New York, NY, U.S.A. — (METERING.COM) — February 3, 2009 – Latin America’s power sector is favorably positioned to weather the current difficult economic times, according to Fitch Ratings’ latest sectoral review and outlook.
Over the last several years, companies in the sector have significantly improved their economic position and very few have refinancing needs during the next two years.
Nevertheless, the region is not immune to the worldwide economic challenges and is expected to face tough times funding new projects, Fitch says. The increasing cost of capital is likely to force companies to revise expansions and capital expenditure programs. Multilateral entities such as the Inter-American Developing Bank (IDB), the Corporacion Andina de Fomento (CAF) and Brazilian Banco Nacional de Desenvolvimento (BNDES) will play an increasingly important role in the development and financing of new projects in the region.
Fitch also notes a potential slow down in the demand growth for electricity, with the region’s GDP growth expected to slow to 3.9 percent in 2009 and 1.7 percent in 2010, from above 5 percent in 2007 and 2008.
Fitch comments that during the record high oil prices experienced during 2008, some countries implemented greater subsidy programs in order to avoid passing through the increasing energy cost to the end users. This created significant market distortions and, in most cases, increased the sector’s reliability on government support. This was primarily the case in some Central American and Caribbean countries.
Fitch also says that politics will continue to play a role in the electricity sector in the region. Countries with progressive regulatory frameworks, such as Colombia, Chile and Brazil, are the best equipped to weather both the natural gas crisis and the widespread market volatility. These countries have regulatory frameworks that balance the needs of consumers and utilities, and have tariff structures that reflect the operating cost structures.