President Andres Manuel Lopez Obrador announced the acquisition by the Mexican state of 13 power plants owned by the Spanish energy giant Iberdrola for 6 billion dollars, hailing it as a ‘new nationalization’. It’s a ‘historic day’, the nationalist left-wing president declared in a message on Twitter, at the origin of a reform of the energy sector aimed at limiting foreign participation, a reform that worried foreign partners. Today, the Mexican government signed an agreement to purchase 13 power plants from Iberdrola, which will be part of the public heritage and operated by the CFE (Federal Electricity Commission). It’s a new nationalization,” Lopez Obrador said on Twitter. The amount of $6 billion was advanced by the Minister of Finance, Rogelio Ramirez, during a meeting between Lopez Obrador and the executive chairman of Iberdrola, Ignacio Sanchez Galan. In this way, CFE will increase its participation in the country’s total electricity production from 39 to 55%, the minister said. A year ago, the Supreme Court validated the reform of the energy sector, approved by the parliament, to strengthen the role of public companies.

This reform puts billions of dollars of foreign private investments and the development of the renewable energy sector at risk, says the US, which does not exclude measures within the framework of the North American Free Trade Agreement. Another great partner of Mexico, Spain, is in the sights of President Lopez Obrador, who asked for a ‘pause’ in the relationship with Madrid. Lopez Obrador was highly critical of Iberdrola, declaring in May that ‘Mexico is not a territory to be conquered’, when the energy regulatory agency fined the company $447 million, a sanction that was eventually suspended by the judiciary. The Spanish company was accused of illegally selling electricity. “We thank Iberdrola, its general manager” for the “will to reach an agreement”, the Mexican president said on Wednesday. “We had some disagreements, but dialogue and goodwill are stronger than anything. From these differences, this agreement was born, which is an extraordinary, historic thing’, added Lopez Obrador. Iberdrola has been the government’s prime target in its discourse against private-sector companies that secured long-term power purchase contracts with CFE during the previous administration as well as self-supply permits that pre-date the 2014 energy reform, claiming they have unfairly gutted CFE’s market share.

While government attempts to cancel the self-supply regime failed when Congress voted against constitutional energy reform in April, Lopez Obrador has used energy authorities Cenace and CRE to squeeze independent power producers like Iberdrola. Over the past two years, the CRE has denied Iberdrola’s requests to amend power generation permits, attempted to impose a historic fine on the company for alleged fraudulent use of a self-supply permit, and tapped the breaks on the launch of several new power plants. Meanwhile, Cenace has periodically disconnected other Iberdrola plants from the grid despite protective injunctions secured by the independent power producer. We understand President Lopez Obrador’s energy policy and have sought a solution that is good for the Mexican people and our shareholders,” Iberdrola’s president, Ignacio Galan, said today. CFE will operate 13 of the plants to be acquired, increasing its market share to 55 percent from 39 percent, Lopez Obrador said. “This will give CFE the critical mass it needs to lower power generation costs and become, once again, the majority power generation company,” he said.

By Sara Colin