Oil & Gas News

Mexico Snares Iberdrola Power Plants for $6B In ‘New Nationalization’

Mexico, Iberdrola

The Mexican government has agreed to purchase 13 power plants from Spanish energy giant Iberdrola in a deal worth $6 billion. President Andres Manuel Lopez Obrador hails the agreement as a “new nationalization” of the electricity market, bolstering state control in the sector.

In a video posted on social media, President Lopez Obrador called the accord historic, stating that it would provide state-owned power company Comision Federal de Electricidad (CFE) with majority control over the electricity market. Joined by government officials and Iberdrola CEO Ignacio Galan, Lopez Obrador said that the deal represents a resurgence of the CFE and a “new nationalization” of the Mexican electric industry.

The transaction is expected to be finalized within five months, after which the CFE will operate the acquired plants. The majority of the plants’ capacity has already been contracted to be sold to the state company. This deal comes amidst Mexico’s ongoing dispute over energy policy with the U.S. and Canada, which argue that it disadvantages their companies and violates regional trade agreements.

Energy analyst Gonzalo Monroy suggests that it’s too early to determine whether the purchase price reflects fair market value, primarily due to the combination of older and newer facilities involved in the transaction. However, Monroy notes that Iberdrola will significantly reduce its exposure in Mexico with the sale of its oldest plants “after four years of constant legal hassle.”

Despite past tensions between Lopez Obrador and Iberdrola, the company’s CEO expressed respect for the Mexican president’s drive to strengthen state control over energy. The power plants involved in the deal, which include natural gas facilities and a major wind farm, account for nearly a tenth of Mexico’s total installed capacity in 2020.

With the acquisition, CFE’s power generation will increase to nearly 56% of Mexico’s total, up from around 40%. President Lopez Obrador has previously stated that the state should control at least 54% of  generation.

The transaction will likely involve Mexican infrastructure fund Fonadin holding the majority of the capital, according to Mexican Finance Minister Rogelio Ramirez de la O. Iberdrola stated that it will continue to invest in Mexico, furthering its “leadership in the development of renewable energy.”

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