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China Buys Into Portuguese National Power Company, Politicians Aghast

By John Daly | Wed, 08 February 2012 23:42 | 1

In the capitalist dog eat dog world, financial distress is an opportunity for those flush with cash.

The Portuguese economy, hammered by soaring debt, has led the government to attempt to reduce it by selling off investments in Redes Energeticas Nacionais, SGPS, S.A. (National Energy Network, formerly Rede Electrica Nacional, S.A., or REN), which in 2007 received a 50 year concession to operate Portugal’s national electricity transmission grid.

China's State Grid International Development Ltd. and government-owned Oman Oil Company SAOC will buy a 40 percent stake in REN for a combined $778 million. China's State Grid International Development Ltd. is paying $573 million for a 25 percent stake in REN, while Oman Oil Company SAOC is paying $205 million for a 15 percent share.

Why is Portugal putting such a strategic asset up for sale?

Easy – dictates from Brussels. Portugal is privatizing some state companies to comply with the terms of a $102 billion EU bailout that it received in 2011, with the revenue earmarked to help pay off some of the country’s huge debts.

But the REN purchase is only China’s latest foray into energy sectors of the Portuguese economy.

In November 2011 Chinese government-owned oil company China Petroleum and Chemical Corp., or Sinopec, acquired a 30 percent stake for $4.8 billion in Lisbon-based Galp Energia SGPS, S.A.’s subsidiary company Petrogal Brasil, which prospects for oil in Brazil. The following month China Three Gorges (CTG) won the bidding for the Portuguese government's 21.35 percent stake in Energias de Portugal SA (Portuguese Energy Company, or EDP) with an offer of $3.5 billion,

With the Chinese purchase in REN, Chinese capital has become the largest foreign investor in Portuguese companies, investing in all a total of $8.61 billion. These figures mean that China has now overtaken Angola as the main foreign investor in Portuguese companies.

Nor has China's appetite for Portuguese businesses yet been sated, as CTG has promised to invest another $5.3 billion in the EDP by 2015, in particular into its renewable energies sector, while China has pledged to invest as much again into the broader Portuguese economy, which currently desperately needs the liquidity.

Farther down the road, China’s apparent interests include Portugal's banks and ports. Beijing has already expressed its interest in increasing its share in Banco Comercial Portugues (Portuguese Commercial Bank, BCP), as well as in investing in a new start-up bank.

As for China’s interest in Portuguese ports, particularly the deep-water Sines facility on southern Portugal’s Atlantic coast, it is easy to see the importance that it would acquire in connection with Chinese exports to Europe, especially after the Panama Canal’s widening is completed, which will allow the transit of huge container-carrying cargo.

Not all Portuguese politicians are happy with China’s largesse. During a 3 January Assembleia da Republica (Parliament) debate, Bloco de Esquerda (Left Bloc) Francisco Louca pointed to Partido Social Democrata (Social Democratic Party) leader, Prime Minister Pedro Manuel Mamede Passos Coelho and thundered, "You yourself can say it is a success, but no state with honor would dare to do such a thing. To sell to the People's Republic of China total control of the production and distribution of Portugal’s energy is economic stupidity and a strategic mistake. Yesterday saw the almost complete privatization of the energy sector in Portugal. In effect, Portugal handed over to a foreign state, China, all production and distribution of electricity in the country. You said that honor is not going around with one’s hand out? Honor is not delivering to a foreign interest what is in  the interest of the Portuguese economy."

In a brief reply, Coelho said that Louca accused the government of preparing to sell REN and EDP for “peanuts,” which was not the case, so Louca lost face “as he was wrong in his prophecies.”

By. John C.K. Daly of Oilprice.com

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  • donald wong on February 11 2012 said:
    The Chinese paid for this investment with money they just printed. It is paper money they gave for a real asset. Should have bought from the US with money they just printed since we have more paper than they.

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