Moody’s does not foresee an increase in private investment in the Mexican electricity sector in the next three years, after a series of controversial changes to the regulatory framework in the industry, which could affect some existing contracts.
The government of President Andrés López Obrador promoted this year a reform to the electricity industry law (LIE), with which it seeks to strengthen the presence of the state electricity generator, the CFE, in the market.
The controversial reform of the LIE, which has generated enormous rejection among investors, while opponents accuse that it violates competition and violates international treaties, has been frozen in court and its application suspended for the time being.
“The latest measures requested by the federal government to change the regulatory framework of the Mexican energy sector could have a negative impact on existing contracts; therefore, we do not expect an increase in private investment in the electricity sector during the next three years,” Moody’s argued in a report.
The president recently said that, if necessary, he could present constitutional reforms to Congress and mentioned the possibility of one being to give more support to the CFE against private companies.
Moody’s also referred to the CFE’s business plan, which plans to invest almost 382,000 million pesos (18,790 million dollars) until 2026 in projects, mostly generation, although it also includes a part of transmission and distribution and, to a lesser extent, measure, in telecommunications.
“This strategy carries financial and execution risks,” said Moody’s in its report, adding that there is uncertainty about financing 30% of the initiatives in its plan and that given the expected lack of private investment due to changes in the legal framework, ” it is probable “that the CFE will have to increase its debt for these projects.
“If half of the investment expected to be financed by the private sector (15% of total investment) is financed with debt, we project an increase in the debt-to-equity ratio to approximately 66.7% by 2024, from 61.7% registered in 2020, “said the rating agency.
