The Acquisition of Empresarios Agrupados and Ghesa

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 so far with a transaction value of 78,3 million euro.

CPE purchased 100% equity in Empresario Agrupados and Ghesa from the two companies’ original stakeholders, 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 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 expertise and technical knowledge 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. Looking at the ownership structure of the Chinese entity, we see 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 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 scope of business both in China and worldwide, we can assume that the acquirer business activities mainly have to be geared towards broader national policies. Being often committed to particular efficiency and production targets, Chinese SOEs are key for the implementation of the country’s industrial policies. In fact, they can be regarded as one of the main mean through which the Chinese leadership can nimbly put into practice formal objectives both at the country and local level. For this reason, CPE’s Outward Investments into Europe could tell us more about Chinese ambitions in the energy and power sector.

By observing Chinese investment flows into Europe, we are able to locate trends in acquisitions of Chinese state-owned enterprises (SOE). We noticed that SOEs seemed 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 issue 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 world infrastructure giant

Up to now, China is leaning solely on the energy-intensive heavy industry which led to growing electricity demand, and that subsequently resulted in an enormous carbon footprint.  At present, China accounts for almost two-thirds of the growth in global CO2 emissions. It is in this context that 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 freshly released 14th five-year plan. China is more and more concerned about being able to maximise its electric energy production, make up for power shortages, and ultimately freed itself from consistent import of natural gas from and crude oil from other countries.

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

Building know-how and relevant technology in the field of electric power production has been and still is one of the main stated goals and challenges for China. Since China’s opening-up in 1979, relevant technology in electric energy production has been absorbed from France, Canada, and Russia.  For example, the French-based Electricite de France is one of the few but most relevant foreign investors in nuclear 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, questions about the balance on 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 scrutinised.

If we have a look at the Negative list of foreign investment in China, we can see that currently “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 we can see from the acquisition of the two Spanish companies, China is more and more present in the EU nuclear sector and, given its current ambitions on energy transition, we expect its footprint to increase in the coming years.