The Mexican government has agreed to buy 13 power plants from Spanish energy giant Iberdrola in a deal worth $6 billion, which Mexico's president hailed as a "new nationalization" of the electricity market that will amp up state control.
In a video posted on March 4 on his social media, President Andres Manuel Lopez Obrador called the accord historic and said it will give state-owned power company Comision Federal de Electricidad (CFE) majority control over the electricity market.
"This means we're rescuing the Comision Federal de Electricidad, and it's a new nationalization of our electric industry," said Lopez Obrador, flanked by government officials and Iberdrola CEO Ignacio Galan.
The deal is scheduled to be completed within five months, officials said, at which point the CFE will operate the plants, although the vast majority of their capacity was already under contract to be sold to the state company.
It comes as Mexico is entangled in a dispute over its energy policy with the U.S. and Canada, which argue that it prejudices their companies and violates a regional trade agreement.
It is too early to know if the purchase price reflected fair market value, in large part due to the mix of older and newer facilities in the deal, said energy analyst Gonzalo Monroy.
However Iberdrola will significantly reduce its exposure in Mexico with the sale of its oldest plants "after four years of constant legal hassle", he added.
Lopez Obrador, a leftist energy nationalist, has frequently lambasted Iberdrola, likening the attitude of one of Europe's leading power firms to that of conquerors and evoking Mexico's 16th-century conquest at the hands of Spanish invaders.
He argues Iberdrola benefited from past, corrupt governments and has accused it of trying to mount a media campaign against him in concert with his political adversaries.
Still, Iberdrola's CEO expressed respect for Lopez Obrador's drive to beef up state control over energy.
"That energy policy has moved us to look for a situation that's good for the people of Mexico, and at the same time, that complies with the interests of our shareholders," said Galan.
No price hikes
The Iberdrola power plants, mostly facilities that burn natural gas but also a major wind farm, generate power equivalent to nearly a tenth of Mexico's total installed capacity in 2020, official data show.
The plant acquisition deal will take CFE's power generation to nearly 56% of Mexico's total, from about 40%, Lopez Obrador said, who has previously stated that the state must control at least 54% of generation.
In a statement, Iberdrola said it inked a memorandum of understanding with asset manager Mexico Infrastructure Partners (MIP) to sell over 8,400 megawatts (MW) of capacity from its gas-fired plants, plus its 103 MW wind asset La Venta III.
Mexican Finance Minister Rogelio Ramirez de la O noted that state infrastructure fund Fonadin will likely hold the majority of the capital in the transaction and serve as the special vehicle used to refinance the operation.
In a securities filing, Iberdrola said it will continue to invest in Mexico to further its "leadership in the development of renewable energy."
The agreed value may be modified based on the closing date of the transaction and other adjustments, Iberdrola said.
Lopez Obrador has tussled with other energy companies during his 4-1/2 years in office, forcing some plants off the national grid as well as yanking control of a potentially lucrative offshore oil find from the U.S. firm that made the discovery.
But he couched his latest push for greater state control over energy in populist terms.
"More important than anything is that by doing this we are guaranteeing the price of electricity does not increase," he said.
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