Fitch: Electricity shortages loom in Chile

Fitch Ratings expects high diesel prices, combined with droughts, natural gas restrictions, rising energy demand and the initial delay in the development of new projects to increase the likelihood of energy shortages and keep electricity prices in Chile on an upward trend for the next couple of years.

"Chile's current water deficit, combined with further disruptions in the supply of Argentine natural gas, has raised concerns about possible power shortages beginning as soon as March, the month when demand historically increases," Giovanny Grosso, director in Fitch's Latin America corporates group, said in an agency statement.

The Chilean government announced a series of measures on Feb. 7 expected to result in electricity savings of 4.4% in 2008.

Fitch said the current crisis has taken its toll on some generators' financial flexibility, as contracted prices have been unable to keep up with growing generating costs. This has particularly been the case with companies such as Colbun SA and GasAtacama Generacion SA, which had relied heavily on natural gas and/or hydro power and whose contracts were largely signed at prices that did not foresee the current shortages and cost hikes.

The least-affected companies are those that have been using coal as their main energy source, such as Empresa Electrica Guacolda SA, the agency said, and Empresa Nacional de Electricidad SA is also notable for its conservative commercial policies and lower contracted position.

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