Chinese takover of Empresarios Agrupados and Ghesa: pursuing domestic nuclear goals through FDI

• Spain-based Empresarios Agrupados and Ghesa were acquired by China Energy Engineering Group Planning & Engineering for 78,3 million euro in 2020;
• The acquirer is the world 12th largest contractor in the energy plant construction field, and is fully state-owned, with a registered capital of 3,37 billion euro;
• Energy, security and efficiency is among China’s current key ambitions, as per the current 5 year-plan, and the development of the nuclear sector is a crucial step in envisioning the goal;
• However, the Foreign Investment Negative List hinders foreign construction and operation of nuclear power plants in China.

The acquisition of the engineering design companies Empresarios Agrupados Internacional (EAI) and Ghesa by China Energy Engineering Group Planning & Engineering Co., Ltd (CPE) was concluded on 21st January 2020, constituting one of the largest Chinese takeovers of construction companies in Spain, with a transaction value of 78,3 million euro.

CPE purchased 100% equity in Empresario Agrupados and Ghesa from the two companies’ original shareholders, namely Naturgy Engineering (75.8%), Iberdrola Ingeniería y Construcción (75.8%) and Técnicas Reunidas (48.4%). The Chinese engineering company is now the sole and full owner of the two Spanish firms.

Both the target and the acquirer’s main activities revolve around the design and construction of nuclear plants, thermonuclear plants, renewable energy production and energy business in general, with a special focus on nuclear power. Due to their technical expertise in power facilities and infrastructure construction, both targets are two relevant actors in the Spanish nuclear power sector, from which one-fifth of the country’s total electricity derives.

The acquirer, China Energy Construction Group Planning and Design Co., Ltd. is a company conglomerate established in 2018 and headquartered in Beijing. CPE’s ownership structure reveals that it is owned by China Energy Engineering Group Co., Ltd., a Chinese public company, of which 99.53% shares are held by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), with a registered capital of 3,37 billion euro. The Chinese parent company of the acquirer, also known as Energy China Group, is regarded as one of the main construction company conglomerates in the world, ranking 12th among all the other contractors in the field worldwide.

Due to the tight linkage with the State Council and its business scope both in China and globally, the acquirer’s business activities are at high risk of being geared towards broader national ambitions. As seen by CPE’s commitment to efficient production targets, Chinese state-owned enterprises (SOEs) are key for the implementation of the country’s industrial policies. In fact, the existence of a broad range of SOEs in target sectors are a means through which the Chinese leadership can nimbly put into practice formal objectives, both at the country and local level. Therefore, CPE’s outward investments into Europe are indicative of Chinese ambitions in the energy and power sector.

By observing Chinese investment flows into Europe, trends in acquisitions of Chinese SOEs become visible. SOEs appear particularly interested in the European energy sector; relevant investments have been made into renewables and, for the European countries which allow its production and storage, into nuclear power sector.

The transaction at hand is not a stand-alone event. In fact, Chinese outward investments into relevant European energy suppliers have also been registered in Portugal, with Chinese Three Gorges’ purchase of a 23% stake in Portugal’s largest utility EDP-Energias de Portugal.

This trend in acquisitions is consistent with recent statements released by the Chinese leadership relating to the energy sector and with the country’s internal challenges. Forty decades of fast-paced development have granted China the status of the second-largest economy in the world and made it become a global infrastructure giant.

To date, China has focused its production capacity on the energy-intensive heavy industry, which led to growing electricity demand, and subsequently resulted in an enormous carbon footprint.  At present, China accounts for almost two-thirds of the growth in global CO2 emissions. In this context, President Xi Jinping stated that China would strive to be carbon neutral by 2060 by reaching CO2 peak emission by 2030.

Apart from environmental concerns, China’s energy transition is also driven by increasing attention to energy self-sufficiency, as stated in the 14th five-year plan. Chinese leadership is increasingly concerned about being able to maximize its electric energy production, make up for power shortages, and ultimately free itself from the consistent import of natural gas and crude oil.

In both the attempts of neutralizing coal emissions and improve energy security, nuclear power plays an important role in China, as the nation is also committed to becoming a prominent player in the international nuclear market.

Building know-how and relevant technology in the field of electric power production has been a historic central ambition and challenge for China. Since China’s opening-up in 1979, technology in electric energy production has been absorbed from France, Canada, and Russia.  For example, the French-based Electricite de France is a rare and highly important foreign investor in nuclear energy production in China, due to its participation in the construction and operation of two reactors in the country.

Nevertheless, by further investigating into EU-China bilateral investments into the energy sector, concerns about the balance of the level-playing field still arise. The new Chinese Foreign Investment Law (2020) and negotiations on the EU-China Comprehensive Agreement on Investment (CAI) have lifted some limitations on foreign investment into China. However, nuclear power production remains a sensitive item in which foreign entry is strictly scrutinized.

The Negative list of foreign investment in China, currently states that“Chinese control is required for investment by foreign investors in building or operation of nuclear power stations.” The same cannot be said for the reverse case. As seen from the acquisition of the two Spanish companies, China is increasingly present in the EU nuclear sector and, given its current ambitions on energy transition, we expect its footprint to increase in the coming years.