Government Aims for Agreement Over Iberdrola Plant

Earlier this week, controversy arose between the Mexican government and the private sector. Bloomberg News reported that Spanish energy giant Iberdrola planned to cancel a US$1.2 billion power plant in Veracruz. According to local officials, Iberdrola saw the cancellation necessary because it failed to reach an agreement regarding gas supply with CFE. A further reprimand by President López Obrador seemingly sealed the deal. However, Reuters reported that an agreement is still on the table.

It is still uncertain whether the power plant in Tuxpan will be cancelled. Tuxpan’s Mayor Juan Antonio Aguilar said the Spanish company wanted to abandon the project because it had not been able to reach an agreement with CFE for the past nine months. The supply of gas would have been crucial for the power plant, as it concerns a combined-cycle plant, which uses both a steam and a gas turbine to generate energy. Bloomberg News further added that it was not clear whether the lack of an agreement was Iberdrola’s main motivator or it was due to the recent public criticisms on the company coming directly from President López Obrador. In regards to criticisms that Iberdrola owned a substantial chunk of private energy generation in Mexico, the president accused the company of instigating a media attack against his government.

The cancellation of the investment would have been the first large-scale public abandonment regarding energy project development, particularly poignant in light of Iberdrola’s further investment plans, estimated at US$5 billion. Iberdrola had already spent US$40 million on permits and various additional costs. But the project is not off the table: Bloomberg News reported that if an agreement with TransCanada Corp. regarding gas supply could be reached, the plant would remain viable. President López Obrador now suggests that a deal with the government and CFE is a possibility.

Reuters reported that López Obrador used his morning press conference to explain that Iberdrola’s executives had sent him a letter, in which they stressed their openness to continue their investment in Mexico. López Obrador interpreted this as an opening to initiate a discussion between the two parties, instead of taking the cancellation of the power plant as a done deed. “There is going to be an agreement. That is the purpose of this letter: they want to have a discussion. They are even asking to talk to me,” he said. Following this statement, López Obrador explained Iberdrola would first meet with Minister of Energy, Rocio Nahle, and Head of CFE, Manuel Bartlett.