Italy worried over Chinese stake in energy grids, officials say

By Giuseppe Fonte and Francesca Landini

ROME (Reuters) -Italy is concerned that Chinese involvement in its energy infrastructure companies could hinder their expansion plans in Europe, two government sources said, as other countries balk at Beijing-linked deals for security reasons.

Rome's worries came into focus last week when Italian gas grid operator Snam scrapped plans to acquire a stake in Germany's largest independent gas transmission firm in the face of opposition from Berlin, according to the officials, who asked not to be named due to the sensitivity of the issue.

The German economy ministry opposed Snam's transaction due to the presence of the State Grid Corporation of China as an indirect investor in Snam, Reuters reported.

Berlin has become a key backer of European Union efforts to come up with plans to counter China's increased industrial and political clout, including Beijing's dominance in the production of rare earths.

CHINA SEES INVESTMENTS AS STRATEGIC

A separate source close to the matter said Berlin was looking to set conditions blocking Snam's ability to become an industrial partner in Germany's Open Grid Europe, by making it a simple financial investor.

Prime Minister Giorgia Meloni's office declined to comment. China's State-owned Assets Supervision and Administration Commission, which oversees state-owned companies, did not respond to an email seeking comment.

Germany's economy ministry said the decision to abandon the transaction was taken by all involved parties.

"Foreign trade law allows for the review of investments by non-EU entities. Accordingly, only the planned indirect investment by the Chinese state-owned group State Grid Corporation of China ... was reviewed in this case," the ministry added.

Italian state lender Cassa Depositi e Prestiti (CDP) in 2014 sold the State Grid Corporation of China a 35% stake in CDP Reti, a holding company that owns 31.35% of Snam, 29.85% of power grid company Terna and about 26% of Italgas, Italy's biggest gas distributor. Snam also holds 13.5% of Italgas.

The same representative from the Chinese state-owned group sits on the boards of Snam, Terna, Italgas and CDP Reti, a position giving him visibility over Italian moves in the energy sector.

China's State Grid has told Rome its investment in Italian energy infrastructure is strategic, the first two sources said.

"The Chinese group has no plans to divest the stake," one of them added.

Liquidating the Asian investor would require billions of euros that no state-backed company is in a position to spend, the sources said.

At current market prices, the indirect stakes of China's State Grid in the three Italian companies are worth more than 5 billion euros ($5.76 billion) .

CDP declined to comment.

The pact between CDP and State Grid detailing CDP Reti's corporate governance is due to expire in November next year, but will renew automatically unless one or both parties tap an opt-out option six months before the expiry date.

($1 = 0.8682 euros)

(Additional reporting by Valentina Za and Elvira Pollina in Milan, Christoph Steitz in Frankfurt; Editing by Gavin Jones and Andrew Heavens)