China’s State Grid Plans to Leverage Brazilian CPFL Deal for Expanded South American Footprint

China State Grid, the world’s largest utility, agreed on September 2, to purchase 23.6% of CPFL Energia and is expected to take majority control of Brazil’s largest private electricity sector company in the coming months.

CPFL’s Legal and Institutional Relations Vice President stated “It’s this platform (the CPFL deal) that [China] can use for acquisition in distribution and also in transmission if it wants, not only in Brazil but throughout South America.”  Meanwhile, China State Grid recently had an unwelcome surprise by the Australian government when it blocked the sale of a majority stake in Ausgrid, a large utility in South Australia, for national security reasons.  China State Grid has significant ties to the Chinese military and intelligence services.

CPFL is owned by Camargo Correa, one of the largest construction companies in Brazil, which may itself be acquired by China Communications Construction Company (CCCC).  The Camargo Correa Group has been convicted of corruption, money laundering and other crimes in the construction of the Abreu e Lima refinery, owned by Petrobras.  Some of its Board members have been arrested and it is seeking to sell its construction business assets “due to uncertainties about future investigations.”

China swooped in to pick up these distressed assets, as it has done in other similar scenarios, and use CPFL as the springboard into the region referenced above.  The signing of the CPFL deal was one of nine corporate transactions between companies from the two countries highlighted during the recent meeting between Brazilian President Michel Temer and Chinese President Xi Jinping on the periphery of the G‑20 Summit.  Given Brazil’s economic and political instability, it is especially susceptible to China’s penchant for gaining a strategic foothold in such countries by acquiring critical infrastructure projects.