State Grid Corp. of China has agreed a deal worth nearly $1 billion to buy seven Brazilian power distributors, the latest in a series of big bets by Chinese companies that rapid economic growth in South America will ignite energy demand.

State Grid has also secured a 30-year concession to operate power lines, substations and other infrastructure that distribute power mainly to the densely populated southeastern region, which includes major cities like Rio de Janeiro and Sao Paulo.
The deal allows Brazilian authorities to renew the license for a further 20 years, a statement on the website of the State-owned Assets Supervision and Administration Commission of the State Council said Tuesday. State Grid is wholly owned by the Chinese government.
State Grid is the world's largest utility company, with 2008 revenue of $164 billion. The company was founded in 2002 as part of China's efforts to overhaul and streamline its power grids, which had been managed by provincial governments with competing interests.
State Grid is spending billions of dollars on new infrastructure in China, such as the installation of ultra-high voltage power lines to ship electricity from resource-rich western provinces to cities like Shanghai in the east.
However, its position as China's monopoly power distributor in all but five provinces limits its opportunity to cultivate new markets at home. That has driven management to seek opportunities overseas. In 2007, State Grid was part of a consortium that made a winning $3.95 billion bid to develop and run the Philippines' national electricity grid for 25 years.
The deal for the seven Brazilian power distributors is expected to generate more than $110 million in annual earnings for the company, according to the statement.
A State Grid media official confirmed that the acquisition involves the subsidiaries of Spanish companies Grupo Cobra, Elecnor SA and Grupo Isolux in Brazil.
China is targeting South America because there are few barriers to investment and because the region's rapid economic growth—and rising energy consumption—is hard to ignore.
Brazil, the region's biggest economy, is on track to grow 7.7% this year, according to Barclays Capital, which also forecasts growth of 10.6% in Argentina, 5.7% in Chile and 8.9% in Peru. That compares with its 2010 growth forecasts of 2.8% growth for the U.S.
China's biggest energy deals in South America have been in the oil and gas sector.
(Source: The Wall Street Journal)
Photo: State Grid Brazil Holding S.A. was inaugurated in Rio de Janeiro, Brazil on Dec. 9, 2010