snapshots

Chile: Santiago Approves China's Latest Electricity Utility Purchase

3 MINS READMar 16, 2018 | 17:18 GMT
The Big Picture

As the world's technology and trade requirements evolve, countries are positioning themselves for an expected rise in the use of electric vehicles. Stratfor's 2018 Second-Quarter Forecast highlighted the rising demand — particularly from China — for materials such as lithium and cobalt that are used in the batteries of such vehicles. As anticipated in Stratfor's forecast, South American countries such as Argentina and Chile have found themselves ideally positioned to court Chinese investment in related sectors.

Chinese investment energy has found a focus on South American electricity. On March 15, power company China Southern Power Grid confirmed it had received authorization to purchase 27 percent of Chile's largest electricity transmission system. The Chinese power company paid $1.3 billion to Canadian company Brookfield Asset Management Inc. for a stake in the Chilean electricity company Transelec SA, which operates just under 10,000 kilometers (6,213 miles) of electricity transmission lines and controls around 85 percent of Chile's market. And this purchase is far from the only move Chinese power companies have made in the region's electricity systems.

In the past three years, Chinese companies have increased their investments into energy sectors of Argentina and Brazil. During that time, for example, Chinese power companies have spent more than $20 billion in purchasing over 20 electricity assets in Brazil. And in Argentina, a recent media report said that state-owned State Grid Corporation of China had received permission to purchase a stake in Argentina's largest electricity transmission line company, Transener.

Chinese firms have also expressed interest in purchasing Brazil's largest power company, Electrobras, which will likely be privatized on May 4. The Brazilian government still needs to approve the privatization bill, but the legislation has so far managed to achieve enough congressional support. In Chile, meanwhile, Chinese investments in the country's power sector could help ensure China has reliable access to power for mining operations, as well as for battery manufacturing and processing plants.

China is Chile's main trade partner, and around 80 percent of Chile's exports to China come in the form of mining products such as copper ore. Chinese firms are rumored to be interested in buying 32 percent of Chile's largest private lithium company, SQM. However, the Chilean government is planning to block such sales to Chinese firms as it would give Beijing an enormous advantage in the race to secure natural resources necessary for developing electric vehicles. Though many South American countries will be able to benefit from Chinese investment, governments will likely be careful to avoid handing the country monopolies in key areas.

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