La Jornada: High energy prices threaten the credit quality of companies, says Moody’s

High energy prices represent the greatest threat to the credit quality of electricity generation companies, but the risk varies depending on the combination of fuels, hydrological conditions and the contractual structure, indicated a report from the rating agency Moody’s.

“Higher crude oil prices support cash generation for oil exporters, but increase policy risks for state oil companies, given that limitations on increasing fuel prices restrict profits for the balance sheets of Pemex, Ecopetrol in Colombia and Petróleo Brasileiro,” he said.

He added that airlines, chemical products and construction materials companies are more vulnerable to increasing fuel and input costs, which put pressure on margins and cash flow, even when part of these higher costs are passed on to customers.

“Latin American airlines, which have little dependence on Middle Eastern routes, are more sensitive to fuel costs than to interruptions to their operations,” he highlighted.

He added that the Latin American airline market allows companies to partially offset rising fuel prices through capacity adjustments and selective rates.

“High wholesale energy prices are likely to result in delayed cost recovery for regulated utilities. Airports and toll roads face a gradual risk,” he said.

The rise in fuel prices, he noted, poses a dilemma, since transferring costs to consumers would intensify social pressures, and absorbing them with subsidies would increase fiscal deficits.