The Colombian government’s efforts to curb rising electricity rates could signal further state intervention, eventually weakening the credit profiles of the country’s utilities, ratings agency Fitch said.
President Gustavo Petro raised last week the possibility of intervening the Energy and Gas Regulation Commission (CREG), to establish alternatives that generate relief to users in the face of an increase in public service rates in the midst of the current situation of high inflation.
For Fitch, political uncertainty and factors such as the lack of transparent or independent regulatory processes are a key risk to the credit profile of utilities.
“Regulatory proposals designed to curb inflationary pressure in energy markets could weaken utility companies’ profitability by preventing price increases to offset rising production costs,” the risk assessment agency explained.
It adds that a material structural change in the electricity regulatory environment caused by political interference could directly influence the credit profiles of electricity generating companies, and indirectly those that provide water and natural gas distribution services.
Most Colombian utilities have strong investment grade ratings and stable prospects.
“However, a material structural change in the electricity regulatory environment due to political interference could directly influence the credit profiles of electricity generation, distribution and transmission companies, and indirectly water and gas distribution services. natural,” Fitch said.
These companies constitute approximately 55% of the portfolio of non-financial companies rated by Fitch in Colombia. Fitch specified that as of August 2022, the average annual electricity bill in Colombia increased by 25.9% per year, while total inflation reached 10.8 percent.
Petro recently announced that Creg could intervene, given the sustained increases in electricity rates, especially on the coast, and in response to changes within the entity.
“The regulatory commissions are to regulate the markets based on universal law, not to affirm financial speculation processes, as they have done so far,” Petro assured.
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