Saturday, October 25, 2008

OPEC Says It Will Cut Oil Output


VIENNA — Stung by what it called “a dramatic collapse” in crude prices, the OPEC cartel said on Friday that it would reduce output by a steeper-than-expected 1.5 million barrels a day. But that action failed to brake the price decline, and oil dropped 5 percent more by the end of the day.

The oil cartel swiftly agreed to the cut in an emergency meeting at its headquarters here, and its president suggested afterward that still more production cuts were coming as OPEC struggled to get ahead of an economic slowdown so severe it could leave the world awash in oil.

The stunning decline of oil prices in recent weeks has left oil-exporting countries fearful that they will have to cut government budgets, including the popular social programs that cement many leaders’ hold on power.

Oil dropped to $64.15 a barrel on Friday, from a high close of $145.29 on July 3, a 56 percent decline in 16 weeks and one of the steepest in the oil markets.

If prices keep falling, OPEC’s president, Chakib Khelil, said the cartel would “definitely” reduce its production again in coming months, either when it meets in Algeria in December, or sooner.

“The fundamentals are not good,” Mr. Khelil, who is also Algeria’s oil minister, said in an interview after the meeting. “This is a crisis situation.”

In a rare appeal that highlights the urgency of the situation for producers, the cartel is also starting to look beyond its ranks for help in stabilizing the market. OPEC called on other oil-producing countries to “contribute to efforts to restore prices to reasonable levels, and eliminate harmful and unnecessary fluctuations.” OPEC’s members control 40 percent of the world’s oil exports.

Members of the Organization of the Petroleum Exporting Countries face their toughest test in years. The slowing global economy has depressed the consumption of oil in the United States, Europe and Japan, and the global economic turmoil risks spreading to emerging economies like China, long the main engine of growth in oil demand. OPEC members said they had little choice but to reduce production to avert a glut.

“OPEC has been slow to grasp the full impact of the financial crisis on the real economy, and it dawned on them all of a sudden,” said Vera de Ladoucette, an energy analyst based in Paris at Cambridge Energy Research Associates, of Cambridge, Mass. “There is definitely a new sense of urgency.”

Despite OPEC’s ability to forge a rapid consensus on Friday, members of the cartel know they are navigating perilous seas. For consumers, falling commodity prices have been one of the only positive developments in a profoundly depressed economic landscape. If OPEC’s cut eventually sends oil prices higher, that would be another blow to the global economy.

“They are walking a very, very fine line,” said Jan Stuart, an energy economist at UBS in New York.

The cut was criticized by the White House, which called it “anticompetitive,” and by the British prime minister, Gordon Brown.

Many analysts expect global oil consumption to fall this year, for the first time since 1983. Oil consumption in developed countries has dropped for the last three years, and there are signs that the growth in energy demand from developing nations is beginning to slow.

OPEC’s action comes just as domestic gasoline prices, for the first time this year, are lower than they were last year. They now average $2.78 a gallon, down from their peak of $4.11 on July 17. In some states with low taxes, gasoline has dropped below $2.50 a gallon.

Despite the lower prices, gasoline consumption is still down. Retail sales fell 6.4 percent last week compared with the same week a year earlier, according to a national survey by MasterCard Advisors.

OPEC meetings have often been contentious, daylong affairs with fierce divisions between rivals like Saudi Arabia and Iran. Before the session on Friday, experts predicted the cartel would cut 1 million barrels a day. Venezuela and Iran were pushing for a bigger daily reduction, of 2 million barrels.

But Mr. Khelil said this time, members agreed on the 1.5-million-barrel reduction with little argument. That cut, to take effect Nov. 1, amounts to about 5 percent of OPEC’s output and nearly 2 percent of global consumption.

Mr. Khelil said exporters were having trouble locating buyers for their crude, with some countries finding that normally reliable customers could not obtain letters of credit to finance their purchases because of the financial crisis.

“This slowdown in oil demand is serving to exacerbate the situation in a market which has been oversupplied with crude for some time,” OPEC said in its statement. “Moreover, forecasts indicate that the fall in demand will deepen.”

The drop in prices is affecting exporters and importers in unexpected ways. With fewer petrodollars now flowing to the Gulf, Russia and other regions, a major source of global liquidity and investment in places like the United States and Europe is beginning to shrink.

Even the Saudis, who argued for keeping the markets well supplied at the last OPEC meeting, seemed to have been struck by the speed of the price drop.

When prices spiked this summer, the cartel’s leaders attributed the jump to speculation, and Saudi Arabia, the world’s biggest oil producer and OPEC’s most powerful member, opened the taps and increased production to a record of 10 million barrels a day. The Saudis have since pared their output to around 9.5 million barrels a day, according to analysts.

As the lowest-cost producer, Saudi Arabia can afford to let prices fall for a while without hurting its budget. Most analysts estimate that the Saudis could live with oil at $55 to $65 a barrel. But other producers need higher prices. Nigeria’s oil minister said his country would be more comfortable with $80, Qatar has set a range of $70 to $90, and Iran’s representative said that prices below $90 a barrel would hurt.

For Iran and Venezuela, the drop in prices is particularly painful, because both have been spending freely on the assumption that prices would stay high. A continued drop in oil prices, and a tough domestic economy, could jeopardize the position of Iran’s president, Mahmoud Ahmadinejad, who was elected on a populist platform and who faces re-election next year.

Venezuela’s leftist president, Hugo Chávez, has forced out several foreign oil companies, and the state-owned oil company is struggling to keep production from falling. Some analysts believe Mr. Chávez needs $100 a barrel to finance his expensive social programs and continue his international activism.

“Venezuela doesn’t have many options if prices fall,” said William H. Brown III, an independent oil analyst who has consulted for Saudi Arabia’s national oil company, Saudi Aramco. “That’s why they’re so desperate to keep prices up.”

OPEC’s secretary general, Abdalla Salem el-Badri, sought to portray the cut as an effort to avoid repeating what happened a decade ago, when prices plunged and investments in oil exploration slowed significantly. This echoes the view of some petroleum executives, who have warned that declining prices would lead to lower spending and delays in new projects.

“If prices are too high, it will damage the market,” Mr. Badri said. “If prices are too low, we will not be able to invest.” In particular, he said the group was concerned that inventories would build sharply in the first half of 2009 if cuts were not made now.

Mr. Badri did not cite a specific price target, a signal that producers were aware that their decision was politically delicate, especially with a protracted global recession looking more likely, and stock markets nose-diving on Friday. But privately, cartel members say they would be happy within a band of $80 to $90 a barrel.

So far, no sign has emerged that independent producers like Norway and Mexico, which have cooperated with OPEC when prices have collapsed, are ready to step in with production cuts.

But this week, Mr. Badri visited Russia, the world’s second-biggest oil producer, to discuss ways of cooperating. A deputy prime minister for Russia, Igor I. Sechin, who oversees the country’s energy sector, said the government wanted a bigger influence on oil markets.

OPEC’s members have frequently ignored the group’s quotas. But Mr. Khelil, OPEC’s president, said this time would be different.

“Unless they meet their commitments, they will be worse off than they are now,” he said. “The market is going to test whether we are committed.”

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Next in the Financial Crisis: Possible Criminal Charges

Posted By:Albert Bozzo

Investors and taxpayers angry about the government bailout of seemingly mismanaged financial firms can probably count on a wave of criminal indictments in the coming months, say white- collar crime experts.

“I think we're going to see some ‘perp’ walks,” says Columbia Law School Professor John Coffee, referring to the law enforcement practice of having the accused appear in public wearing handcuffs.

“I think it's coming” says securities lawyer Jacob Zamansky, principal at Zamansky & Associates, predicting the “outcry for culprits and scapegoats” will be met.

Zamansky, Coffee and others say the government is now busy investigating likely wrongdoing that took place at dozens of firms and that it is just a matter of time before it yields results. But crisis management is taking precedence.

“The government and the private sector are focused on bailing out the ship right now, and rightly so," says former SEC enforcement official Marvin G. Pickholz, now a partner at the New York law firm Duane Morris.

“I think most resources are being channeled toward solving the current crisis,” adds Harvey Pitt, who chaired the SEC during the government’s crackdown on accounting fraud at the beginning of the decade. "I think it will be months before any prosecutions occur, if at all."

Investigations of this kind also take time. In the previous scandal, it took about two years from the time of the alleged wrongdoing to the first big indictments. WorldCom, for instance, was cooking the books in late 2000. Its CFO Scott Sullivan wasn't indicted in August 2002.

Pickholz adds that election year considerations may also be slowing down the process. US attorneys—who are political appointees—may be unwilling or reluctant to open a case without knowing who’ll be the next president and whether they’ll still be in their jobs.

Recent developments, however, show momentum is building. The government recently issued subpoenas to a dozen executives at Lehman Brothers, which CNBC learned, included CEO Richard Fuld, two CFOS and a COO.

As CNBC first reported Sept. 24, multiple federal investigations at Lehman and at least 25 other firms are focusing primarily on asset values—that is, whether companies like Lehman were properly valuing things like mortgage-backed securities on their books, as well as the securities they sold to the public.

Dick Fuld
Dick Fuld

Thus far, there have been only two high-profile indictments. In June, two former hedge fund managers at Bear Stearns were charged with essentially concealing problems that eventually led to the collapse of the funds.

Experts say acts of concealment and/or misrepresentation will no doubt be an area of investigation and potential prosecution for authorities.

Zamansky, who’s representing investors in the Bear Stearns hedge fund case, also sees possible wrongdoing in the way firms were marking assets and brokers pushing bank stocks with diminished prospects and quickly plummeted in value.

The government is going to use its “classic inventory of white collar weapons,” says Coffee, citing securities fraud, mail fraud and racketeering laws.

In some cases, prosecutors will look to make the case that there was a “concerted effort by these firms to mislead the public,” says Zamansky, which is essentially what executives at WorldCom, Enron, Adelphia and others did less than a decade ago.


Experts say prosecutors will comb through email records, looking for inconsistencies between private and public statements, to show that people acted willfully.

“You have CEOS who had conferences with securities analysts and others,” says Coffee, adding that there are transcripts to such events.

Though most expect a wave of indictments, there’s considerable debate about whether any big names will be snared, as was the case with WorldCom founder Bernie Ebbers and Enron CEOs Jeff Skilling and Ken Lay, all of whom were convicted, or savings-and loan kingpins such as Charles Keating two decades ago.

Pickholz and Zamansky expect CEOs to fall. “I would think so,” says Pickholz, citing Congress’ developing skepticism about top executives not knowing what was going on.

Coffee isn’t so sure. He says though “prosecutors don’t like to just focus on the little guy,” some of the current big name CEOS were “brought in as reformers” and “will portray themselves as guys who came in to clean up the mess.”

Nell Minnow, founder of the Corporate Library, which focuses on corporate governance and CEO pay, is altogether skeptical.

"In other cases, it was clear from the beginning people had broken the law,” says Minow. “I don’t see executives going to jail over this. Most of what they did is perfectly legal. These people were clever enough to get the loopholes they wanted.”

There's already been plenty of circumstances to beg the question effective legislation, regulation and oversight during a one-of-a-kind lending boom, which has resulted in extraordinary government involvement in the private sector—after the fact.

Minow says that's added insult to injury for both investors and taxpayers. "The sense of pervasive unfairness is greater in this scandal than any other," she says.

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Home defaults slide as California law puts on the brakes


By William Heisel Marc Lifsher Maura Reynolds

Reporting from Sacramento and Washington -- The number of people losing their homes in California hit a record high of nearly 80,000 in the last three months, but a new state law appears to be dramatically slowing the foreclosure process -- at least for now.

Loan default notices, the first step toward foreclosure, fell to 94,240 for the three months that ended Sept. 30. That's down sharply from the record 121,673 for the previous quarter, according to research firm MDA DataQuick.

The big drop came in September, when a new state law took effect that blocks lenders from initiating foreclosure proceedings until 30 days after contacting the borrower or making "due diligence" efforts to do so.

Default notices sank to 14,995 in September, after averaging more than 40,000 for each of the five preceding months.

"That new law virtually slammed the brakes on mortgage default filings," said Andrew LePage, a DataQuick analyst. "We don't know yet how many of those loans will get worked out versus just shifted to late this year or early next year."

State Senate President Pro Tem Don Perata (D-Oakland) introduced the bill after hearing numerous complaints from homeowners who said they had been unable to make contact with their lenders, or the firms servicing their loans, to avert foreclosure.

"Once all this stuff exploded and you realized how these mortgages were sold, packaged and resold, it was no wonder that the homeowner was confused," he said. "There wasn't anybody to talk to about their condition."

Consumer advocates said they hoped the Perata bill would be more than a temporary brake on foreclosures.

"Hopefully, the additional time will allow more win-win resolutions, where servicers and borrowers can figure out a modification that makes sense, is sustainable and provides some return for investors," said Kevin Stein, associate director of the California Reinvestment Coalition in San Francisco.

A mortgage lending group said another factor in the decline may be a new willingness on the part of lenders to renegotiate loans for struggling borrowers.

"I think it's a sign of real progress," said Beth Mills, a spokeswoman for the California Bankers Assn. "We really have seen the lines of communication between lenders and borrowers improve, and we're hoping that leads to more people staying in their homes."

There are skeptics, though. They say that the numbers are showing the end of just one wave of foreclosures, mostly from people who took out adjustable-rate mortgages in 2005 and 2006 that later reset at a higher rate that they could not afford.

With the economy slowing down and expectations of rising unemployment, a new wave of foreclosures could hit early next year.

"I'd be the first person to stand up and cheer, but I have to tell you it really is wishful thinking," said Rich Sharga, senior vice president of RealtyTrac, an Irvine housing research company.

RealtyTrac's latest nationwide numbers showed that 265,968 homes were in some state of foreclosure in September, up about 21% from the same month a year earlier.

Sharga noted that other states saw a decline in foreclosure notices after adopting laws similar to California's, only to see a rebound. Massachusetts started requiring a 90-day notification in May. Loan defaults dropped for three months before skyrocketing more than 400% in September, he said.

But the difference now is that banks are feeling significant pressure, from both shareholders and regulators, to squeeze some value out of these bad loans, said Jeff Lazerson, president of online mortgage clearinghouse Mortgage Grader.

Lazerson recently returned from the Mortgage Bankers Assn.'s annual conference in San Francisco -- where protesters rushed a stage full of speakers at one point -- to say that he had noticed a significant change in tone.

"I was as cynical as everyone else about what the lenders were doing, but now they really seem to understand just how ugly this is," Lazerson said. "Now we truly have the whole industry making this push to keep people in their houses."

According to DataQuick, 79,511 homes were lost to foreclosure in California for the three months that ended Sept. 30, a 228% increase over the same period a year earlier and the highest number since the company began tracking foreclosures in 1988.

Chairwoman Sheila Bair of the Federal Deposit Insurance Corp. said the government wasn't doing enough to stem the rising tide.

"We are falling behind," Bair said in testimony before the Senate Banking Committee. "There has been some progress, but it's not been enough, and we need to act."

Bair said that one way to spur the process forward was to standardize protocols for mortgage refinancings, as the FDIC did in the case of IndyMac Bank, the collapsed Pasadena-based lender it took over this summer.

That would cut through some of the complications created by the fact that most mortgages have been packaged and sold as securities, and the investors in those securities may not want workouts to happen.

"Through this week, IndyMac has mailed more than 15,000 loan modification proposals to borrowers. More than 70% have already responded to the initial mailings and . . . more than 3,500 borrowers to date have accepted the offers, and thousands more are being processed," Bair said. "The hope is that our mortgage relief program can be a model and a catalyst to spur loan modifications across the country."

Congress passed a $300-billion foreclosure prevention measure over the summer that took effect Oct. 1, but lawmakers have expressed concern that it may not be enough.

Members of Congress complained that the administration has been far more responsive to Wall Street's needs than to ordinary homeowners. Since the subprime crisis emerged about 18 months ago, President Bush and his top advisors have relied on voluntary, industry-led programs to address the problem.

"In the month of August, over 9,800 homes entered foreclosure every day," said Sen. Robert Menendez (D-N.J.). "If this statistic was that 9,800 Wall Street jobs were being lost every day, we would have ended this a long time ago."

But others say there are signs of progress.

Bank of America Corp., after acquiring mortgage lender Countrywide Financial Corp., recently agreed to an $8.4-billion, 12-state legal settlement that required it to rework loans.

And some banks have simply realized that working out loans may help their balance sheets. Downey Savings & Loan said in its quarterly report Wednesday that it was working aggressively to move people into better loans, modifying $1.4 billion worth of loans since the summer. As a result, the company was able to exceed new capital requirements imposed by federal regulators.

Hope Now, an alliance of lenders, mortgage servicers and credit counselors, is expected to report this month another increase in the number of loan modifications. So far, the group says it has prevented 2.3 million homes from going into foreclosure.

"It's clear that servicers are month over month and quarter over quarter improving the number of loan workouts," said Faith Schwartz, Hope Now's executive director. "If this wasn't happening, you would see far more foreclosed homes in the market."

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China Blocks Blogs, Search Results on Tainted Milk Scandal

Australia plans electric vehicle network

MELBOURNE (AFP) — A US firm Thursday unveiled plans to build a massive one-billion-dollar (667 million US) charging network to power electric cars in Australia as it seeks cleaner and cheaper options to petrol.

Better Place, which has built plug-in stations for electric vehicles in Israel and Denmark, has joined forces with Australian power company AGL and finance group Macquarie Capital to create an Australian network.

Under the agreement, Macquarie will raise one billion dollars to build electric-vehicle networks in the country's largest cities -- Melbourne, Sydney and Brisbane -- while AGL will power the system with renewable energy.

"We call it a ubiquitous charging network across the cities," said Better Place chief executive and founder Shai Agassi in Melbourne.

"We are investing in Australia's economy and adding jobs while helping the country take a generational leap forward toward oil independence," he said.

Under the plan, the three cities will each have a network of between 200,000 and 250,000 charge stations by 2012 where drivers can plug in and power up their electric cars.

The points would probably be at homes and businesses, car parks and shopping centres, he said.

In addition, 150 switch stations will be built in each city and on major freeways, where electric batteries can be automatically replaced in drive-in stations similar to a car wash.

Under the scheme, which is likely to strike a green chord in Australia where the price of petrol is also notoriously high, drivers will pay to recharge their cars through various power supply agreements similar to mobile phone contracts.

Drivers can pick a plan and rate that best reflects their car use.

Agassi stressed that the deal was crucial as people would only buy electric vehicles if they could recharge them easily.

Franco-Japanese automaker Renault-Nissan and General Motors are both planning electric cars to debut in the next next two years, but Agassi called on Australian manufacturers to develop their own versions.

He said Australian federal and state governments must now work out how they could encourage drivers to turn to electric cars, by offering sweeteners such as tax incentives or free power for the first purchasers.

"It's more a question for the government for how quickly they want the tipping point (towards electric cars) to happen," he said.

"Every government decides what they want to do. We believe that Australia, looking at all the alternatives, will pick the right mix for Australia."

John Brumby, premier of the southern state of Victoria of which Melbourne is the capital, said his government backed the plan.

"We support any initiative that will have positive outcomes in reducing emissions in the transport sector and welcomes this innovative approach to help make broad adoption of EVs (electric vehicles) in Australia possible," he said.

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Turned away, pregnant woman dies

TOKYO, Oct. 24 (UPI) -- Seven Tokyo hospitals turned away a pregnant woman who complained of headaches and vomiting, and who died three days later of a brain hemorrhage, officials say.

Metropolitan Bokuto Hospital, the first to reject the woman, admitted her an hour later, The Yomiuri Shimbun reported. When her doctor called the first time, the hospital said only one intern was on duty.

Most of the other hospitals blamed understaffing.

The woman gave birth by Caesarean section about an hour after being admitted Oct. 4. Soon afterward, she underwent brain surgery.

Metropolitan Bokuto Hospital has been an emergency care center for obstetrics since 1999. Officials say that under government standards the facility should have two obstetricians on duty round the clock, but the hospital has been unable to keep adequate staff to fulfill that requirement.

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New York Times endorses Obama for president

NEW YORK (Reuters) - The New York Times endorsed Democrat Barack Obama for U.S. president on Thursday, saying he had "met challenge after challenge, growing as a leader and putting real flesh on his early promises of hope and change."

The Times posted its endorsement on its Internet site on Thursday evening and was to publish it in Friday editions of the newspaper.

Earlier this year, the newspaper endorsed New York Sen. Hillary Clinton for the Democratic presidential nomination, but it said Obama had long ago erased the reservations that led it to make that decision.

"He has drawn in legions of new voters with powerful messages of hope and possibility and calls for shared sacrifice and social responsibility," the Times said. "He has shown a cool head and sound judgment. We believe he has the will and the ability to forge the broad political consensus that is essential to finding solutions to this nation's problems."

The newspaper declared that the choice between Obama and Republican John McCain was easy.

"Mr. McCain, whom we chose as the best Republican nominee in the primaries, has spent the last coins of his reputation for principle and sound judgment to placate the limitless demands and narrow vision of the far-right wing," it said.

The endorsement was not unexpected. The Times endorsed Democrats John Kerry in 2004 and Al Gore in 2000.

According to Editor & Publisher magazine, Obama is outpacing McCain in newspaper endorsements by about three to one, even winning the nod of the Chicago Tribune, the first time it has endorsed a Democrat for president.

However such endorsements are considered to have little influence on voters, especially in presidential races.

(Reporting by Alan Elsner; editing by Mohammad Zargham)

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Oil powerhouse Venezuela struggles to keep lights on

By Brian Ellsworth Brian Ellsworth

SAN FELIX, Venezuela (Reuters) – Despite having some of the world's largest energy reserves, Venezuela is increasingly struggling to maintain basic electrical service, a growing challenge for leftist President Hugo Chavez.

The OPEC nation has suffered three nationwide blackouts this year, and chronic power shortages have sparked protests from the western Andean highlands to San Felix, a city of mostly poor industrial workers in the sweltering south.

Shoddy electrical service is now one of Venezuelans' top concerns, according to a recent poll, and may be a factor in elections next month for governors and mayors in which Chavez allies are expected to lose key posts, in part on complaints of poor services.

The problem suggests that Chavez, with his ambitious international alliances and promises to end capitalism, risks alienating supporters by failing to focus on basic issues like electricity, trash collection and law enforcement.

"With so much energy in Venezuela, how can we be without power?" asked Fernando Aponte, 49, whose slum neighborhood of Las Delicias in San Felix spent 15 days without electricity -- leading him to block a nearby avenue with burning tires in protest.

Just next door, Carmen Fernandez, 82, who is blind and has a pacemaker, says she has trouble sleeping through sultry nights without even a fan to cool her.

Experts say Venezuela for years has skimped billions of dollars in electrical investments, leaving generation 20 percent below the level necessary for a stable power grid and increasing the risk of national outages. Officially Venezuela has a capacity of 22,500 megawatts for a population of 28 million people, but a sizeable proportion is not working, analysts say.

And while Chavez has won praise for investing in health and education, his government has done little to repair local distribution systems that deliver electricity to end users, from barrio residents to business and industries.


Pastora Medina, a legislator representing San Felix and nearby cities suffering chronic power problems, this month tried to bring the issue up in the national Congress in Caracas, but the legislature's leadership refused to let her speak.

Several hours later, as the legislature discussed a South American integration plan created by Chavez, Congress itself lost power for around 10 minutes.

"Congress wouldn't listen to me, but God must have," Medina said with a chuckle as she recounted the incident later at her office in San Felix.

Though it is a key oil exporter, most of Venezuela's power comes from hydroelectricity generated in dams in the southeast, near Brazil, and sent to the rest of the country. The remainder comes mainly from aging oil-fired plants.

The transimission system is also suffering from underinvestment, which makes it vulnerable to the failures that caused this year's blackouts.

The government has responded by building dozens of tiny local plants that generate a fraction of a percent of national consumption, a model known as "distributed generation" used in Cuba, where a U.S. embargo impedes electrical development.

But to keep up with demand, Venezuela needed to add 1,000 megawatts of new generation capacity every year for at least the last five years, but instead it has installed only about 350 MW a year.

"We have to reach the most remote villages with the system of distributed generation," Chavez said in recent speech, inaugurating a generator in a town with deficient power.

His government has also promised to accelerate new generation and boost transmission grid investment.


But critics say these small power plants are political quick fixes that avoid tackling the thorny problems of boosting generation and fixing decrepit distribution systems.

"We need a clear energy policy, because the policy we have is not sustainable," Andres Matas, a former planning chief for a state power company. "This is a problem for the entire country."

He said this will require investment in local distribution systems, speeding up generation projects stalled for years by bureaucracy and lifting state-imposed price controls that keep tariffs at about 20 percent of what U.S. residents pay.

It will also require collecting fees from millions of barrio residents who illegally link their homes to the power grid with improvised and dangerous lines -- a move not likely to be popular with a government that depends on barrio votes.

Even as he enjoys strong support for his oil-financed social development campaign, polls show Chavez sympathizers are losing patience with the national and local politicians' inability to tackle bread-and-butter issues.

Chavez last year fired up his supporters with a wave of state takeovers including the nationalization of electricity operations, among them Electricidad de Caracas, which was majority owned by U.S.-based AES Corp.

But his supporters now seem more concerned about deteriorating service than the state ownership.

Chronic power problems take the strongest toll in barrios like those of San Felix -- still bastions of Chavez support -- where power surges routinely burn out home appliances.

"Our refrigerators have burned out so we can't shop for the week, we can only shop for one day at a time," said Nestor Pacheco, 39. "The situation is serious."

(Reporting by Brian Ellsworth; Editing by Eddie Evans)

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