It was a $6 billion divorce. The official photo with AMLO, Rogelio Ramírez de la O and Ignacio Sánchez Galán, CEO of Iberdrola, wants to suggest cordiality, but the reality is different: the relationship is bad. We are before the photo of a married couple that has just signed the separation.
AMLO has a list of grievances. Iberdrola collects theirs. The Mexican president never forgave the Spanish multinational for hiring Felipe Calderón as an advisor. In addition, he is more than angry with the way in which the electric giant took advantage of the self-supply figure to generate extraordinary profits with the sale of energy to its “partners” in self-supply.
The presidential courage became a fine from the Energy Regulatory Commission (CRE) for 9,000 million pesos in 2022 and the refusal to grant administrative facilities, by the National Center for Electric Control and the CRE: connection permits to plants completed or authorization to operate under the Wholesale Electricity Market scheme.
Iberdrola arrived in Mexico attracted by the possibilities offered by the electrical reform promoted by Ernesto Zedillo. He grew up in the six-year terms of Fox, Calderón and Peña. He invested seriously and turned Mexico into one of the key markets within an aggressive international expansion strategy. It became the largest private electricity producer in Mexico, with a market share of around 20% (compared to 39% for CFE).
With the arrival of AMLO, the Mexico Lindo y Querido for the Spanish firm is over. In the morning she was criticized several times. In the government offices he did not find facilities and from the CFE there were claims and accusations of bad practices. In the narrative promoted by Manuel Bartlett, the financial and operational weakness of CFE was caused by the abuses of some individuals, Iberdrola at the head of them.
The Spanish company tried to defend its cause with lobbyists and lawyers, but achieved almost nothing. The Free Trade Agreement of Mexico with the European Union, which has fewer obligations for Mexico, in the energy sector than the T-MEC, did not help him much. As of the second year of this six-year term, they put a brake on investments. Mexico left the heart of the Spanish electricity company. The strongest proof of this is that Mexico was left out of the ambitious 2023-2025 investment plan. Of 47,000 million euros, there was almost nothing for Mexico. While the United States would receive around 23,000 million. “This country has just announced an ambitious program to combat climate change and also offers the legal certainty and regulatory security that our investors require,” Enrique Alba, Iberdrola’s general director in Mexico, said last year.
The brake on investment was complemented by the search for exit options. The process started at least a couple of years ago. The reality is that Mexico had offered several years of good profits, but the years of great fat cows were over. Now there are skinnier cows and they have to be milked in court. It did not seem easy to find a buyer for assets worth billions of dollars. We are talking about a country where there are two energy laws, one from 2014 that is favorable to the private sector and another from 2021, hostile to private investment, which cannot be applied because there are protections from individuals that have reached the Supreme Court of Justice. .
Enough of history. Let’s go to the agreement announced yesterday. Iberdrola sells 13 plants that are equivalent to more than 80% of its generation capacity in Mexico. The buyer will be the National Infrastructure Fund, which depends on the Ministry of Finance. The operation of the plants will be in charge of the CFE, which will increase its market share from 39% to around 55%. It is not very clear what role a private fund called Mexican Infrastructure Partners will play in the operation. The amount of the operation will be close to 6,000 million dollars. It will not mean additional debt for CFE, which will be a kind of lessor of the 13 plants. AMLO celebrates the operation and calls it a renationalization of the electricity industry.
Before celebrating, we still have to find the answer to some reasonable doubts, how efficient will the CFE be in managing the acquired plants? Can we prevent it from becoming a cauldron of red numbers? What effect will this divestment from Iberdrola have on the appetite of other private companies to invest… Is Mexico a big market and needs billions of dollars of investment in the electricity sector? What will happen to the Iberdrola plants that it did not sell? After this big divorce, he will have overheated. Meanwhile, who will keep the dog?
