AMLO Buys Iberdrola Plants, May Have Gotten Burned in Deal

Photo: Iberdrola


In a surprise if-you-can’t-beat-them-buy-them-out move, Mexican President Andrés Manuel López Obrador (AMLO) announced Tuesday, April 4, that, after four years of verbally barraging the Spanish-owned Iberdrola energy company, his administration would now be purchasing the bulk of that company’s Mexican power-generating plants for the sum of $6 billion.

The 13 new electricity plants, López Obrador said, will now be administered by the state-run Federal Electricity Commission (CFE), giving it control of 55.5 percent of all national production, up from 40 percent before the purchase.

In an effort to justify the purchase politically, López Obrador called the deal an act of “new nationalization,” trying to echo the 1938 expropriation of foreign oil interests implemented by then-President Lázaro Cárdenas.

But while AMLO presented the move as “another great accomplishment” of his leftist administration, there are strong indications that the purchase may have been more that of a white elephant than a super bargain.

As it turns out, most of the 13 plants that the administration purchased from Iberdrola are way past their prime and are due to become obsolete (and inoperative) in just a few years.

According to one specialist in energy issues Carlos Fuentes, it would have been more convenient for the Mexican government to invest those $6 billion in the construction of new power plants.

“From an economic perspective, the transaction did not make much sense for the government of Mexico to pay the $6 billion because building new assets would have cost around $8 billion,” Fuentes told Mexican daily newspaper Reforma.

“But instead, the administration purchased old, almost obsolete assets, between 10 and 18 years old, so it paid dearly for the plants.”

Moreover, while AMLO touted the purchase as a means for Mexico to become self-sufficient in energy production, another Mexican expert in the energy field, Rosanety Barrios, pointed out that the purchase of the plants represents a “luxury” for the government, considering the fact that the energy that they generate was already being purchased by the CFE at lower prices and without the cost that the operation of the plants represents.

“The truth is that these plants were already providing for the CFE because they were legal independent power producers that sold their energy to the CFE,” she said.

“But the message the government is promoting is that the administration purchased  the plants and sovereignty is guaranteed by having most of the generation provided by the CFE.”

Barrios echoed Fuentes by saying that “if the Mexican government had intended to invest in electricity generation, it would have been better to purchase new plants, which are sorely needed.”

In his message, López Obrador stressed that with the total operation the CFE will increase from controlling 39 percent of the market to 55 percent of the market.

However, the Mexican Institute for Competitiveness (Imco) explained that the sale of the plants was made to a private trust with a majority participation of public entities, so the ownership of the plants will not even belong to the CFE, nor will the plants’ participation increase the CFE’s market share.

In addition to the cost of the energy the plants produce, the federal government will now have to pay for the plants and the cost of keeping them running, Barrios said.

It is worth noting that the day after the sale was announced, Iberdrola’s shares closed with up by 2.45 percent, which would seem to indicate that the Spanish firm came out of the sale smelling like a rose.

And based on recent history, Iberdrola would have no qualms about getting the better end of a deal with López Obrador.

José Sainz Armada, the chief financial officer of Iberdrola — which has suffered a barrage of insults from AMLO, who has accused the company of exploiting Mexico, using corrupt practices and implementing colonial-style exploitation schemes — said that the company will now focus on expanding its clean-energy production in the United States, where it can take advantage of green subsidies provided by the government.

In Mexico, Iberdrola had faced numerous controversial closures and fines of its clean-energy plants because the AMLO administration has openly favored fossil-based fuels over green-sourced alternatives.

Iberdrola has also been a favorite target of AMLO’s leftist administration, which has sought to control all energy production in the country, although state-produced electricity in the country is generally far more expensive than privately produced electricity.

Iberdrola, which benefited from Mexico’s energy reform in 2013 (which AMLO has tried repeatedly to overturn), was one of Spain’s largest investors in the country.

The 13 power generation plants included in the operation have 8,539 megawatts of capacity, 70.2 percent of Iberdrola’s total production in Mexico.

Currently, Iberdrola México has an installed capacity of more than 11,000 megawatts in 17 combined cycle and cogeneration plants, 693 megawatts in seven wind farms and 470 megawatts in three photovoltaic parks.

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