The “securitization” of the European energy sector, amplified by the Russia-Ukraine war and the interruption of the natural gas supplies from Russia to Europe, has become a priority item on the agenda of European policymakers and regulators. Unlike its energy relations with Russia, which focused on energy imports, the EU-China relations in the field of energy primarily concern bilateral investments as well as global cooperation in the efforts to address climate change and sustainable development.
Several concerns were identified by European stakeholders in relation to Chinese investments in the European energy sector. These include among others: (1) the exporting of state distortions from China’s economic system to European markets; (2) China’s industrial policies targeting technology acquisition to win control over the most profitable nodes in the global supply chains; (3) the lack of reciprocity for European FDI in China; (4) national and public security considerations over foreign control of critical infrastructure; and (5) increased political leverage over certain investment-hungry Member States.
The Chinese outward FDI in the energy sector, including the EU-bound, pursued a multitude of objectives ranging from the transformation of the Chinese energy companies, primarily state-owned enterprises (SOEs), into truly global market players and the expansion and integration of their supply chains to the acquisition of technology and know-how owned by the European firms. Among the notable energy-related investments was China’s state-owned Three Gorges Corporation (TGC) acquisition of a 22% stake in Energias de Portugal S.A. (EDP). This investment was motivated inter alia by the technology transfer and the possibility to enter overseas energy markets due to EDP’s extensive worldwide presence in renewable energy projects, including wind and solar parks as well as hydropower projects.
There have also been a number of unsuccessful attempts to acquire stakes in the European energy infrastructures: the TGC’s attempt to become a majority shareholder in EDP; CEFC China Energy Company’s bid for the construction of nuclear reactors in Czechia; the CNNC’s bid for the majority share of the Slovak electricity producer Slovenské elektrárne; the bid for the Cernavodă nuclear power plant and hydro-electric plant at Tarniţa in Romania, etc. In 2016, when China’s State Grid Corporation attempted to invest in the Belgian regional energy network Eandis, the city of Antwerp opposed the transaction due to the concern about the maintenance of lower electricity tariffs for consumers. In 2018, the State Grid abandoned an attempt to acquire the German energy company 50Hertz after the federal government moved to acquire control over the target company due to security concerns. Likewise, the Chinese nuclear power company Yantai Taihai abandoned its attempt to acquire the specialized equipment manufacturer Leifeld Metal Spinning as the German government objected because of security concerns.
While the above-mentioned examples received certain prominence due to the media reporting and the importance of the companies and infrastructures involved, the overall landscape of the Chinese investments in the European energy sector remains to be clarified as currently there are no EU-wide reporting requirements. The situation can be exemplified by the following exchange between a member of the European Parliament and the European Commission. In 2021, an MEP inquired of the Commission whether the latter can “give an overview of Chinese investments and interests in European strategic infrastructures such as ports, airports and container terminals” and asked, “how will the Commission set about obtaining it as soon as possible, given the strategic importance thereof?”. In its reply, the Commission acknowledged that it “is not in a position to give an overview of Chinese investments and interests in European infrastructures such as ports, airports and container terminals. Although the Commission is often aware of such investments, there is no obligation for Member States to report the presence of foreign investors in their territory.”
In the absence of the EU-wide reporting requirements that would be specific to the energy sector, the mergers and acquisitions of Chinese companies have occasionally featured in the EU merger control – competition-based scrutiny of the economic concentrations that reach a “Community dimension” expressed in the turnover realized by the companies involved on the EU internal market. Up to date, most such cases reviewed by the Commission under the EU Merger Regulation (EUMR) concerned the petroleum extraction sector, in which the Chinese national oil companies (China National Petroleum Corporation, PetroChina, Sinopec and China National Offshore Oil Corporation) entered into joint ventures with foreign multinationals to explore fossil fuel resources.
In 2016, the Commission examined the proposed joint venture of the China General Nuclear Power Corporation (CGN) and Électricité de France S.A. (EDF), establishing a group of companies for the purpose of building and operating three nuclear power plants in the United Kingdom (Hinkley Point, Sizewell and Bradwell). The case is notable for its assessment of the State-Owned Assets Supervision and Administration Commission, a central government authority exercising shareholder’s rights in the largest state-owned enterprises. The Commission stated that, due to “the fact that Central SASAC can interfere with strategic investment decisions and can impose or facilitate coordination between SOEs at least with regard to SOEs active in the energy industry, the Commission concludes in the case at hand that CGN and other Chinese SOEs in that industry should not be deemed to have an independent power of decision from Central SASAC.” This conclusion created a precedent for treating Chinese SOEs as a “single economic unit” thus assuming that they are capable, both de jure and de facto, of coordinating their market practices, which will be relevant for prospective assessment of competitive conditions on the relevant markets for the purposes of merger control.
At the same time, it should be noted that the EU merger control applies only to mergers and acquisitions that reach the “Community dimension,” which leaves a significant number of investments, such as acquisitions of non-controlling shareholdings subject to the national regulatory frameworks. The substantive assessment under the EUMR is focused exclusively on competition issues and does not account for other concerns such as security risks or the competitiveness of European companies on global markets. Exceptionally, Article 21 EUMR allows Member States to intervene with mergers and acquisitions examined by the Commission to protect certain “legitimate interests,” including public security, plurality of the media and prudential rules. Such interventions, however, were rare in practice as the Commission and the Court of Justice of the EU exercised stringent review of the Member States’ measures interfering with the mergers of the “Community dimension” in order to safeguard free movement of capital and freedom of establishment within the internal market.
To effectively address potential security risks associated with foreign investments and acquisitions, in 2019, the EU adopted the FDI Screening Regulation, which established an EU-wide cooperation mechanism for screening FDI from third countries into the Union. The economic disruptions in production and supply chains during the COVID-19 pandemic, as well as the Russia–Ukraine war, have accelerated the process of adopting or expanding the national FDI screening legislation by the Member States. The Regulation includes a number of factors that may be taken into consideration during the FDI screening. The list includes the energy infrastructure and critical technologies related to energy storage as well as energy as a critical input (e.g., electricity). It also allows the Commission to monitor the FDI into the “projects or programs of Union interest,” including the Trans-European Networks for Energy: electricity corridors (Northern Seas offshore grid, North–South electricity interconnections in Western Europe, North–South electricity interconnections in Central Eastern and South Eastern Europe and Baltic Energy Market Interconnection Plan in electricity) and gas corridors (North–South gas interconnections in Western Europe, North–South gas interconnections in Central Eastern and South Eastern Europe, Southern Gas Corridor and Baltic Energy Market Interconnection Plan in gas).
In the past, government interventions in energy sector investments on security grounds occurred primarily in the fields of exploration, production, transmission, and supply of energy. The contemporary investment screening has widened the range of activities in the energy sector that warrant additional scrutiny for possible security risks. Furthermore, the focus of the investment screening has shifted from traditional concerns, like energy security and stability of the supply, to the protection of critical technologies, which are becoming increasingly important as the EU embarked on the transition to “greener” energy production and consumption.
The focus of the security screening has also been shifting away from merely ascertaining the ultimate ownership/control of the foreign investor toward a more comprehensive assessment of the security risks related to the target company/technology/input. In its first annual report on the enforcement of the EU FDI Screening Regulation, the Commission noted that the “data on State influence depends on the reconstruction of ownership links among subsidiaries, sometimes very difficult for Chinese companies. Those companies often use offshore subsidiaries to enter the EU, with little or no information on the links with Mainland China, or have complex nested structures.” According to the Commission’s second annual FDI screening report, only 11% of transactions notified for screening have entered Phase II assessment, which suggests the presence of security concerns. However, due to the confidentiality of the screening process, it is not possible to identify transactions that are undergoing screening or to ascertain the security concerns raised by the screening authorities.
Alexandr Svetlicinii is the co-director of the Academic Society for Competition Law (ASCOLA) South East Europe
