RIO DE JANEIRO--()--Link to Fitch Ratings' Report: Brazilian Power Distributors Tariff Review
While expected tariff reductions will negatively impact Brazilian power distributors, ratings will likely withstand the downward pressure, according to a new Fitch Ratings report.
'Moderate to high reductions in cash flow generation are expected as a result of the third tariff-review cycle, but the ratings already incorporate this volatility,' said Mauro Storino, Senior Director. 'We expect the industry will be able to manage their capital structures to withstand the cash flow reductions, though some uncertainty remains present and downgrades can't completely be ruled out.'
Over time, it will be increasingly difficult for a power distribution company to achieve a greater degree of efficiency in each tariff review cycle. As a result, Fitch expects tariffs to reach more optimal levels and be more sensitive to the tariff review process.
Efficient cost management becomes even more important after the tariff review. State-owned power distributors will have a reduced ability to lower costs, primarily due to high personnel expenses.
Maintaining adequate profitability going forward will be challenging for Brazilian power distributors, as the regulator seeks to transfer a significant portion of efficiency gains to end users in each tariff review cycle.
In general, Brazilian power distributors are expected to benefit from government initiatives to lower the price of electricity to end-users through the concession renewal proposal, as this could boost electricity demand and increase the overall amount of electricity distributed.
The full report, titled 'Brazilian Power Distributors Tariff Review', is available on the Fitch Ratings web site at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.