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Venezuela’s Heavy Industry Faces Multiple Woes

Humberto Márquez

CIUDAD GUAYANA, Venezuela, Oct 5 2011 (IPS) - Like the biblical plagues of Egypt, 10 calamities have fallen in recent years on the previously flourishing basic industries of northeastern Venezuela, such as iron and steel, aluminium and hydroelectricity.

Lack of investment, the collapse of product prices, technological obsolescence, power failures, shortage of supplies, patronage, corruption, debt, a backlog in workers’ wages and benefits, and environmental degradation are the problems most frequently raised by trade unionists, business owners and analysts.

As a result, the plight of state-owned heavy industry puts a spanner in the works of the private sector, social and labour conflicts are on the increase, and hopes for a diversified economy, overcoming dependency on oil, are fading away in this region bordering Guyana, and Brazil farther south.

“Nearly all the basic industries have the same problems: supplies, spare parts and equipment fail to arrive, paralysing production lines; payrolls are padded, labour agreements are violated and the executives who run them play politics but do not manage competently,” steelworkers’ union leader José Jiménez complained to a group of foreign correspondents visiting the area, including IPS.

In the aluminium industry, “production is crashing, together with the work ethic, while schools to supposedly teach Marxism to the workers are mushrooming,” said aluminium union leader José Luis Morocoima, who is recovering from a bullet wound to the head he sustained in a labour conflict in May.

“The fall in production in state-owned basic industries has led to the closure of 162 out of 310 factories in the sector. In those that remain, use of installed capacity is less than 40 percent,” said the president of the regional Chamber of Industry and Mining, Fernando Goyenechea.

Analyst Damián Prat, who has been following the history of this sector for the past 30 years, said “the decline in production began in 2005, and the common denominator has been falling investment and maintenance, payroll expansion and corruption.”

The group of heavy industry companies in the region of Guayana developed in the last four decades of the 20th century around the confluence of the Orinoco and Caroní rivers, about 550 km southeast of Caracas.

The idea was to take advantage of the area’s enormous potential in iron, bauxite, precious metals and other minerals, hydroelectricity, forest resources and tourism based on stunning scenery, like plunging waterfalls and flat-topped mountains.

A system of dams was built in the lower Caroní river, which is 900 km long with an average flow rate of 5,000 cubic metres per second. The outflow from an artificial lake, the Guri, covering 4,000 square km, drives hydroelectric turbines in three power plants with an installed capacity of 12,500 megawatts. A fourth is being built, although it is behind schedule.

The main dam on Guri lake feeds 20 turbines with a capacity of 10,000 megawatts; 14 turbines are in operation while the others are shut down or undergoing repairs, the correspondents found.

The availability of electricity drove the installation of Siderúrgica del Orinoco (SIDOR), a steel company that was originally state-owned, then sold in 1997 to the Ternium Group, belonging to the Argentine consortium Techint, and nationalised again in 2008.

In the latter years of the last decade, while it was still owned by Ternium and employed 5,000 workers, SIDOR produced 4.3 million tonnes of steel annually. In contrast, with twice the workforce, it has only produced 2.1 million tonnes so far in 2011 and is forecast to reach 2.6 million tonnes by the end of the year.

SIDOR is supplied by Ferrominera Orinoco, which mines iron ore in the area and sells it as iron ore, pellets and briquettes. From its past record of 20 million tonnes per year, Ferrominera’s production fell last year to 13 million tonnes, according to the head of the trade union at the company, Rubén González.

Some six billion tonnes of bauxite (aluminium ore) reserves in the Orinoco river valley gave rise to the alumina and primary aluminium metal industry, and the foundation of the ALCASA and Venezolana de Aluminio (VENALUM) companies, with a joint nominal production capacity of over 600,000 tonnes a year.

Related industries like the Carbonorca company which makes carbon anodes for aluminium smelters, and FESILVEN which produces special alloys for the steel industry, have also grown up in the area. All these companies, according to reports from trade unionists and private business owners, are currently experiencing steep declines in production, taking on excess employees, and suffering from lack of investment, technological backwardness and shortage of materials.

At Carbonorca, “the workforce was increased from 470 employees to 700, for political reasons. Many of these people do not even have a chair to sit on, or they spend hours playing computer games, but many others keep working hard, producing the anodes that help our fellow workers at ALCASA to keep their production line going,” said union representative Emilio Campos.

While debate continues over what should have been done and how much should have been invested in these Guayana companies, there was a severe drought in 2009-2010 which led to enforced power rationing and obliged firms like VENALUM to shut down half its electrolysis cells, in order to spare entire cities in the north of the country from power outages.

Power consumption at VENALUM “is 800 megawatt-hours, half of what Caracas (with its five million people) uses, and we had to shut down more than 400 out of our 905 electrolysis cells. In 2008 we produced 439,000 tonnes of aluminium, but output fell to 258,000 tonnes in 2010,” Rada Gamluch, the company’s “worker-president”, told the journalists.

“The Socialist Guayana Plan that we are putting into practice aims for the gradual recovery of VENALUM, with a production target of 270,000 tonnes for this year, 300,000 next year and over 400,000 tonnes in 2014,” Gamluch announced.

According to his calculations, an injection of 400 million dollars from state coffers would allow payment of the money owed to workers and suppliers, as well as paying VENALUM’s overdue power bills from the state electricity company, which go back two years.

But Prat, the analyst, said “VENALUM’s decline began even before the electricity crisis.” In 2004 it reported net profits of 60 million dollars although aluminium was only worth 1,500 dollars a tonne, yet it made a loss in 2006, when international prices rose above 2,500 dollars a tonne, although it produced similar amounts of the metal in both years.

Bad management and heavy politicisation were to blame for these problems, according to critics. Wages were increased, apparently for electoral reasons, and there was also proselytism by the ruling party and corruption, they say.

Several sources mentioned the possible abuse of mandatory quotas – proportions of production – reserved for national producers, which some middlemen allocate abroad in order to profit from the difference in exchange rates. Venezuela has rigid exchange, price and tariff controls.

Labour conflicts are the order of the day, mainly sparked by delayed payment of workers’ wages, in a context where basic industry companies have 45,000 employees but could operate with 12,000, according to Goyenechea.

The companies have also been the scenario of a great deal of violence, which dogs labour and trade union activity in the construction sector in Guayana.

And environmental protection has been lax, especially in the aluminium smelters.

To set the firms back on their feet, the centrist opposition party Un Nuevo Tiempo (A New Era) proposed in February – without success – a bill to create a 3.1 billion dollar fund. Goyenechea estimated that recovery of the basic industry companies and further development of local natural resources would take at least twice that amount.

The military dictatorship of Marcos Pérez Jiménez (1948-1958), the two-party democracy that reigned from 1958 to 1998, and the “Bolivarian socialism” instituted by President Hugo Chávez since 1999, have all shared a vision of a promising, bright future for the Guayana region in the northeast and southeast and its industries. It is still a long way off.