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Mexico is set to buy 13 power plants currently operated by Spain’s utility major Iberdrola in a deal worth some $6 billion.
The purchase, Reuters reports, is part of the Lopez Obrador government’s ambition to return control over Mexico’s electricity market to government hands.
In a video, President Andres Manuel Lopez Obrador said the deal will give state-owned utility Comision Federal de Electricidad majority control over the Mexican electricity market and called it “a new nationalization of our electric industry."
Mexico’s government has been on the nationalization path since coming into office. This has led to growing tensions with the United States, which has repeatedly warned its southern neighbor to open up its market instead of closing it to private businesses.
What the Lopez Obrador government has been doing is essentially reversing as many policies introduced by the previous government as possible. This has naturally caused an outcry in international business circles as their access to potentially lucrative projects in Mexico, including oil and gas but also wind and solar, as well as power plant operation, has shrunk.
This has created uncertainty and the potential for an acceleration in the outflow of investment. International law firm White & Case last year wrote in a report that electricity and mining are among the most vulnerable industries to stringer government control.
“The Mexican energy sector is roiled by an environment of uncertainty and regulatory brakes to execute new and ongoing investments. Potential damage to existing foreign investments in the electricity and mining sectors could result from the amendments to the Electricity Law, the Lithium Mining Reform, and secondary regulations,” the report said.
No wonder then that Iberdrola has considered it wise to reduce its exposure to the Mexican market with the power plant deal, which is expected to be finalized in five months.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com