Mexico buys Iberdrola power plants for $6 billion in 'new nationalization'

By Belén Carreño and Adriana Barrera

MADRID/MEXICO CITY (Reuters) -The Mexican government agreed to buy 13 power plants from Spanish energy giant Iberdrola (BME:) in a deal worth $6 billion, and Mexico’s president characterized the deal as a rescue of the state power company and said it will amp up state control.

In a video posted Tuesday on his social media, President Andres Manuel Lopez Obrador called the agreement a historic accomplishment that will give state power company Comision Federal de Electricidad (CFE) majority control over Mexico’s 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 Mexican companies in favor of state firms and falls foul of their trade agreement.

Lopez Obrador, a leftist energy nationalist, has frequently lambasted Iberdrola, sharply criticizing one of Europe’s leading power companies as adopting an attitude of conquerors, evoking Mexico’s five-century-old conquest at the hands of Spanish invaders. He has also accused Iberdrola of benefiting from past governments and accusing it of trying to mount a media campaign against his government in concert with his political adversaries.

In his remarks, Iberdrola’s CEO stressed the company’s respect for Lopez Obrador’s policies that have sought greater 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.

The deal will take CFE’s power generation to nearly 56% of Mexico’s total, from about 40%.

Lopez Obrador has said the state must control at least 54% of power generation.

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The Iberdrola power plants, mostly facilities that burn but also a major wind farm, generate power equivalent to nearly a 10th of Mexico’s installed generating capacity, according to official data from 2020.

In a statement earlier on Tuesday, Iberdrola announced it inked a memorandum of understanding with asset manager Mexico Infrastructure Partners (MIP) to sell its more than 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 would serve as the special vehicle used to refinance the operation.

Iberdrola added in a securities filing that it will continue to invest in Mexico to further its “leadership in the development of renewable energy in the country.”

The agreed value may be modified based on the closing date of the transaction and other adjustments, Iberdrola said.

The operation has the financial support of Fonadin and other public financial entities associated with the Mexican government.

Lopez Obrador has tussled with other foreign and private energy companies during his more than four 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 that the price of electricity does not increase,” he said.