Chávez oil fails to stem Nicaragua crisis

Sixteen months after Venezuela's leftist President Hugo Chávez drew bipartisan hurrahs in Nicaragua with his promise to solve the country's "oil problem," the cheers have turned to jeers as Nicaragua's fuel crisis has become more crippling than ever.

Mr. Chávez last year promised to supply Nicaragua – which is now ruled by his ideological comrade President Daniel Ortega – with 10 million barrels of oil, sold at market price through a secretive Nicaraguan-Venezuelan oil company known as ALBANISA. The Venezuelan leader has also provided funding for Nicaragua to buy several new oil-burning power plants to increase production by 20 percent by 2009.

Yet gas pump prices have soared to over $5.20 a gallon – the most expensive in Central America – and electricity costs have gone up on four occasions since Mr. Ortega took office last year. The addition of the new Chávez-funded power plants have made the country even more dependent on foreign oil, which observers now fear could help grind the fragile economy of one of the hemisphere's poorest countries into the ground.

"We are even more dependent on petroleum now than were a year and a half ago, when we were having six-to-eight hour blackouts every day," says opposition Liberal Party lawmaker Francisco Aguirre, president of the National Assembly's Economic and Budget Commission. "If the American economy is reeling because of energy prices, imagine what that means for us in Nicaragua."

How oil dependency developed

The country's oil dependency is a relatively new problem.

Before Ortega's leftist Sandinista revolution in 1979, more than 70 percent of Nicaragua's energy was hydroelectric. Today, thanks to a lack of state planning by the last four governments from the right, left, and center of the political spectrum, the trend is going the other way fast.

"Governments have always acted to resolve the energy problem in the easiest and cheapest way possible, which is through petroleum plants," says César Zamora, president of Corinto Power, the largest energy provider in the country. "An oil plant can be installed in two years, but a hydro plant takes five years to build, a year of study, and a lot more money."

Plus, Mr. Zamora says, no one ever expected oil prices to reach such nose-bleed heights. When Ortega forged his oil deal with Chávez at the beginning of 2007, the international price was $74 a barrel. The price has since jumped to over $130, meaning the country's oil bill to Venezuela this year will be nearly double what was budgeted at the beginning of the year

Soaring oil prices have already doubled food costs, led to a recent nationwide transportation strike over fuel prices, and kept the country teettering on the edge of power-rationing blackouts.

Ortega managed to bring an end to the transportation strike two weeks ago by offering taxi and bus drivers a $1.30 subsidy on diesel, but prices have since gone up twice and the transportation sector is again threatening a work stoppage as their subsidy whittles away.

As the situation worsens, a growing chorus of critics are questioning the oil promises made to Nicaragua under the label of the Bolivarian Alternative for the Americas, or ALBA – Chávez's leftist trade alliance among Venezuela, Bolivia, Cuba, and Nicaragua.

"ALBA is a mystery enveloped in a cloud of fog, wrapped in an enormous enigma," Mr. Aguirre says.

Though the lawmaker says that Venezuelan aid could "theoretically" be a great help to an impoverished country such as Nicaragua, the secrecy with which ALBA has been handled by Ortega has only fueled criticism and conjecture.

European donor countries – as well as the International Monetary Fund, opposition lawmakers, civil society, and the national media – have all asked for an explanation of Venezuelan aid under ALBA. But so far Ortega has remained tight-lipped, aside from admitting that Venezuelan aid to Nicaragua already totals $520 million.

The secretive oil ties to Chávez

Journalists' attempts to investigate the issue have been thwarted by the government. "Instead of answering any basic questions about Venezuelan aid, they accuse you of trying to destabilize the government and conspiring with the oligarchy," says investigative journalist Moisés Martínez of the national daily La Prensa.

Economists, too, are unable to explain ALBA, or account for the $520 million that Venezuela has supposedly given to Nicaragua – money that Ortega manages in a separate discretional fund with no third-party oversight.

Ortega's explanation of ALBA aid – including $35.3 million for unidentified "social programs" and $60.6 million for "other programs" – has done little to satisfy the opposition's call for transparency and accountability.

"Nothing about this is clear," says economist Adolfo Acevedo.

What is clear is that Ortega's handling of the government is translating into unfavorable polling numbers. In a poll released in May by M&R Consultants, 64 percent of those surveyed describe Ortega as an authoritarian ruler who wants to implement a dictatorship, and 88 percent said they don't think the Nicaraguan economy has improved under his watch.

Ortega argues that things would be worse without him.

"If we weren't in government, I don't know where Nicaragua would be right now," Ortega said in a recent speech in which he credited Venezuelan solidarity from saving the country from complete disaster. "Thank God we came to power. On the contrary, the country would be in a situation of total chaos, without energy or petroleum."

If oil reaches $150 a barrel, economists warn that widespread instability would be right around the corner.