Chile’s draft constitution – if given the green light – would unlikely have negative implications for the country’s credit rating, members of the local business community were told during an event hosted by rating agency Fitch.
The document is being finalized and, if approved by the drafting council, will be voted on in a referendum in December.
“We don’t see any important economic changes, really,” said Fitch senior director Richard Francis on the proposals, during the event held in Santiago.
He added that in contrast, a previous draft – rejected by voters last year – did contain spending and regulatory proposals that could have created economic fallout for the country.
The current text is being put together by a conservative-leaning body. Based on polls, only roughly a quarter of Chileans would vote in favor of the draft, which would replace the current constitution which itself has undergone multiple reforms.
Francis added that the government was unlikely to succeed in gettig a tax reform through congress, at least in the short term. The government recently announced a fiscal pact, a series of measures that includes reform proposals, one aimed at combating tax evasion and avoidance and another containing incentives to spur formal employment and benefits for the middle class.
Meanwhile, on the topic of constitutional reform, Fitch Chile corporate finance chief Rina Jarufe underscored the importance of supporting a stable business environment for rated firms.
“Stability is crucial” in terms of investment decisions, Jarufe told BNamericas on the sidelines of the event.
The rewrite process follows the initial attempt, which stemmed from a political pact reached during the 2019 social crisis to help ease tensions. That text, while progressive, was deemed by many as radical and woolly and was rejected by voters.
Monitoring the final phases of the current process and whether it eliminates associated political risk from the operating environment “is what we cnsider the most relevant in the analysis of corporates,” Jarufe said.
Fitch forecasts that the economy will contract 0.3% this year before expanding 2.2% in 2024. Inflation is cooling and the central bank has started to trim the benchmark rate.
Fitch rates Chile ‘A-’ after two ratings cuts, in 2017 and 2020. Chile has the highest rating in the region.
GREEN HYDROGEN
Green hydrogen is gaining traction in Chile and several projects, among them green ammonia initiatives, are expected to enter the environmental review system over the coming months, event participants were told.
Chile’s green hydrogen strategy, published in 2020, says the industry could potentially become as large as the local mining sector.
A 10MW project – planned for an LNG terminal in Valparaíso region – is already under evaluation after being submitted voluntarily by project partner GNL Quintero.
Chile has over 50 publicly announced green hydrogen projects in the feasibility or prefeasibility phase. Multiple piot schemes are in operation, the biggest among them the Haru Oni e-fuels demonstration plant in far south Magallanes region.
Marcos Kulka, executive director of local hydrogen industry association H2 Chile, cited the importance of incentives such as tax credits and supportive regulations to help propel it along.
Globally, a key hurdle is driving down the cost of producing green hydrogen. For Chile, which benefits from over 1,800GW of renewable energy potential, a chief factor is the price of electrolyzers, which is nevertheless expected to fall over the coming years as capacity ramps up globally.
Chile’s ambition under its 2020 strategy, is having 5GW and 25GW of electrolyzer capacity operating or under development by 2025 and 2030, respectively. As things stand, 10MW of capacity is in the permitting phase.
A chief hurdle for developers in the wider energy sector is a complex and lengthy permitting system. The government outlined reform plans in its fiscal pact.
An associated gren hydrogen roadmap, designed to help transition projects from drawing board to construction, is being finalized.