China enters EU utilities market through Portugal

Portugal conservative government of Mr Passos Coelho is determined to open EU utilities market gate to China. In 2011 China Three Gorges (CTG) was the first company to start the cake. In spite of Angela Merkel support for E.On and Brazilian government’s for Petrobras, CTG got 21,35pc of Portuguese’s EdP capital and management for 2,7 billion euros.

Shortly after, in 2012, Chinese group State Grid got the national electric and gas distribution along with Arab firm Oman Oilm for 600 million euros. Now water distribution and treatment is going also to Chinese hands: Beijing Entreprises Water Group (BEWG), has paid 95 million to French Générale des Eaux (CGE) for Veolia Portugal. So, as we have seen with the Cyprus crisis, the door is open wide for Beijing and closed down to Moscow.

China has a clear aim: not only investing in key sectors of the Portuguese economy such as electricity, water, gas, and probably soon in transportation and banking, but also to the rest of Europe and other parts of the planet. For example, North America’s electricity market, including Mexico, where EdP renewable energies has a big role.

Beijing operation with Veolia Portugal could damage Spanish water companies’ interests. Sacyr and FCC are both looking forward to Aguas de Portugal (AdP) privatization in the next months. The operation was already set for 2012 according to the troika’s 78bn-euro-bailout plan and it should happen this year. Sacyr operates through AGS, controlled 100% by its Portuguese construction company Somague. In the last few years AGS has obtained two dozens of municipal concessions in the country although has not always been welcomed. Thousands of people recently demonstrated against their high rates. FCC has also bet on distribution and water treatment. The company operates through Aqualia.

AdP brings water to 9 out of 10 Portuguese households. Its privatization will definitely be controversial because it depends of several ministries: Economy, Environment and Finance. Thus, it has no margin of manoeuvre in terms of rates, which are established by regulator ERSAR. Its deficit exceeds 400 million euros. The process will be painful and the government knows it. They also have to deal with the public opinion, mostly against the privatization of the water market.