OPINION

By ALEJANDRO ENVILA FISHER

Mexican President Andrés Manuel López Obrador’s (AMLO) recent purchase of 13 electrical generation plants from the Spanish-based Iberdrola company, which was touted by López Obrador as a “new nationalization” of the nation’s energy sector, is not exactly what the president claimed it to be.

However, the deal will go down in history, albeit as yet as another of the great economic mistakes of a government that was inaugurated pawning the assets of future generations and attacking the health of Mexico’s public finances, such as when it canceled the Texcoco airport project.

Now, López Obrador will close his administration with yet another financial commitment, unnecessary, inconvenient and not at all profitable, for the national treasury.

Behind the cancellation of the Texcoco airport, which represented an investment of more than $7 billion and which would have placed Mexico as a premier global hub for air transport, there was no economic rationale or legal justifications derived from what AMLO alleged was corruption on the part of the investors. Nothing! No evidence, no grounds for these claims.

There was only one political motivation for the closure of the airport project, which was 70 percent completed when AMLO shuttered it: to make a public demonstration of power based on a narrative of combating alleged corruption that never went beyond words, at a very high economic cost for public finances due to the compensation that the Mexican government had to pay in the end to the investors.

Now, contrary to what the president may have reported, neither the Mexican government nor the state-run Federal Electricity Commission (CFE) will buy any of Iberdrola’s 13 plants. However, the government will be the guarantor of the payment to the Spaniards and a new parastatal company is being established to operate the facilities that the Iberian giant sold to the government.

The buyer of the generating plants is, in fact, not the government but a private investment fund called Mexico Infrastructure Partners (MIP). The role of the Mexican government under the deal will be twofold: On the one hand, it will act as guarantor of the payment to Iberdrola via a National Infrastructure Fund and, on the other, through the CFE, it will be the new operator of the plants, with all that that implies. In other words, the Mexican government is taking on all the costs and responsibilities for the plants without the benefit of actual ownership.

The purchase price of the plants, according to López Obrador himself, was around $6 billion. That money will come — apparently because nothing has been stated clearly — from a private investment fund and not from the national coffers, which will only serve as the guarantor of payment.

So neither the government nor the CFE will pay for Iberdrola’s 13 plants and therefore will not be the owners of that infrastructure, although they will operate them, pay salaries, pay upkeep and pay other expenditures. Under these terms, Mexico’s Treasury will not be affected, at least in principle.

Of course, all of the above is subject to the fact that this complex triangulation between Iberdrola, MIP and the Mexican government is more than just a simple simulation.

If the information about PMI’s participation is real, then there has been no “second nationalization” of the electricity industry as the president has claimed, since the plants will pass from a private Spanish owner to the property of a Mexican private investment fund (MIP), but will remain private all the same.

The detail and a new layer of doubts that have arisen from the operation are, to begin with and unfortunately for national finances, in the operation of the power plants. MIP has purchased the plants from Iberdrola, and the Mexican government has endorsed (guaranteed) the transaction, but has also agreed to operate those plants through the notoriously inefficient and bankrupt CFE headed by Manuel Bartlett, a close ally of AMLO who has been embroiled in numerous scandals, including allegedly having ordered the kidnapping, torture and murder of U.S. Drug Enforcement Administration (DEA) agent officer Enrique “Kiki” Camarena in 1985.

The CFE has posted net losses for three consecutive years, all under the leftist AMLO regime and Bartlett’s stewardship. In 2020, it lost almost 86 billion pesos, in 2021, it lost 106 billion and in 2022, it lost nearly 40 billion. These losses were the direct result of the change in focus in Mexican electricity policy and the closing of the electricity market to private participation, promoted by Bartlett and endorsed by López Obrador.

Now the CFE will be responsible for operating 13 new plants. If recent past history is any indication — and it certainly should be — these new plants will turn into additional financial losses for the country.

According to the limited details that López Obrador has revealed about the future operations of the plants, they will be administered by the CFE with the same personnel that worked for  Iberdrola, which means that MIP bought Iberdrola’s labor liabilities in the package.

All this begs a number of questions: What kind of dubiously legal agreement did Bartlett enter into to make the deal possible? Does the CFE have the capacity to absorb an increase in its workforce of these dimensions? Are Iberdrola employees in agreement with becoming part of the CFE instead of being employees of the MIP investment fund? How far does the transfer of the workforce from Iberdrola to the CFE extend? Are those who were plant directors at Iberdrola now civil servants?

These questions open the deal to a lot of doubts, both legally and financially, and without knowing the details of the answers to these questions, the Mexican public willl be inevitably suspicious.

And there are more doubts: How will the operating losses of the new plants be financed? If the CFE has lost money in the plants it already operates, why will it be in charge of operating the MIP ones? It is only logical to presume that these new plants, which were generating profits under the administration of Iberdrola, will begin to record losses because the CFE will not change its practices overnight.

There will be only two ways to finance these losses: through the injection of public resources, which would be part of the government endorsement (guarantee) of the purchase or through a higher cost of electricity generation that will translate to higher consumer costs.

When AMLO announced the purchase of the Iberdrola plants last week, he said that an increase in electricity rates would be avoided. López Obrador has said the same thing on different occasions during his six-year term, but the truth is that, contrary to his official discourse, electricity rates have gradually increased, far above inflation, during the last four years. The reason for these increases has to do with the high costs of electricity generation with which the CFE operates, so AMLO’s old renewed promise is not supported by the reality of the current government.

Whatever the case, with the transfers of more financial resources to the CFE to cover its new deficit, the people of Mexico will bear the cost in higher electricity bills.

The president’s claim that the purchase will increase the availability of electric energy in Mexico is unfounded because the plants that it purchased from Iberdrola were already in Mexico and were already producing electricity for the Mexican market.

Instead of spending resources to control electricity generation, the CFE could well have invested in power transmission and distribution, the exclusive responsibilities of the parastatal, which could also have led to profits because it then purchased cheap electricity from private generators and then sold it at a premium to final consumers.  This is a healthy business model and also a necessary one. But Bartlett does not seem to be interested in taking the company out of the red. Instead, he is focused on talking about Mexican energy sovereignty, whatever is meant by that concept.

AMLO’s and Bartlett’s perception of sovereignty is all about the government providing energy, at any cost to the consumer. It doesn’t matter if the gasoline that is refined in AMLO’s new Dos Bocas refinery is more expensive than what could be bought abroad, just so long as it is the state-owned (and debt-ridden) Petróleos Mexicanos (Pemex) that refines it. Likewise, now it doesn’t matter if the electricity generated by the CFE is more expensive than the electricity sold to the parastatal by private producers. The important thing is that the CFE is the one generating it, even if to do so it is consuming vital economic resources that the country could be allocating to health, education, infrastructure and even social development.

This distorted vision is what is preventing Mexico from achieving growth because it discourages private investment in infrastructure. And this vision prevails under AMLO because there are no officials in his administration who dare to say no to the president or make an effort to explain reality to him. And at the same time, among the opposition parties, there are no politicians who seem to understand the problems and are willing to publicly expose the costs of bad economic decisions for the future of the country.

Sadly, it is this obsession with an abstract and unreal concept of sovereignty that is counterproductive to healthy public finances and a promising future that governs Mexico today, meaning that our tomorrows will be dim indeed.

ALEJANDRO ENVILA FISHER is a lawyer and professor at the National Autonomous University of Mexico’s (UNAM) School of Law. He directed the political magazine Cambio and Radio Capital for 15 years. He also founded and directed GreenTV, a cable television channel specializing in sustainability and the environment, for five years. He has been a commentator and host for various radio and television shows and has written political columns for the newspapers El Día and Unomásuno, in addition to publishing articles in more than 20 regional newspapers in Mexico since 1995. He is the author of the books “One Hundred Names of the Mexican Transition,” “Chimalhuacán, the Empire of La Loba” and “Chimalhuacán, from Lost City to Model Municipality.”