Power Grab

China’s renewed bid for power grid network 50Hertz worries Berlin

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Grid goodies. Source: DPA

Chinese state grid operator SGCC is making a fresh attempt to buy a 20 percent stake in German high-voltage energy network 50Hertz after a prior attempt failed in March, Handelsblatt learned.

50Hertz is one of Germany’s four high-voltage power network operators and the German government is getting increasingly jittery about the growth of state-sponsored Chinese investments in strategic industries such as power and telecoms. So Berlin isn’t happy at the prospect of SGCC owning a big stake in it.

The State Grid Corporation of China, the world’s largest utility, was beaten in March by Belgium’s Elia, which bought 20 percent from Australian infrastructure fund IFM Investors and raised its stake to 80 percent. The Belgians ended up paying just under €1 billion ($1.18 billion) for the 20 percent stake, a great deal for IFM. Industry sources said it paid just a sixth of that for the stake in 2010.

But now IFM has put its remaining 20 percent tranche up for sale and insiders doubt that Elia will buy it. The firm was already reluctant to go for the one sold in March because the Chinese counter-offer was high. “Money doesn’t matter to SGCC. Bidding against that is expensive,” said one person familiar with the matter.

Money doesn’t matter to SGCC.

Back then, the German government worked to prevent the deal, nudging majority-owner Elia to exercise its right of first refusal. In theory, Elia could do so again this time, but it’s unclear if it will.

China’s new foray into a key German industry is putting pressure on Economics Minister Peter Altmaier to come up with a response and will likely fan debate in Germany about whether the government needs more powers to curb the influence of non-EU investors in critical sectors.

Current law allows the government to block an investment from a non-EU country under certain conditions, but only if the investor wants to buy 25 percent or more. So in the case of 50 Hertz, there’s not much Berlin can do.

Mr. Altmaier has said he wants to review the law. But it’s tricky: merely reducing the stake threshold may not work as investors tend to find imaginative ways around that. Besides, any change would probably come too late for 50 Hertz as the deal will probably be done in the next few weeks.

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SGCC, which was ranked as the world’s second-largest company after Walmart in the Fortune Global 500 index of 2016, has been vague about why it wants the stake in 50Hertz.

Chief engineer Zhang Qiping told a recent German delegation visiting SGCC’s “High Voltage Testing Base” near Beijing that the Germans were more advanced in some technical areas such as integrating renewable energy into the power grid. “The wind forecasts are more accurate,” he told representatives from the BDI German industry foundation and Acatech, Germany’s National Academy of Science and Engineering.

50Hertz together with fellow German grid operators Amprion, Tennet and TransnetBW will invest billions of euros in expanding the German power grid in the coming years, building lines capable of shifting renewable power from the windy north to the industrial south and west in the next phase of Germany’s green energy revolution.

The problem is that SGCC, which employs some 900,000 people and has stakes in firms in South America, Australia, the Philippines, Italy, Portugal and Greece, doesn’t just run grids — it also provides power equipment for network operators via its subsidiary Shandong, which could end up getting an unfair advantage in future contracts put out to tender by 50Hertz, say rivals.

“Shandong would get all the relevant technical and business information from its parent SGCC to beat out rival bidders,” said one industry insider. That could prompt competitors to lodge complaints, the source added.

SGID, SGCC’s foreign investments unit, rejected that accusation. SGID and Shandong “are two independently operating units,” SGID said in response to an inquiry. SGCC didn’t even know all the details of Shandong’s activities in Europe, so that speculation was “not correct.”

Klaus Stratmann covers energy policy and politics for Handelsblatt in Berlin. To contact the author: stratmann@handelsblatt.com

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