Honduran Congress Approves Legislation to Privatize Energy Sector

On Monday, the Congress of Honduras finalised legislation that approves the breakup of the country’s state-owned energy producer, Empresa Nacional de Energia Electrica (ENEE). Under the new legislation private investors will now be allowed to invest in the country’s energy industry, a decision taken in an effort to halt the yearly losses made by ENEE and revitalise the struggling sector.

ENEE generates its own electricity, as well as buying electricity from independent producers, but has been facing losses of almost $200 million a year which have prevented it from investing in new projects, allowing the country’s energy sector to fall into decline.

ENEE has a production capacity of just over 400 megawatts, generated from hydroelectric and geothermal power plants. The rest of the country’s energy is produced by private companies, but until the passing of this legislature these companies were only allowed to generate electricity that they then had to sell to the state-run ENEE, now they will be allowed to sell the energy they produce to a utility firm in which they have the potential to invest themselves.

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Emil Hawit, the Director of ENEE, said that the new “legislation allows the participation of private actors in all of the electricity market to drive investment in the sector and respond to the demand for electricity that is key to the development of this country.”

The terms of the legislation, which was supported by 95 of the country’s 128 lawmakers, state that ENEE will be broken up into three separate companies that manage energy generation, energy transmission, and then the distribution to end consumers. The breakup must occur before the 1st of July 2015, and will permit investors to buy stakes in the new companies. It is not known exactly what percentage of the new companies the Honduran government will open up for private investment, but it is known that they will retain a minority stake in each case.

Reuters reports that Honduras ended 2013 with a fiscal deficit of nearly 8 percent of its gross domestic product (GPD), and analysts believe that the decision to privatise ENEE is partly based on the desire to remove this drain on the governments purse, hopefully helping to reduce the deficit.

Last week the Honduran Congress revealed its 2014 budget, in which it laid out plans to nearly halve the deficit to 4.7 percent of GDP by the end of the year.

By. Joao Peixe of Oilprice.com