AMLO Widens State’s Reach With $6 Billion Iberdrola Deal

(Bloomberg) -- Mexico agreed to buy a fleet of natural gas plants and a wind farm for $6 billion from Spain’s biggest power company as part of President Andres Manuel Lopez Obrador’s push to nationalize energy production.

The deal, announced Tuesday, will make Mexico’s state utility the nation’s biggest power generator and represents a “new nationalization,” the president said in a video posted on Twitter. 

The utility, Comision Federal de Electricidad, will gain 8,539 megawatts of energy from 12 gas plants and one wind farm from Iberdrola SA, bringing CFE’s share of power generation to more than 55% from 39% now. Iberdrola is relinquishing about 75% of its installed capacity in Mexico, the company said.

It will enable AMLO, as the president is called, to achieve one of the biggest goals of his stalled electricity reform by placing much of the electricity sector in state hands and ridding Mexico of a major foreign company’s influence. The president’s previous efforts to change the constitution to give CFE more control over the energy market failed to gain congressional approval.

“We have had some discrepancies but dialogue can do anything — dialog and good will,” the president said.

Iberdrola’s shares rose 1.7% on Wednesday as analysts welcomed the reduced exposure to Mexico and said the price was fair.

AMLO said the deal will allow Mexico to maintain prices for consumers as the president seeks to make the country self-sufficient in energy generation. Yet analysts question whether the deal will hurt investment in the energy sector.

“There are no more gray lines. The attack on Iberdrola since the beginning of this administration has been front and center,” John Padilla, managing director of IPD Latin America, said in a phone interview. “The question is what’s the bilateral and multilateral reaction going be and how will that impact investment going forward in Mexico’s electricity sector.”

The purchase will be paid for by the National Infrastructure Fund, known as Fonadin, and won’t come from public debt, said Finance Minister Rogelio Ramirez de la O. It will also use other public financial entities linked to the government. The transaction, which is subject to regulatory approvals, will be completed in the next six months, the finance minister added. 

Spain’s biggest power company gradually has scaled back its Mexico operations after having previously invested tens of billions of dollars in the country. The company has faced significant hurdles under the nationalist president, who has made Iberdrola the main target of his push to remove the influence of foreign energy firms in the electricity sector. 

AMLO has launched numerous jabs against the Spanish energy giant at his daily morning press conferences, accusing it of mounting a media campaign against him and engaging in unspecified acts of corruption. Iberdrola has faced difficulty getting permits approved for plants, contracts renewed and faced supply issues with CFE.

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