State Grid Corporation of China Eyes Equity Acquisition in Major German Power Grid Operator

On Feb­ru­ary 9, 2018, Ger­man grid oper­a­tor, 50Hertz Trans­mis­sion GmbH, endorsed a 20% stake acqui­si­tion in the com­pa­ny by the state-owned State Grid Cor­po­ra­tion of Chi­na.  Accord­ing to sources, State Grid would pur­chase this share from cur­rent share­hold­er, Aus­tralian invest­ment fund, IFM Investors, which owns 40% in the Ger­man com­pa­ny.  IFM’s stake is present­ly held via a joint ven­ture with Bel­gian grid oper­a­tor, Elia, which owns the remain­ing 60%.  The joint ven­ture oper­ates under the name, Euro­grid Inter­na­tion­al SCRL

IFM has report­ed­ly giv­en Elia the right of first refusal on the pur­chase of the 20% stake.  Pub­lic spec­u­la­tion is that, if Elia fails to exer­cise this option, State Grid could com­plete the acqui­si­tion by this sum­mer.  As one of the four pri­ma­ry Ger­man pri­vate pow­er trans­mis­sion oper­a­tors, 50Hertz ser­vices approx­i­mate­ly 18 mil­lion cus­tomers pri­mar­i­ly locat­ed in north­ern and east­ern Ger­many, includ­ing Ham­burg.  This part of the pow­er grid is close­ly con­nect­ed to neigh­bor­ing coun­tries, the Czech Repub­lic, Poland and Den­mark.

Indus­try group, Grid Devel­op­ment Plan, describes the impor­tance of 50Hertz and the pow­er grid oper­a­tors as, plan­ning and main­tain­ing “Germany’s ultra-high volt­age grid” and reg­u­lat­ing its grid oper­a­tions.  They are “respon­si­ble for the secu­ri­ty and sta­bil­i­ty of the Ger­man pow­er sup­ply sys­tem” and “must guar­an­tee the unin­ter­rupt­ed exchange of elec­tric­i­ty across all regions using their pow­er lines and also ensure that gen­er­a­tion and con­sump­tion lev­els are bal­anced at all times.”

In August 2016, Australia’s Depart­ment of Trea­sury blocked the sale of con­trol­ling shares in Aus­Grid (Australia’s largest elec­tric­i­ty dis­trib­u­tor) to State Grid and anoth­er Chi­nese firm, Cheng Kong Infra­struc­ture Hold­ings.  Reg­u­la­tors cit­ed nation­al secu­ri­ty con­cerns as a pri­ma­ry fac­tor behind its deci­sion, with numer­ous alle­ga­tions that State Grid had close ties to the Chi­nese gov­ern­ment, its mil­i­tary-indus­tri­al com­plex, and intel­li­gence ser­vices.  The com­pa­ny is also report­ed­ly a con­trac­tor to the Chi­nese People’s Lib­er­a­tion Army (PLA) and is among those com­pa­nies that have had a Com­mu­nist Par­ty lay­er of deci­sion-mak­ing author­i­ty offi­cial­ly added to its cor­po­rate char­ter.

Accord­ing to the Epoch Times, “…one of State Grid’s sub­sidiaries is the Chi­na Elec­tric Pow­er Research Insti­tute in Beijing…is a key tester of mil­i­tary enter­prise prod­ucts [and] research­es and applies for patents with the [PLA] Research Insti­tute of Chem­i­cal Defense.”  The affil­i­at­ed State Grid Elec­tric Pow­er Research Insti­tute also report­ed­ly car­ries out joint research with the PLA’s Uni­ver­si­ty of Sci­ence and Tech­nol­o­gy and equips the PLA Air Force.

Inter­est­ing­ly, in Sep­tem­ber 2016, Belgium’s State Secu­ri­ty Ser­vice warned Brus­sels against a poten­tial equi­ty acqui­si­tion by State Grid in Ean­dis, a lead­ing ener­gy dis­tri­b­u­tion com­pa­ny in the coun­try.  In that case, intel­li­gence author­i­ties cit­ed sim­i­lar con­cerns as those expressed by Aus­tralian pol­i­cy­mak­ers.  The deal, how­ev­er, ulti­mate­ly went through, as have oth­er sig­nif­i­cant State Grid invest­ments in Europe, includ­ing, for exam­ple in Greece (the sec­ond largest invest­ment in the coun­try since the bailout).

The response from Ger­man reg­u­la­tors to State Grid’s impend­ing acqui­si­tion of 50Hertz remains unclear, although, sources close to the deal indi­cate the com­pa­ny is lob­by­ing heav­i­ly to receive polit­i­cal back­ing and approval.  Berlin has recent­ly tak­en steps to for­ti­fy its screen­ing mech­a­nisms for sen­si­tive for­eign takeovers.