New | Shanghai Electric scores a transformative deal with its purchase of Pakistan power plant

Shanghai Electric Power’s US$1.77 billion acquisition of a majority stake in Pakistan’s K-Electric is another example of Chinese power firms seeking overseas opportunities amid dimming prospect in the domestic market undergoing rapid deregulation, analysts say.

The deal, announced on Sunday, is also a major milestone for the Shanghai-listed firm, the city’s largest power producer, since it would represent its maiden foray into downstream power distribution, and give it a first major presence in the “One Belt, One Road” regions with which Beijing has pledged to strong support for economic cooperations.

Shanghai Electric Power said in its shareholders circular on the acquisition that it aims to double its operating scale in the five years to 2020, with the focus being nations along the One Belt, One Road.

“The lack of profit certainty at home has drawn state-backed power companies to seek outbound investment abroad,” UBS head of Asian utilities research Simon Powell said. “They are driven by rational financial reasons as opposed to mother China using state-owned enterprises to do government-to-government deals.”

He cited the recent failed attempt to bid for transmission and distribution assets in Australia by power distribution behemoth State Grid Corp. and its US$2.3 billion purchase in September of a 29.4 per cent of Brazilian power distributor CPFL Energia as examples of such “going abroad” effort.

Beijing has in the past two years been rolling out progressive reform measures to make the power market more competitive and transparent on pricing, to enhance efficiency and lower costs.