Appetite for Investing in Colombian Energy Infrastructure Has Been Dampened by Regulatory Actions

Investor confidence in the Colombian energy sector has fallen since last year due to a series of “adverse regulatory actions” taken by the government, according to Fitch Ratings.

In the view of the big three ratings agency, this lowers expectations that the energy generation system will realize the new capacity required to meet demand in the “medium term” and resolve the growing disparity that is straining the current sources and pushing prices up in the spot market.

Specifically, in terms of what regulatory moves have dampened investor appetite, Fitch cites three factors.

“The actions include the application of ‘tariff options’ to curb inflationary pressures on tariffs for end users, plans for the government to assume regulatory duties, and the recent suspension of long-term contracts signed during renewable energy auctions in 2019 and 2021,” stated Fitch Ratings.

The tariff options prevent companies from raising tariffs beyond a threshold tied to CPI, and the New York-based agency stated that “the inability to pass through higher energy costs has led to an increase in distributers’ working capital needs due to higher receivables.”

The result, according to Fitch, is that “a material, structural change in the electricity regulatory environment due to political interference could directly weigh on credit profiles for electricity generation, distribution and transmission companies, and indirectly for natural gas distribution and water utilities.”