The reform of the electricity sector has become the private sector's main strategy for Honduras to achieve a competitive bidding process for 1500 MW. With the National Congress set to decide the project's future in just a few days, the Honduran Association of Electricity Producers (AHPEE) believes that without changes to the governance of the National Electric Energy Company (ENEE), an independent operator, and stable regulations, it will be difficult to attract the competition needed to guarantee competitive prices.
"Honduras has gone almost a decade without competitive bidding processes and without competitive generation revenue," stated Karla Martínez , vice president of AHPEE. In her view, this lack of competition has directly impacted the cost paid by consumers and explains much of the lag the country faces today compared to other Central American markets.
The proposal comes at a crucial time. The 1500 MW tender, initially planned for this year, has been postponed until 2027 , while the sector warns that the delay continues to discourage investments that in recent years have found better regulatory conditions in countries like Guatemala and Panama.
The reform project seeks to address several issues that the private sector identifies as obstacles to the development of the electricity market. Among these, it proposes re-separating the generation, transmission, and distribution functions of ENEE (the National Electric Energy Company), as well as creating an independent system operator , a figure the market considers key to ensuring transparency and neutrality in operations.
Martínez explained that the current model concentrates too many functions within the same company, which generates conflicts of interest, reduces the confidence of developers, and limits the entry of new participants into tenders.
"Without reform there will be no independent governance and institutions, and therefore that is not attractive to investors," he warned.
The executive also considered that the regulatory uncertainty did not begin with the initiative currently being promoted by the Government, but with the changes introduced in 2022 , when Law 46-2022 modified part of the structure designed in the 2014 reform.
"The uncertainty came in 2022 with Law 46-2022. It was what generated that uncertainty because it was a brake," he stated.
He explained that the return of the system operator to the ENEE structure eliminated the technical independence that the market requires to function under clear rules.
"All this concentration in ENEE generates conflicts of interest, operational inefficiency and opacity in decision-making," he remarked.
The proposal currently under discussion aims precisely to restore that institutional separation, a structure similar to the one that has been operating for decades in markets such as Guatemala, Panama and El Salvador and that allowed for the sustained development of competitive bidding processes.
AHPEE believes that the approval of the reform will send a positive signal to investors before the final launch of the 1500 MW tender.
Martínez commented that a more transparent market should translate into broader participation from companies and, consequently, into better prices for the electricity system.
"The fact that this framework is not stable and lacks transparency and independence means there are no participants in the tenders; and without tenders there are no low prices, and without low prices the system is not sustainable," he said .
As background, he recalled that during the previous process only ten companies acquired the bidding documents , a figure that the sector considers low for a call of that magnitude.
"It's a very low number for a tender of this magnitude, over 1000 MW," he said.
Meanwhile, Guatemala continues to consolidate a regulatory framework that the Honduran private sector views as a benchmark.
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"Guatemala has a very enviable regulatory stability; it's almost been 30 years since they made that same reform," Martínez pointed out.
The financial situation of ENEE: the main challenge
Beyond institutional reform, the vice president of AHPEE maintained that the financial restructuring of ENEE will be crucial to restoring market confidence.
Currently, distribution losses are around 40% , mainly due to energy theft, a situation that affects the state-owned company's ability to pay and limits the arrival of new investments.
Martínez stated that separating the different units will allow for a more precise identification of where financial problems originate and will protect the company's profitable assets.
"The problem lies with ENEE Distribución, which is where the real financial problem is , in order to make agile decisions so that the issues can be resolved," he stated .
Various actors in the sector had already warned that the debt accumulated by the state-owned company became one of the main factors deteriorating country confidence and conditioning investor appetite.
The cost of not passing the reform
According to AHPEE, postponing the reform again would have immediate consequences for the electricity supply.
Martínez warned that, without a framework that facilitates competitive bidding, Honduras will likely have to resort again to emergency contracts for diesel generation, the most expensive technology available to add capacity in the short term.
"The main risk is that emergency hiring will be necessary, and the only technology that can normally provide that is diesel," he warned.
The executive recalled that this strategy had already been used in previous years and ended up impacting electricity rates.
"The only way to lower the rate is by holding tenders with high investor participation at competitive prices using reverse auctions," he said .
Added to this scenario is another risk: losing the technical and financial support of the multilateral organizations that currently accompany the process.
Martínez emphasized that institutions such as the World Bank, the Inter-American Development Bank (IDB), and CAF support the initiative because it strengthens the sector's institutional framework. He also noted that the United States has expressed its support for an open and competitive market, considering it to provide better conditions for economic development and regional stability.
Despite the current complex scenario, the vice president of AHPEE believes that Honduras maintains conditions to regain the interest of international developers if it manages to consolidate a stable regulatory framework.
"Honduras has a window that very few markets have now, and that is that there is a real need for generation, but above all for growth and an appetite for economic growth," he said.
The leader argued that the private sector has been ready to invest for years and that the priority now is to build rules that transcend changes in government.
"As investors in the electricity sector, what should matter to us is not the short term, but the long term. We are part of this sector, and if the sector is not healthy, no one will be well," he concluded .