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Chávez oil fails to stem Nicaragua crisis

Pump prices have soared to more than $5.20 a gallon – the highest in Central America – despite the Venezuelan leader's promise to solve the country's 'oil problem.'

By Tim RogersCorrespondent / June 4, 2008

Up in smoke: Antigovernment protesters burned two trucks in San Benito, Nicaragua, last month in anger over skyrocketing fuel prices.

German Miranda/Reuters

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Managua, Nicaragua

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.

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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.