Energy reform: a necessary step that does not guarantee results
Translated from Spanish with AI assistance and reviewed by our editors. See a translation error? Email us.
The current model is unsustainable. As of April 2026, ENEE has accumulated debt of more than USD 4.5 billion — equivalent to 11% of GDP — while the system loses around 38% of the electricity it generates. The bill sent by the Asfura administration to Congress begins with that diagnosis and proposes the sector’s most ambitious structural reform in more than a decade. But reforms of this scale should be judged by what they deliver, not what they declare. The bill creates the right institutions and is a necessary first step. But it is not, by itself, a solution. The reform is still constrained by a financial crisis for which no clear answer has been offered, and by the absence of a credible roadmap to ensure that the proposed transformation does not remain merely on paper.
What does it get right?
The institutional architecture is sound
The bill strengthens CREE (Comisión Reguladora de Energía Eléctrica, the electricity regulator) with its own ring-fenced funding, appointments involving a technical nominating board, stronger experience requirements, and mandatory publication of its rulings. It creates a System and Market Operator (OSM) with its own legal identity, outside the public administration, with a Board of Directors selected through a public merit competition and funded by a separate regulatory charge. This eliminates one of the main conflicts of interest in the current model: ENEE participates in generation, transmission, and distribution of energy while also controlling dispatch and market operations. The bill also mandates the vertical unbundling of ENEE into separate generation, transmission, and distribution companies, with segment-level accounting transparency and differentiated regulation.
It also establishes a wholesale market with transparently determined marginal prices and incorporates modern practices: storage as a regulated activity, regulatory sandboxes, competitive international tenders, and transparency in the allocation and billing of system charges.
What does it not guarantee?
The structure is created, but nothing compels or guides its correct use: the central risk is political capture
The bill creates the right institutional boxes but leaves open what will go inside them. The transformation could be purely formal: changing letterheads without changing management, staff, technology, or the mechanisms of discretion. In Honduras, the risk is high, given ENEE's entrenched role in clientelism, a deeply rooted organizational culture, and established networks of complicity.
The selection process has a technical filter: in both the CREE and the OSM, candidates emerge from merit competitions run by a specialized international firm. However, the law leaves the requirements to be a CREE commissioner ambiguous: candidates must be a specialist in the field with fifteen years of experience in related areas — electrical engineering, law, economics, or sector regulation — but this experience is not anchored in the electricity sector, nor is it specified how it is to be verified; meaning almost any profile could qualify. What the law should require is experience in the electricity sector, preferably in its regulation, without excluding regulatory experience in other sectors; requiring a specific profession does not ensure fitness for the regulatory function. The board's composition has also been narrowed, which heightens the risk of capture: the OSM Board shrinks to three seats, appointed by a Nominations Committee in which generators and traders — with different interests — share a single representative. Where the design leaves room for interpretation, the law should close it.
On ENEE's restructuring, the reform must go beyond creating new structures: it must define how they are staffed, governed, and financed. First, an explicit mandate for transformation, vetting, and integrity: an Institutional Transformation Plan for each subsidiary, with targets, indicators, verifiable deadlines, and mandatory publication, so that change is not exhausted by a name change. Second, professional governance shielded from political interference, drawing on the OECD Guidelines on State-Owned Enterprises as a reference. Third, a separation between corporate management and public policy: the subsidiaries must operate on efficiency criteria — minimizing costs, recovering revenue through regulated tariffs, and being held accountable for results — and when the Executive decides on measures whose cost cannot be recovered through the tariff, such as a subsidy, these must be approved by administrative act and financed through an explicit transfer in the General Budget, not loaded onto the companies' balance sheets.
Maintaining ENEE as a parent company is functionally redundant and risky
Any coordination that might be needed is already covered by CREE on the regulatory side and by the OSM on the operational side. The parent company preserves a channel for political influence over the subsidiaries — removing directors, conditioning investments, intervening in procurement under a veneer of legitimacy. It becomes a natural refuge for staff that efficient subsidiaries do not absorb, and it opens space for cross-segment coordination that distorts the market.
Shareholding should rest with an institution that has natural incentives toward financial efficiency, accountability, and fiscal sustainability, without internal corporate loyalties that distort scrutiny.
The draft covers supply continuity but not the induction of new generation capacity
Developing power plants using more efficient technologies and alternative energy sources takes three to five years from the investment decision and requires long-term contracts to recover costs at competitive prices. With distribution company tenders limited to covering the next calendar year, bidders will necessarily be existing generators or fast-build projects, likely at high cost. Short-term tenders for continuity should be maintained, but medium- and long-term tenders — of eight to twenty years — should be required within a multi-year plan submitted to CREE, with sufficient lead times for new investors with new technologies and lower-cost energy sources to enter, as has been observed in Guatemala and Panama.
What’s missing?
The bill is only the beginning. For the reform to work and last, three key conditions need to be clearly addressed: a comprehensive financial solution — combining loss reduction with debt treatment — conflict-free leadership, and a critical implementation path.
1. A comprehensive financial solution is missing. Unbundling brings order to the sector, but does not on its own make the resulting companies viable. The system's financial health has two fronts, both of which depend on financial and operational decisions that have yet to be laid out.
The first is loss reduction. Losses not covered by the tariff amount to around USD 500 million per year. The government has set no targets or deadlines for reducing them. This is critical: the public generation capacity that currently offsets losses in ENEE's consolidated balance sheet will be separated out; without a plan, the distribution company's loss gap, rather than closing, could widen sharply. Reducing energy theft also requires support from the rest of the state: specific criminal offenses, streamlined procedures, and a specialized prosecutor's office. Without that deterrent, the vicious cycle holds: non-payment without consequences becomes normalized, it erodes the payment culture of those who do pay, and it undermines the distribution company's sustainability. Without sustainability, there are no resources to close coverage gaps, maintain networks, attract new generation, or adopt new technologies.
It is very difficult for people who pay their electricity bills to keep doing so when they see non-payment becoming widespread without any consequence. Effective penalization is the indispensable condition for preserving a payment culture.
The second front is the debt. Reducing losses improves the operating deficit, but does not erase the more than USD 4.5 billion that ENEE already carries. Without a transition arrangement, a capitalization agreement between the distribution company and SEFIN (Secretaría de Finanzas), or an explicit recapitalization of the distribution company, the new distributor will start with an unrecoverable liability — the state generator will be taxed on sales that the distributor does not pay — deepening the very deterioration the reform seeks to correct. That arrangement must include real loss-reduction targets, with milestones that give companies an incentive to act, and a clear mechanism for managing the inherited debt.
Restoring both fronts is what turns the distribution company into a reliable buyer. It also makes it possible to address the investment backlog: the system needs around USD 900 million in transmission and more than USD 800 million in distribution over the next ten years, but it is still unclear who will finance this, how it will be executed, or how its cost will be passed through to the tariff. Without a buyer that pays on time, there are no competitive long-term generation contracts, and the system will remain tied to expensive, emergency solutions. The distribution company's financial health is the precondition for new supply and for the investment the sector needs.
2. Conflict-free leadership is missing. The Steering Committee, coordinated by the Secretaría de la Presidencia, includes ENEE and CREE among those directing the reform: in part, the same actors that must be transformed and regulated are guiding their own transformation. A reform of this scale needs a dedicated, full-time leader with a political mandate and no conflict of interest — someone who reports directly to the President, coordinates the institutions, enforces deadlines, maintains coherence across the financial, regulatory, operational, and investment measures, and publicly accounts for progress on a regular basis.
3. A critical implementation path is missing. The bill does not define how the corporate transformation, the financial solution, the loss-reduction plan, and the induction of new supply connect to one another, nor whether the system is prepared to manage a crisis during the transition. It creates a Steering Committee and a Technical Unit with a roadmap, but without a sequence, milestones, or responsible parties that tie those fronts.
Passing the bill in its current form could produce a formal transformation without a real one — losses intact, inherited debt unresolved, and the sector as deficient as it is today. To avoid that, the reform must act on three fronts simultaneously: structural reform — already included and largely well designed — a governance mandate that shields professional management, and a financial solution that reduces losses without ignoring the debt that conditions the system today.
None of those fronts is optional: without the third, the new institutions are born insolvent; without the second, they are capturable; without the first, there is no reform.
What the bill cannot mandate is the will to execute it. That is the variable that will determine whether this reform is different from the one in 2014 — a well-designed law whose structural transformation, the same one this bill orders again twelve years later, was never carried out.
Clear evidence of progress is needed, and the simplest indicators are also the most honest: if the OSM is not operational within the deadline the bill itself sets, if there is no explicit debt-treatment mechanism before year-end, and if the implementation roadmap is not public with verifiable milestones and responsible parties, the reform will already be failing before it has begun.
A reform of this magnitude does not come around twice in a generation. If Honduras is going to do it, it must do it right.