Venezuela's deepening electricity crisis may drag on the economy for several years, dashing government hopes for GDP growth, slashing fuel exports from the OPEC country, and ushering in lengthy rationing.

The power shortages have come since late 2009 when a drought began to empty hydroelectric dams that supply 70 percent of Venezuela's electricity. Low reservoir levels threaten to shut off 40 percent of the country's electricity generation.

President Hugo Chavez declared an emergency on February 8, ordering industry to cut consumption by 20 percent, and asking residential and commercial users to follow suit. The power cuts threaten his support ahead of September legislative elections.

Electricity rationing is already in place for up to 14 hours a week in some regions, and could worsen in the second quarter, before Venezuela's seasonal rains begin, usually around May.

Government officials are still hopeful for 0.5 percent economic growth this year, but many economists now say GDP will fall again after shrinking 3.3 percent last year.

One major local bank is likely to revise its formerly positive GDP forecast to a 2-3 percent contraction, a source at the institution told Reuters on Monday.

Barclays and Citigroup have forecast a 1.7 percent GDP contraction this year, while UBS forecast a 2.1 percent contraction. Local think-tank Veneconomia expects the crisis to reduce 2010 GDP by a crippling 8 percentage points.

Analysts say the crisis may even worsen in 2011, since reservoirs could take more than a year of rains to refill from current critical levels.

The entire electric system is on tenterhooks, said Eurasia Group analyst Patrick Esteruelas.

Heavy rains could bring a situation of temporary normalcy, but the same problems could return next year and be worse.

A plan to buy new power turbines will cost at least $4 billion, the government says. Burning diesel in the new plants could force Venezuela -- where oil makes up 94 percent of export earnings -- to slash fuel shipments and import diesel.

Oil fields in Venezuela, the Western Hemisphere's top crude exporter, are mostly protected by their own generation plants, but power shortages may affect exploration and field maintenance, make oil more costly to pump, and hit other industries and services hard, analysts say.

It's going to have a big impact on companies and industries that use a lot of power, said Pavel Gomez, a public policy professor at business school IESA. Electricity was so cheap lots of industries were designed to use lots of it.

Private industry group Fedecamaras has suggested cutting the work week by 20 percent, and the government has already shortened the day for public workers to 8 a.m.-1 p.m.

PANIC MODE

The rationing, and the potential for blackouts, are bad news for Chavez ahead of legislative elections in September. In recent polls most people blame the government for the crisis.

An El Nino-linked drought is a big factor, but the crisis is also due to power demand growing 6 percent a year this decade, triple the rate of expansion in generation capacity.

Electricity tariffs have been frozen since 2003, with Caracas households paying 2.3 cents per kilowatt hour, around one-fourth of average U.S. residential rates.

Reservoirs are at one-third or less of normal levels. A collapse point, which Chavez says could come in June, would close down at least 5 gigawatts of power at the key Guri dam.

National capacity is about 23 gigawatts, but analysts say up to a quarter of it is inoperational due to poor maintenance.

To hedge against a collapse, Chavez is scrambling to add 5.9 GW of new capacity this year, more than the 4.6 GW Venezuela has added in the entire 11 years since he came to power.

The buying spree for thermoelectric power turbines that can run on either natural gas or diesel fuel would be one of the biggest and most hurried the world has seen, U.S. power sector sources said. It would require Chavez to pay huge premiums for turbines that usually take a year or more to be delivered.

Anyone who walks in the door with a power plant, they're gonna buy it, said Russell Dallen of Caracas Capital Markets. They are in panic mode.

Government sources estimate that Venezuela will pay up to $1.2 million per MW of capacity, meaning the government may have to shell out $7.1 billion to acquire 5.9 GW of new plants.

The same plants would cost $700,000 to $800,000 per MW for buyers willing to wait for them to be built, sources said. Venezuela is negotiating with General Electric Co. , Siemens , Hyundai Heavy <009549.KS> and others to acquire and install the plants

With almost no new gas supplies expected from Venezuelan fields this year, new plants would run almost exclusively on diesel fuel, reducing their efficiency by up to a third, a U.S. power industry source said.

Running 5.9 GW of new turbines continuously would require 156,000 barrels per day of diesel, according to a source at a major international power plant supplier. At a typical Venezuelan operational rate of 80 percent, the new plants would burn at least 124,800 bpd.

Cutting fuel exports would be a double-whammy for state oil firm PDVSA. Diesel fuel, which sold on Tuesday for around $91 a barrel on international markets, is heavily subsidized in Venezuela, where it is priced at less than $2 a barrel.

Diesel would be sold to power utilities at local rates.

Venezuela's heavy industry belt in the southern Guyana region, which accounts for around 3 percent of GDP, is another economic trouble area. It includes steel company Sidor and aluminum-maker Venalum, which together consume up to 10 percent of Venezuela's power. Sidor has been running at less than 50 percent of capacity, and year-on-year aluminum sales fell more than 40 percent in January.

(Additional reporting by Marianna Parraga in Caracas, Scott DiSavino in New York and Eileen O'Grady in Houston; Editing by Alden Bentley)