(Bloomberg) — Colombia’s second city is seeking approval to freeze household utility bills charged by Empresas Publicas de Medellin to ease inflation pressures, according to city mayor Daniel Quintero.
(Bloomberg) — Colombia’s second city is seeking approval to freeze household utility bills charged by Empresas Publicas de Medellin to ease inflation pressures, according to city mayor Daniel Quintero.
Quintero published a letter Friday on Twitter addressed to Colombian President Gustavo Petro, in which he seeks authorization for the move, pointing to soaring living costs which he says are aggravated by “irrational” rises in household bills.
“If this is carried out, it will be a respite for millions of Colombian families,” Quintero told Blu Radio, adding that the utility, known as EPM, covers 35% of households nationwide. “Every day you see tariffs going up in an irrational way.”
Read more: Petro Signs Decree Allowing Him to Set Colombia Utility Tariffs
With inflation running at a two-decade high, Petro himself had already signaled he wants to cut power tariffs. He signed a decree this month that allows him to take over duties of the energy and gas commission, known as CREG, and the water and basic sanitation commission, known as CRA for the next three months. That would enable him to greenlight Quintero’s proposal, if he wants to.
The Medellin mayor is an ally of Petro’s.
Colombians’ energy bills are linked to the producer price index, and are also a key component of the consumption basket. This has created a feedback loop whereby a rise in energy costs can cause inflation to jump, which then pushes up energy bills even further.
Government officials have said Petro will seek to unlink energy bills from the index.
EPM, which is controlled by the city of Medellin, is one of Colombia’s largest companies, with energy, water and waste disposal investments in several countries across the region.
Yields on EPM bonds due 2029 have jumped 2.2 percentage point to 9.75% since Petro announced Jan. 26 that he wanted to take over duties of the energy and water commissions.
While EPM bonds trade in line with Colombian securities which have seen yields rise on increased political risk, this latest news is increasing market volatility, according to Sandra Loyola, a fixed-income analyst at Credicorp Capital in Lima.
“This shows the regulatory risk EPM faces,” Loyola said. “It’s of the utmost importance that tariff changes in the sector are done with technical support that ensures the financial sustainability of the companies.”
The company declined to comment.
Fifteen former Mines and Energy ministers sent a letter to Petro this month warning that his plan to set household utility bills could undermine confidence and jeopardize future investments in the sector.
Moody’s Investors Service also warned in a statement this week that “unilateral decisions that curb revenues and defer cost recovery in 2023 will negatively affect the credit metrics” of utility and power companies that operate in the country.
When asked in the Blu Radio interview how much freezing utility tariffs would cost EPM, Quintero declined to give a number. Instead he said that EPM has the “financial tranquility” to carry out such a move following higher revenue after the massive Hidroituango dam in northwest Colombia began producing electricity last year.
He also said if his tariff plan is approved, he’d seek to keep bills frozen until the end of his term on Dec. 31.
–With assistance from Oscar Medina.
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