Energy Reform will Lessen Competition: Fitch Ratings
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Energy Reform will Lessen Competition: Fitch Ratings

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Emilio Aristegui By Emilio Aristegui | Junior Journalist and Industry Analyst - Tue, 11/23/2021 - 16:32

Fitch Ratings insisted that Mexico’s energy reform will not affect the credit quality of rated electric corporates in the country but it would lessen competition. 

“Mexico’s proposed regulatory reform is unlikely to negatively affect the credit quality of rated electric corporates in the country given the low probability it will pass as presented,” says a Fitch Ratings press release. However, Fitch insists that the Mexican government continues to pursue changes in energy regulations to give state-owned Federal Electricity Commission (CFE) more influence, which negatively affects Mexican electric corporates.

Industry leaders warn that the future of renewable energies in Mexico could be at risk. “Unfortunately, if the conditions are available, Mexico would not be considered a destination for investment, because the conditions that permit us to meet our objective of having zero emissions in the long term would not be present,” said Francisco Garza, CEO, General Motors Mexico, as reported by MBN.

The national debate has slowed down the planning and execution of power projects, raising investment costs, affecting energy security risks and discouraging private investment. Fitch ratings states that government-related entities do not have the execution capacity and financing ability to operate all systems on their own, which leads to lower private investments and future market imbalances.

“Imposing CFE’s presence in the national electricity market would lessen the competition as the proposal includes a provision for the government electrical utility to maintain a minimum 54 percent market share. The dispatch of more expensive energy generation will likely raise costs for customers, increase the need for higher government subsidies and delay the transition to cleaner resources,” reads the Fitch Ratings press release.

While President Andrés Manuel López Obrador’s original proposal was rejected in the lower house of Congress in Sep. 2021, he presented a revised document that could represent a material change to an issuer’s cash flow generation and negative credit implications, according to Fitch Ratings. Corporate issuers with investment-grade capital structures, diversification and efficient combined cycle plants will be the best positioned if a major regulatory change takes place, Infraestructura Energetica Nova, S.A.B. de C.V. y Subsidiaria and Cometa Energia S.A. de C.V. currently fit these characteristics.

Photo by:   Image by Tama66 from Pixabay

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