China's hydropower company moving to Brazil's high-end industrial value chain

MEXICO CITY - The Three Gorges Corporation (CTG) of China has recently completed its acquisition of the operation of two Brazilian hydroelectric power plants, Ilha and Jupia, at a cost of $3.7 billion.

The deal closed earlier this month has been CTG's biggest overseas acquisition so far, making the company the second-largest private energy generator in Brazil.

From acquiring a 21.35 percent stake in EDP, a Portuguese power group in Brazil in 2011, to getting concession contracts for hydroelectric power plants this time, the CTG has been continuously expanding its international business and trying to reach the high-end of the value chain in Brazil's hydropower sector.

It also shows that China's hydropower enterprises have evolved from pursuing short-term benefits of subcontracting and construction to a more mature stage marked by mergers and acquisitions (M&A) based on overall strength, and management and operation policies designed for gaining long-term profits.

Decisive funds for cooperation

In October 2015, the Brazilian government announced the tender of operating concessions of Ilha and Jupia, two domestic hydropower plants. Within just 42 days, the CTG won the bid through the financing channel of the China-Latin American Production Capacity Cooperation Investment Fund established last June.

The CTG's operations in Brazil will cover 10 states, taking up an important role in the nation's clean energy sector and contributing to the development of Brazil's hydropower industry and overall economic growth, according to Li Yinsheng, CEO of the CTG Brazil.

"As the largest economy in Latin America, Brazil is endowed with abundant resources, huge market demands, and mature electricity and market systems," Li said. "Investing in Brazil's hydroelectric power projects is of great significance to the CTG."

Four months later, another important fund titled China-Latin American Cooperation Fund was officially launched in early January with an initial injection of $10 billion to support cooperative projects between China and regional countries.

By different mechanisms of fund use, those money will be invested into such areas as energy resources, infrastructure, agriculture, manufacturing, scientific innovation, information technology, production capacity cooperation in Latin America, and cooperative projects between China and regional countries.

Subsequent operation key to investment goals

Getting the concession contracts just represents the early stage of success for Chinese enterprises.