UPDATE 2. Mexico increases its control over the power market by signing an Iberdrola agreement

(Additional quotes from an analyst or former official)

By Dave Graham

MEXICO CITY (Reuters, April 5, 2005) – Mexico’s President said Wednesday that the government should have control of about two-thirds the country’s power market by 18 months. This is a double endorsement of his promise to give the state primacy in the face of a simmering dispute between foreign investors and Mexico.

Mexico has announced Tuesday that it will buy assets worth $6 billion from Spanish energy giant Iberdrola. This deal is being referred to as “new nationalization”, which would see the state power utility Comision Federal de Electricidad increase its market share to 55.5%.

President Andres Manuel Lopez Obrador stated CFE should control at least 65% and up to 70% of the electricity market by the time his administration ends on Sept. 30, 2024. New power stations will also be added to the mix.

He said, “We’re going on to continue fighting for Mexico,” at a news conference.

Lopez Obrador, a leftist resource nationalist has been involved in disputes over energy for years. The U.S. filed a formal complaint about the trade dispute last year.

Canada and the United States quickly joined the complaint. They say Lopez Obrador’s policies on energy have put their businesses at a disadvantage. The president claims that past Mexican governments have rigged the energy markets in favor of private interests at public expense.

Mexico could face costly sanctions if Canada and the United States call – and win– a dispute resolution panel regarding his controversial energy measures.

Both countries have been open to this option since October. While Mexico claims that talks to resolve their concerns made progress, frustrations are building among U.S. companies.

Lopez Obrador states that CFE must own at least 54% market share.

Jorge Castaneda (a former Mexican foreign minister) said that his recent moves indicate that he wants a monopoly to be as large as possible and to keep pressure on the competition until they sell.

He said that “that’s the message that he’s transmitting to the Americans and Canadians” by arguing that Lopez Obrador, with the Iberdrola agreement, was challenging both countries in an attempt to escalate their trade dispute. They would not do so.

Castaneda stated that the Biden administration was reluctant to upset Lopez Obrador over trade, given the fact that Mexico has not cooperated with Castaneda in containing illegal immigration.

Lopez Obrador acquired Iberdrola assets and had thus strengthened CFE with hard money. It helped to compensate for the reverse in Congress last year, when he was unable to get the votes necessary to amend the law.

Iberdrola shares rose by more than 2% Wednesday morning while Mexico’s peso fell %1, which is below its regional peers.

Analysts stated that the peso losses reflect concerns about the U.S. economy’s outlook. However, some speculated that the Iberdrola deal which ended a turbulent chapter between Lopez Obrador (and the firm) could also be weighting.

James Salazar, a CI Banco analyst said that this was unlikely since Lopez Obrador’s positions in the market were well-known.

He stated that the president had sold it as nationalization. “But that’s just a political statement: it wasn’t the case.” (Reporting from Dave Graham; Additional reporting by Aida Peez-Fernandez; Editing done by Stephen Coates

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