Mexico to buy 13 power plants from Iberdrola

The Mexican government signed a $6bn deal today to acquire 13 power generation plants from Iberdrola following ongoing disagreements that have impeded operations.

"This deal gives [state utility] CFE the majority share of the country's power generation … it is a new nationalization of the electricity industry," President Andres Manuel Lopez Obrador said today in a video to announce the deal.

The deal covers 8,539MW of power generation capacity, or 76pc of Iberdrola's current Mexico portfolio, including the Monterrey I and II, Altamira III, IV and V, Escobedo, La Laguna, Tamazunchale I, Baja California and Topolobampo II and III combined cycle plants. La Venta III wind farm operated under long-term power producer contracts with state power company CFE is also part of the deal.

The sale also covers the Monterrey III and IV, Tamazunchale II and Enertek combined-cycle plants that sell power to private-sector customers, according to an Iberdrola filing with the Spanish stock exchange.

The memorandum of understanding was signed between Iberdrola and Mexico Infrastructure Partners but Mexico's infrastructure investment fund, Fonadin, will provide the majority of the capital for the purchase, finance minister Rogelio de la O said.

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 55pc from 39pc, Lopez Obrador said.

"This will give CFE the critical mass it needs to lower power generation costs and to become, once again, the majority power generation company," he said.

By Rebecca Conan