Moody’s Warns Mexico Against Electrical Reform

Moody’s mentioned that endorsing President López Obrador’s electrical reform would impact Mexico’s rating. On Feb. 25, the Chamber of Deputies approved the energy initiative. On that same day, the ratings firm mentioned that CFE’s score would not be lowered, for the moment, at least. 

López Obrador’s proposed reform aims at strengthening CFE through policies that favor the state utility, according to Forbes. However, the initiative is very close to what would be an expropriation and it could render obsolete private investments worth US$40 billion. The proposed changes include prioritizing the use of CFE energy, permitting linked to government plans, clean certificates for old CFE plants, cancellation of permits for electricity self-supply and the revision of CFE contracts with private producers, according to Forbes. 

Moody’s issued a statement mentioning that if this reform goes through, Mexico’s rating could be impacted as a result of lower energy production at a higher cost. “This could translate to lower economic growth, which does have an impact on the country’s sovereign rating ... It is a very bad sign for future investment, especially in the renewable energy sector,” Ariane Ortiz-Bollin, Moody’s Analyst, mentioned in a Forbes article.

The same day that statement was released, the Chamber of Deputies approved the energy initiative resulting in a partial energy counter-reform once it passes through the Senate, as previously mentioned by MBN. 

Even though the reform was thought to benefit CFE, Moody’s mentioned it would not change the grade of the company immediately, neither positively nor negatively. “If the reform is approved, we would have to measure the impact. Ratings do not go down automatically after these initiatives. It is not the only factor that could trigger a downgrade (of CFE). We are monitoring all the challenges,” mentioned Roxana Muñoz, Moody’s Analyst, at a press conference. While that may be true, if the Mexican grade diminishes, CFE will go down the same road, clarified Muñoz.

Moody’s has also warned that if CFE’s investment program is financed through debt in its entirety, increasing its financial metrics without costs being offset by government subsidies or increases in electricity rates, its score would also go down, according to Forbes.