Moody’s warns: government interference in the Latin American electricity sector increases

The risk of government interference in the regulatory framework of the energy sector in Latin America increased, being more pronounced in Argentina, Colombia and Mexico, amid rising fuel prices and high inflation, the rating agency Moody’s warned on Tuesday.

In general terms, the risk assessor highlighted that the rise in fuel prices has led to an increase in energy costs, which is politically difficult for governments throughout the region to manage.

“While regulatory environments remain generally favorable for energy producers in Latin America, regulation continues to evolve and credit risks are increasing as governments in the region address voter concerns about energy affordability.Moody’s said.

In the case of Argentinawhich has the highest risk in the region, highlights high levels of intervention, with subsidized energy prices and decoupled from the cost of electricity generation.

“Moreover, the most serious risk for this country has to do with the incessant inflation and the scarcity of government funds to face the increasing energy subsidies.”, the Moody’s report said.

The report showed that, both in Colombia As in Mexico, governments have shown greater interest in intervening in regulatory matters.

The Colombian Council of State suspended in March a decree with which President Gustavo Petro sought to assume the regulation of public services to define energy rates, seeking to stop the increases for end users amid the rebound in the inflation.

For Moody’sregulatory stability will continue to be crucial to support the investment needs of power transmission companies in the region at a time when high interest rates are raising their financing costs.

Regarding Brazil, despite the fact that the country has made significant efforts to modernize its electricity market, signs of intervention are increasing as a renewal of different concessions in the sector approaches in 2025, in addition to the fact that a growing market will put the regulatory framework to the test. current, explained Moody’s.

For his part, although Chili has long had an evolving regulatory regime that has generally benefited its power companies, “market conditions represent the greatest risk for the sector in the country”.

Meanwhile in PeruEven with volatile social conditions, the regulatory framework has remained stable in part due to abundant natural gas reserves.

Source: Reuters