Defying U.S., Mexico's "second nationalisation" of electricity moves forward
April 8, 2023
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Defying U.S., Mexico's "second nationalisation" of electricity moves forward

On Tuesday, the Mexican Government signed an agreement to purchase 13 power generation plants from the Spanish multinational Iberdrola. Purchase turns the State Company into a majority owner in electric energy generation in Mexico.

Reclaiming CFE

President Lopez Obrador (AMLO) and Iberdrola CEO Ignacio Galán in the televised announcement.

Three weeks after hundreds of thousands mobilised to mark 85 years since the expropriation of oil by former Mexican President Lazaro Cardenas, the federal government announced it is purchasing 13 electric energy generation plants owned by the Iberdrola for nearly USD $6 billion. The 13 plants represent 8,539 MW of installed capacity, with 8,436 MW corresponding to combined cycle gas and 103 MW to wind. Altogether, the purchase represents 77% of Iberdrola’s installed capacity in the country, although the Spain-based multinational would remain the main private generator of renewable energy in Mexico.

While many details are yet to be made public around the financing structure, according to the finance ministry, a new trust fund managed by Mexico Infrastructure Partners (MIP) will own the power plants, with a majority of its capital sourced primarily by Fonadin, the public infrastructure fund of Mexico. The federal power utility, Comisión Federal de Electricidad (CFE), will operate the plants.

"This means, without exaggerating (...), the rescue of the CFE and is a new nationalisation of the electricity industry. Most important of all, in this way, we guarantee that electricity prices will not increase for consumers, as has been the case in the last four years,” said President Andrés Manuel López Obrador (AMLO). “In other words, the CFE becomes the majority company. If we add to this that final plants are being built, hydroelectric plants are being rehabilitated with new turbines, all under the CFE, we can affirm that the Mexican state will maintain around 65 per cent of all energy generation at the end of the six-year term,” added AMLO in Tuesday’s televised announcement.

“The CFE is the only company with permission to commercialise electricity. The CFE had to buy electricity from these 13 Iberdrola plants in order to sell it. Today, we will no longer need this intermediation,” said Rocío Nahle, Secretary of the Energy Ministry (Sener). “The Mexican people are therefore favoured because we are able to sustain affordable electricity costs. In Mexico, we are the country with the lowest energy rates in the OECD because we have an energy policy that the President reviews daily, and with PEMEX, CFE, it allows us to have rates below inflation,” she said.

A Cornerstone of the MORENA Government

The current MORENA government has been working to reclaim public control over Mexico’s energy resources, and AMLO campaigned on plans to restore the country’s energy sovereignty. Throughout his administration, the government has taken measures to restore PEMEX and CFE as preeminent public institutions.

In October 2022, AMLO unveiled a sweeping energy reform bill that included nationalising Mexico's lithium reserves

In early 2019, AMLO postponed the scheduled renewable energy auctions, thus imposing an indefinite moratorium on new private wind and solar projects. AMLO has also called for the nationalisation of lithium and the creation of a publicly controlled national lithium company (modelled after CFE) that would control lithium extraction, processing, and commercialization.

In April 2022, four years into his mandate, the AMLO administration suffered its biggest political blow when the proposed electricity reform failed to pass with a two-thirds majority in Congress. The reform sought to re-bundle CFE and reverse the previous administrations’ liberalisation of the electricity sector, resulting in an increased share of Mexico's energy produced by private companies. Rocío Nahle, Secretary of the Energy Ministry (Sener), stated, “At the end of the day, the business belonged to the private companies, and the CFE did not even become a servant, but altogether subservient," said the head of Sener. Following the defeat, the administration continued strategising alternative routes to build popular support, including trade union mobilizations, for public energy and reclaiming CFE to public ownership.

Not everyone shares the analysis that this negotiation amounts to a form of nationalisation. Luis Rangel, a researcher at the progressive labour research centre CILAS offered another perspective. “Although it is a positive step in the sense of public strengthening of energy generation, it is far from being considered a "new nationalisation," he said. “Although the plants will be managed by the state company CFE, the ownership will not be completely public but mediated by public-private participation organisations, such as the Mexico Infrastructure Partners (MPI). Meanwhile, for an undetermined period of time, the profits generated by the plants will continue to accrue to Iberdrola until the agreed cost is fully met, by the way, not in a formal purchase and sale agreement, but in a "memorandum of understanding", a legal figure that does not even bind the parties to its fulfilment,” said Rangel.

The Mexican Electrical Workers Union (SME) will issue their public statement on the Iberdrola purchase next Tuesday. We’ll be sharing it on TUED’s social media.

“One Final Offer”

The US and Canada have long claimed that AMLO’s energy policies disadvantage U.S. firms in favour of Mexican state-owned power utility Comision Federal de Electricidad (CFE) and oil producer Petroleos Mexicanos (Pemex), thereby "undermining" international firms and cross-border supplies in violation of the USMCA.

In October 2020, in an effort to undermine AMLO’s initial energy reform efforts, over 40 U.S. Congress members, including 11 House Democrats, sent a letter to former President Trump, stating that MORENA's actions went against the USMCA's spirit.

Two years later, in July 2022, the US and Canada requested dispute settlement talks with Mexico, opening a path under USMCA rules to request a dispute resolution panel. If Mexico were to lose the ruling and fail to take “corrective action,” it could face billions of dollars in retaliatory tariffs from Washington and Ottawa.

In January 2023, the Biden administration escalated the situation, announcing an ultimatum. The Office of U.S. Trade Representative Katherine Tai has pressured Mexico to make “one final offer” to open up its markets and agree to more supervision.

La oposición en Cámara de Diputados apaga la reforma eléctrica de AMLO
Opposition members in the Chamber of Deputies during the April 2022 voting around the energy reform. Signs read "It will not pass" and "Clean Energy Above Everything"

Since the beginning, claims from the US, Canada, the Mexican opposition, and some environmental sectors have critiqued that the AMLO administration’s energy policies are environmentally regressive. Democratic Party Senator Ron Wyden, chair of the Senate Finance Committee, recently claimed Mexico is “flouting” its USMCA obligations by excluding US renewable energy firms. “Eight months have passed. American clean energy producers are still waiting for access. In my view, it’s long past time to say enough is enough and escalate this into a real dispute settlement case,” Wyden said.

Currently, nearly 40 per cent of the energy generated by CFE comes from clean energy (67 per cent hydroelectric, 24 per cent nuclear, and 9 per cent geothermal, with solar and wind projects underway).

On Tuesday’s televised response, AMLO indirectly responded, saying, “We understand and are respectful of other policies, but we consider that it is very important for our country to maintain public companies such as the Federal Electricity Commission and Petróleos Mexicanos, and we should not bet on privatization in social activities and strategic activities for the people and the nation.” Pointing to an article he inserted into USMCA stipulating Mexico’s “inalienable” ownership of its oil and gas, AMLO asserted, “Everything we are doing in energy is in accordance with the Constitution, with our laws.”

More on Mexico’s Struggle for Energy Sovereignty:

  • In his article Mexico’s Wall of Resistance: Why AMLO’s Fight for Energy Sovereignty Needs Our Support, Sean Sweeney argues: “If AMLO prevails, a pro-public approach to the energy transition, while by no means guaranteed, becomes a distinct possibility. But if AMLO does not prevail, then the neoliberal “privatize to decarbonize” agenda will continue to be pursued in a manner that is socially regressive and ecologically ineffective.”
  • Watch (EN/ES) TUED’s Global Forum “Solidarity With Mexico's Fight For Energy Sovereignty” from April 2022, featuring Walter Julián Ángel Jiménez, General Director of Clean Energies of the Ministry of Energy; Silvia Ramos Luna, Secretary General of the National Union of Technical and Professional Petroleum Workers (UNTyPP); and José Humberto Montes de Oca Luna, Secretary of Foreign Affairs the Mexican Electrical Workers' Union (SME).
  • Watch the April 2023 Webinar: Mexico's New Union Upsurge, organised by Labor Notes, to hear about recent labour law reforms and heroic organising by workers at big multinational employers allowing independent unions to reclaim power.