Brazil Taps China’s State Grid for Energy Project

From Wall Street Journal

By Wayne Ma

State Grid Corp. of China said it was chosen by the Brazilian government to build a power transmission project for 910 million reais ($438 million), marking its latest effort to invest in Brazil and elsewhere abroad.

State Grid, by far the largest of China’s grid operators by capacity and reach, said on Wednesday that the company and its local partners won the Brazil license last week to build and operate a set of power lines and substations that will transmit energy from Belo Monte to Brazil’s south and southeastern states.

The project includes a 967-kilometer, or 600-mile, transmission line. Once completed, State Grid said, it will operate a total of 9,931 kilometers, or 6,170 miles, of transmission lines in Brazil.

Brazil has been a target market of State Grid as it seeks assets abroad. Such investments can provide higher returns compared with similar projects in China. Like many state-controlled companies, State Grid is heavily regulated by Beijing, which worries about the impact of passing on higher power prices to consumers and businesses.

State Grid aims to more than quadruple its overseas assets from $8 billion to at least $30 billion by 2020, company general manager Liu Zhenya said in November. Overseas investments would account for 10% of the company’s assets by the end of this decade, up from 2% currently, he added.

The company is seeking to invest $5 billion in Brazil over the next five years, focusing primarily on transmission and generation, its chief executive, Cai Hongxian, said earlier this year.

State Grid won the license along with minority partners Companhia Paranaense de Energia, CPLE6.BR -1.92% or Copel, and Furnas Centrais Eletricas SA. Copel is controlled by the government of the southern state of Parana, while Furnas is a unit of federally controlled utility Centrais Eletricas Brasileiras SA, ELET6.BR +0.20% or Eletrobras.

The project will have first-year allowable revenue of 100 million reais, State Grid said in a statement on its website, meaning its revenue would be capped at that level. It includes the 500-kilovolt transmission line as well four 500-kilovolt transformer substations.

In May, State Grid said it would buy seven high-voltage electricity transmission distributors in Brazil from Spanish construction firm Actividades de Construcción y Servicios SA ACS.MC +0.08% and its subsidiaries for 1.86 billion reais, including debt. That deal was State Grid’s second major investment in Brazil after it bought seven electricity transmission distributors in 2010 for $989 million.

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