Mexico: López Obrador announced the nationalization of 13 electric power plants for US$6 billion

Mexican President Andrés López Obrador officially announced the nationalization of 13 power plants belonging to the Spanish firm Iberdrola.

The operation involves a cost of  US$5.943 billion for the Mexican State only to acquire the new assets, and the resources were obtained through a trust with majority state participation.

This is the second major episode of nationalization after the announcement of the expropriation of 100% of lithium in Mexico on February 18, expressly prohibiting private investment and giving the State a legal monopoly over the activity.

“Today, the Mexican government signed an agreement to buy from Iberdrola 13 electric power generation plants that will become part of the public patrimony and be operated by the CFE (Federal Electricity Commission); it is a new nationalization”, announced the socialist President.

With the new purchase, the Federal Electricity Commission increased its share in the electric power generation market from 39.6% to 55.5%.

This is the most important reversal of the deregulation, decentralization, and privatization process carried out since the 1990s.

The State’s share in electricity generation would reach 65% by the end of the six-year period of socialism in power, the most significant in the last 30 years.

Likewise, the weight of the public sector drastically increased in electricity generation in the country’s northwest region, having risen from 6.7% to 44.8%.

López Obrador publicly announced that the nationalization “guarantees that energy prices will not increase”.

Applying political prices to replace market prices only actively discourages production and increases the financial burden to be covered by transfers from the State itself.

The historical setback sets a terrible precedent for the arrival of foreign direct investment in the country, the dynamism of local investment, and the capitalization of one of the most important sectors of the Mexican economy.

The Mexican Institute for Competitiveness A.C. (Imco) denied that the country had completely nationalized the electricity sector.

However, given the State already controls most of the system, the impact on the private sector is much heavier and more significant than in other Latin American economies.

President López Obrador’s energy reform determined a special and privileged position for the Federal Electricity Commission: all energy-related private projects must be associated with this state entity to operate or through the state-owned oil company PEMEX.

The direct participation of the State in energy increased markedly, but so did the intensity of regulation of the private sector.

With information from La Derecha Diario