Mexico’s $6 Billion Iberdrola Energy Deal Marks Warning to Foreign Firms

Amy Stillman and Michael O'Boyle
·2 min read
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(Bloomberg) -- Mexico’s $6 billion purchase of natural gas plants and a wind farm from Spain’s biggest power company is a warning shot to international companies, with the government claiming victory for its nationalist energy agenda.

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President Andres Manuel Lopez Obrador dubbed its deal with Iberdrola SA as Mexico’s “new nationalization” and follows years of clashes between him and the Spanish firm that saw many of its Mexican projects stalled. The outcome raises questions on whether other foreign energy firms could face similar battles amid a government push to concentrate power in the hands of the state. Enel SpA, Engie SA and Acciona SA are among foreign firms with operations in Mexico.

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

“The choice of words and messaging is deliberate,” said John Padilla, a managing director at energy consultant IPD Latin America, adding that such moves could intentionally be sending a warning to foreign firms amid protracted trade disputes with the US over energy policy. “The main message for private-sector investors, at least on the electricity side, is certainly not a good one.”

Others see the deal as easing pressure on private firms because the Iberdrola purchase gives Mexico’s state utility, Comision Federal de Electricidad, a dominant market position with 55% of total energy generation — thereby meeting the electricity agenda of AMLO, as the Mexican president is known.

While AMLO said Wednesday the deal had achieved his goal, “We do not turn away anyone who wants to invest in Mexico, as long as the general interest is put first.”

AMLO heralds the deal as historic, though some wonder if it’s the best move given the nation’s clean-energy ambitions. The purchase will require Mexico to spend money on aging plants instead of investing in renewables projects, energy consultant Severo Lopez Mestre said.

“This deal is a complex mesh with high political profitability for one side, very high business profitability to the Iberdrola side, and low profitability to the energy sector in Mexico,” he said.

(Updates with names of companies in second paragraph and adds comments from Mexico’s president in the sixth paragraph.)

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