manufacturing sector as the country struggles through a recession, business leaders and analysts say.

Chavez declared an energy emergency this week, announcing he will punish businesses and industries that use what the government considers excessive amounts of electricity, while rewarding those that cut consumption with discounts.

The conservation plan requires large businesses and factories to cut use 20 percent or face sanctions, including 24- to 48-hour shutdowns and hefty increases in electricity rates for companies singled out as excessive energy consumers.

Ismael Perez Vigil, executive president of Conindustria, the country's largest industry chamber, said Tuesday that business owners expect the plan to cause a further decline in manufacturing. The chamber already had predicted a 7 percent to 10 percent drop in production before the plan was announced.

Perez Vigil told The Associated Press the chamber is still studying the potential impact of the plan, but its members believe it will force them to curb production.

Pollster Luis Vicente Leon of the Caracas-based firm Datanalisis, which tracks economic indicators, said he expects "a significant contraction of economic activity" as a result of Chavez's plan.

Leon predicted Venezuela's economy could shrink as much as 2 percent this year as industrial output and other business activities are hobbled by energy rationing and possible sanctions.

The economy shrank 2.9 percent last year — Venezuela's first recession since 2003 — as the oil industry suffered a downturn due to decreased production and lower world crude prices.

Chavez blames the power shortages on a severe, months-long drought brought on by changes in weather patterns caused by the El Nino phenomenon in the Pacific Ocean. The lack of rain has dropped water levels to critical lows behind the important Guri Dam, which supplies roughly 70 percent of Venezuela's electricity.

Chavez's opponents put the blame on the socialist president, arguing he failed to invest enough in electrical projects to meet growing demand over the last decade in an oil-rich nation.

The government's energy conservation plan also targets ordinary Venezuelans who use more than 500 kilowatt-hours of electricity a month — an estimated 24 percent of all residential consumers. Those households must reduce consumption 10 percent or face a 75 percent jump in electricity rates.

Leon, the pollster, said he expects the energy plan to hurt Chavez's popularity even if many Venezuelans don't hold the president directly responsible for the energy woes.

"It doesn't matter if you say El Nino is to blame, or the climate," Leon said. "Supposing that those are to blame, the final result is that the population is undoubtedly going to feel uncomfortable."

In December, the government began imposing electricity and water rationing to prevent a collapse of the electricity grid. Rolling blackouts lasting up to four hours occur daily throughout the country — except the capital of Caracas.