Market Overview

Fitch: Brazilian Power Distributor Ratings to Withstand Tariff Reductions

RIO DE JANEIRO--(BUSINESS WIRE)--

Link to Fitch Ratings' Report: Brazilian Power Distributors Tariff Review

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696827

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'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch Ratings
Mauro Storino, +55 21 4503-2625
mauro.storino@fitchratings.com
Fitch Ratings Brasil Ltda
Praca XV de Novembro, 20 - sala401B
Rio de Janeiro, Brazil
or
Renata Pinho, +55 11 4504-2207
renata.pinho@fitchratings.com
or
Ricardo Carvalho, +55 21 4503-2627
ricardo.carvalho@fitchratings.com
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

 

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