State Grid’s acquisition of Chile’s CGE unlikely to be rejected

While the proposed acquisition by China’s State Grid of Chilean power distributor CGE will face scrutiny by anti-trust authorities, it is unlikely the transaction will be rejected.

Chile’s national economic prosecutor’s office will review the US$3bn deal, with which the Chinese state-owned electric power giant would significantly increase its footprint in the local distribution market.

“The national economic prosecutor’s office is not legally allowed to take into account or resolve issues based on considerations of national interest or public interest that are different from the promotion and protection of free competition,” said national economic prosecutor Ricardo Riesco during a session of the lower chamber’s economy committee. 

His office will only analyze the deal from the perspective of whether free competition principles could be affected, Riesco said.

This could lead the prosecutor’s office to approve the transaction as it stands, greenlight it with certain conditions, or reject it. Riesco added the deal has not yet been officially notified to his office and so the review is yet to begin.

So far, out of 135 deals overseen by the national economic prosecutor’s office, 120 have been approved, 12 approved with conditions and three rejected, suggesting the odds of an outright rejection are slim.

Riesco further added the distribution segment is highly regulated with fixed prices, meaning there is less space for a dominant player to unduly affect the market and hurt consumers through anti-competitive practices.

The chamber’s economy committee is holding a series of meetings on the proposed acquisition with experts.

“We see with concern how a sort of concentration is taking place in the electric power sector in the hands of companies connected to China,” said the committee’s chairman, socialist representative Jaime Naranjo, during a meeting on Monday.

Riesco said that, while it may be desirable for Chile to have other instances where the deal could be analyzed from a national interest point of view, as is standard in other countries, the country does not currently have an agency with the faculties to do so.

If the deal is completed, State Grid will own two of Chile’s four biggest power distributors, and serve 57% of regulated consumers, totaling some 3.74mn clients. It will control all of Chile’s northern distribution network, as well as those in center-south Biobío, Maule and O’Higgins regions.

State Grid also bought local power distributor Chilquinta from Sempra earlier this year for US$2.23bn.

The distribution segment is highly regulated in Chile, with distributors being awarded concession areas where they act as natural monopolies. Prices are set by the energy ministry with help from energy commission CNE.

The country is discussing an overhaul of the sector in three bills. The first, currently in the lower chamber, would open the sector to electric power trading companies offering competing services while using the existing distribution infrastructure, which will still be owned by distributors awarded concession areas.