Venezuela Project May Ease Blow of Oil Crunch

In the days when Venezuela was awash in oil money, this pioneering city became the stage for an extravaganza in state investment in heavy industry.

Here on the banks of the Orinoco River, where electric power, iron ore and bauxite come together in prodigious quantities, the Venezuelan planners ordered up an instant Pittsburgh in the tropics. Ciudad Guayana was founded in 1961 and, with oil prices soaring in the 1970s, investment went ahead at a breakneck pace.

Critics of the high-spending style of the oil bonanza days found the crash program not only wasteful and inadequately planned but reckless in terms of eventual production with untested facilities, untrained workers and thin management. There were acute housing problems, and the labor turnover was massive.

Nobody seems to know exactly how much money has been poured into Ciudad Guayana and its industries, but CVG, the Venezuelan Guayana Corp.--sort of a Tennessee Valley Authority that coordinates investment in the region--has put in at least $20 billion during the past 25 years.

Waste and delays have made it difficult to measure the returns against that figure. But for a visitor who saw the city in its raw infancy, the impression is that the vision of an Orinoco industrial center has become a dynamic reality. The place has taken root, and it can be expected to survive the sharp decline in oil prices that has reduced Venezuela’s oil export income from $19 billion in 1981 to an estimated $7.7 billion this year.

Answer to Economic Crisis

As Venezuela learns to live on less income from its oil exports, the hydroelectric power and metal-processing industries of Ciudad Guayana look like part of the answer to the economic crisis. And as a community of people, Ciudad Guayana does not look nearly as bad as the critics predicted.

A planned city that is now home to 400,000 people, Ciudad Guayana stands where in 1960 there was only a village of palm-thatch huts, a river crossing called San Felix and a mining camp called Puerto Ordaz built by the U.S. Steel Corp.

Today, grass and flowering trees decorate the rings of asphalt highways, the office towers, shopping malls and cottage housing in the carefully laid-out urban areas. There are unplanned squatter towns nearby, too, but they are getting paved streets, running water and electric power.

Earth movers terraced the muddy river banks for construction of steel mills and aluminum smelters that now send plumes of white smoke into the sky. A line of electric transmission towers stretches away across the flat horizon from the huge Guri Dam on the Caroni River, a tributary of the Orinoco.

With the multibillion-dollar investments came a huge influx of migrant workers, from all over Venezuela and from other countries as well. A new society has emerged, one that may be a guide for social development in Third World countries.

“This changed my life,” Jose Eluvelio, 39, a forklift operator at the Alcasa aluminum plant, said as he came off the night shift. “I grew up in San Felix. If it wasn’t for this factory, I would probably be catching fish in the river, as my father did.”

30,000 Industrial Workers

Fishermen still cast nets from dugout canoes on the swirling brown waters of the river, as their Indian forebears did, and cowboys in cowhide jackets come in from ranches for a night on the town. But Eluvelio is one of 30,000 new industrial workers who, along with thousands more construction and service workers, form part of a modern economy here.

In the Bellavista section of San Felix, where CVG leases land to home builders for $30 a year, three friends who came here from impoverished rural areas were sitting the other day in the shade of a green mango tree. One worked at the Venalum aluminum works, another was a construction worker, and the third has a small store. All have built small houses.

“Coming here was the best decision of my life,” the metalworker, Santiago Rangel, said. “I left my home when I was 19 because there was no work. Here I have always found work, and my three children will have a future.”

The construction worker, Lorenzo Perez, said: “Construction is slow now because money is not as abundant as it was 10 years ago. There is an unemployment problem, but here you can always get a loan from a friend who has work. Nobody goes hungry.”

The successful operation of this industrial powerhouse is critical now that the cutback in earnings by the state-owned petroleum industry has forced a severe reduction in government spending. This country of 17.5 million people, with per-capita income of $2,340 in 1984, is in the third year of a severe recession that has raised unemployment to 12%, according to official figures, although unions and opposition parties claim the rate is higher.

Leopoldo Sucre Figarella, the Cabinet-rank president of CVG, heads a senior management team here that is credited with putting the Venezuelan aluminum industry in the black. He says that this year the steel industry will make a profit for the first time in eight years.

In an interview at his headquarters, Sucre talked of a steady expansion of CVG operations, now financed by earnings from the industrial and power companies that he commands, plus some foreign investment and loans from multinational development banks such as the World Bank. “Venezuela is one of the world’s low-cost aluminum producers now, along with Australia, Canada, Norway and Brazil,” he said, “and we plan to reach 800,000 tons by 1989. In steel, we are increasing production this year to 3 million tons and hope to reach full capacity of 4.8 million tons in 1988.

$1 Billion in Exports

“The Guayana industries will export over a billion dollars in goods this year. We have begun development of our own bauxite mining to supply our smelters with 3 million tons a year. In November, when we inaugurate the second-stage expansion of the Guri Dam, we will be supplying over half of Venezuela’s electricity.”

Sucre, 59, has been involved in Guayana’s development from the start. In 1962, when he was a young engineer, he was appointed minister of public works by Romulo Betancourt, the late president and the first political leader to visualize the potential of hydroelectric power as a replacement for oil.

Sucre has been an active member of Betancourt’s Democratic Action Party from university days, and he has combined a career as a public administrator and large works contractor with politics. He is a senator from the state of Bolivar, where Ciudad Guayana is situated. He has run CVG since 1984, when a Democratic Action government was elected behind President Jaime Lusinchi.

“Some people think we went too fast, but I think we did not go fast enough,” Sucre said. “We have taken 25 years to develop 10 million kilowatts of hydroelectric power on the Caroni, and there are going to be power shortages in Venezuela unless we start right now to develop the other 10-million-kilowatt potential the river offers.”

U.S., Japanese Partners

The development of Ciudad Guayana’s metal industries is important not only for Venezuela but for customers and competitors around the world.

Reynolds Aluminum and a Japanese consortium are partners in Alcasa and Venalum, the big CVG smelters. Sucre said he was negotiating with Austrian investors and China for joint ventures in aluminum fabrication.

As Venezuelan steel production increases, protectionist problems have developed in the U.S. market, where a quota has been imposed to limit exports from Venezuela as well as from such other relatively new producers as Brazil and South Korea.

“I don’t understand U.S. policy, which is not in the long-term interest of the American people,” Sucre said. “I have told U.S. Steel that they should make specialty steels and let us make the primary steel, which we can do more cheaply and with better quality. U.S. plants are obsolete.”

He said the aluminum smelters here produce at a cost of 32 to 34 cents a pound because of the combination of very low energy costs and bauxite that can be brought to plants by river barge.

The cost is below that of most other producers, so CVG is planning to double its output of alumina, the intermediate product, to more than 2 million tons a year. This, he said, will provide the smelters with enough to produce 510,000 metric tons of refined aluminum next year.

The heart of all this is Guri Dam, one of the world’s five largest hydroelectric sites, situated in a gorge of the Caroni about 50 miles from here.

The original powerhouse, built to generate 2.5 million kilowatts, has been expanded by 10 new generators that produce an additional 6 million kilowatts. The dam’s level has been raised 50 meters, and the reservoir now will permit construction on the lower Caroni of dams and powerhouses with the capacity for another 10 million kilowatts.

“What you must never forget,” Sucre said, “is that oil and gas are gone once they have been taken out of the ground, but water is forever.”