MENÚ Botón Menú

¿qué estás buscando?

Logo FNE
MENÚ icono

FNE clears State Grid’s acquisition of CGE without conditions

31 / 03 / 2021

The Chilean antitrust agency (Fiscalía Nacional Económica or FNE) cleared unconditionally the acquisition of Compañía General de Electricidad S.A. (CGE) and CGE Servicios S.A. by State Grid International Development Limited (SGIDL).

Following the investigation, which was initiated past February 17, the FNE concluded that the merger would not substantially lessen competition in the electricity generation, transmission and distribution markets, as well as in the non-regulated services associated to distribution or the commercialization of standard distribution transformers (transformers) and compact measuring equipment (ECM).

This FNE carried out a thorough investigation that included requests for information to incumbents in the different industry segments, interviews and an online questionnaire, as well as information provided by sector-specific regulators in the electricity industry.

The company being sold, CGE, is mainly engaged in the transmission and distribution of electricity, with widespread presence in many geographical locations in Chile.

The buyer, SGIDL, is a company controlled by the State-owned Assets Supervision and Administration Commission (SASAC), a state-owned enterprise of the People’s Republic of China. The subsidiaries of SGIDL in Chile participate in the distribution of electricity and regional associated services; and also has activities in electricity generation; transmission; and in the commercialization of materials and technical operations in Chile.

The analysis

The analysis carried out by the FNE included not only the activities of CGE and SGIDL, but also those of the related entities that are part of their respective business groups.

Chile’s merger control regime entrusts the FNE to determine whether, as a result of an acquisition, structural changes could be generated in the market that provide the buyer the incentives and the ability to raise the prices of products or services, decrease their quality, block access or affect other competition variables resulting in consumer harm. Other considerations or public interests, such as geopolitical, national defence and security interests, are excluded from the legal assessment that the FNE is legally mandated to perform when analysing a transaction.

In the case of the electricity generation segment, the FNE’s investigation ruled out an increase in SGILD’s market power given that the buyer have little presence in the segment, as reflected by a small market share. In addition, CGE does not own generation plants in the relevant market.

Likewise, an increase in SGIDL’s market power in zonal transmission –lines that transport energy to supply customers subject to price regulation– was discarded due to its nature of natural monopoly, thus, that transmission companies do not compete, the competitive variables of the segment are strongly regulated and incumbents are subject to the intervention and supervision of the sector-specific regulators. Same arguments allowed to discard the transactions would raise concerns in the electricity distribution segment and associated regulated services.

On the other hand, there were no concerns regarding the bidding processes for new transmission lines since they are public processes, open to local and foreign actors and because SGIDL and CGE are not close competitors in this market.

It was also ruled out that the transaction would  enable the parties to raise prices by affecting the tariff’s definition which is set by the regulator. Additionally, risks in non-regulated services associated to distribution were discarded considering that the activities of CGE and SGIDL have no geographical overlap.

As to potential vertical concerns, the FNE also analysed whether the transaction could generate or increase SGIDL’s market power due to its participation in the different segments of the value chain (such as generation-transmission, generation-distribution and distributed generation-distribution), discarding the transaction would raise such risks because neither the capacity nor the current incentives of the parties in any of them are substantially altered by means of the transaction.

However considering that local Electricity Law limits such vertical integration, a regulation whose enforcement is entrusted to the sector-specific regulator in electricity and gas (Superintendencia de Electricidad y Combustibles), the FNE decided to refer the case to said body which is legally entitled to evaluate and decide whether or not there is a regulatory infringement by means of the merger.

The decision will be published on the FNE’s website once the public version of these documents has been finalised.