The Chinese equation: from bridges to power plants

China Communications Construction Company (CCCC) Ltd - the same company which signed an agreement with the Maltese government to conduct a feasibility study on the Gozo Bridge proposal - has signed a contract with the Uruguayan government for dredging and construction works related to the development of a liquefied natural gas (LNG) terminal.

The same Chinese company recently signed an agreement with the government to conduct a €4 million study on the feasibility of a Gozo bridge - gratis and without expecting anything in return from the government.

The Maltese government is currently considering 11 bids, including one presented by another state-owned Chinese company, for the development of an LNG terminal which would require the construction of 7,300 square metre jetty and extensive dredging.

With a construction period of 18 months and a total contract value of some €30 million, works on the Uruguayan terminal commenced on 1 August of this year. The project involves dredging works and the construction of regasification terminal services.

In Uruguay the Chinese company will only be responsible for construction works, while the actual plant will be developed by French gas and power group GDF Suez, which was awarded a contract to build a liquefied natural gas regasification plant in the country's capital in May.

The project, expected to cost €850 million, will help diversify energy sources in Uruguay, which is highly dependent on oil imports, and eventually supply the Argentine market.

The contract awarded to CCCC in Uruguay is not the first involvement of the Chinese company in construction work related to LNG infrastructure.

In 2004 China Harbour Engineering Company - which forms part of CCCC - allied itself with the Costain Group and was awarded a €128 million contract by Sempra LNG's Energia Costa Azul to design and construct the breakwater for a LNG receipt terminal at Baja California in Mexico.

In 2012, CCCC also won the bid for the hydraulic terminal works of the Yuedong LNG project in Guangdong Province in China.

The Chinese connection

One of the bidders for the new gas terminal is China Power Engineering Consulting Group Corporation, another state-owned Chinese company, which has little experience in the LNG field compared to other bidders like Shell and Edison.

It has also recently emerged that Shiv Nair - a British millionaire resident in Malta, with connections to the Chinese government - is the Maltese government's consultant on foreign direct investment and has recently accompanied Energy Minister Konrad Mizzi on a visit to Qatar.

But even if not chosen for the lucrative energy contract, which would give them a foothold in Malta for the next two decades, the Chinese could still clinch contracts for the construction of the massive 7,300 square metre jetty, required to berth the massive 180,000 cubic metre storage vessels and other infrastructural needs for the power station.

Chinese cheap labour - possibly coupled with access to funds from Chinese banks -may well help decrease costs and ensure the viability of Labour's energy plan. 

The government has already made it clear that the chosen bidder will pay the costs of the jetty. But this does not exclude the winning company subcontracting construction works to other companies.

One problem for the Chinese company is its blacklisting by the World Bank for breach of procurement rules in the Philippines in 2009. But this has not prevented the company from winning major contracts in Africa, Latin America and the Balkans.

On 4 July, the Montenegrin government announced that it had selected the €809.6 million bid of the CCCC for the construction of a section of the Bar-Boljare motorway.

The Montenegrin government has also received preliminary offers from Chinese companies for the development of a €300 million, 220MW coal plant and has already announced that it would bypass tender procedures.

Gaining a toehold in Europe

What is generating the spate of foreign investment, according to Bloomberg, are banks like China Development Bank Corporation and Export-Import Bank of China, whose advantageous loans to cash-starved governments generate overseas contracts to build airports, roads and shopping malls for state-owned Chinese companies that are mired in debt.

Chinese companies are also known to sacrifice profits to widen the country's sphere of influence.

The strategy used by China's Dongfang Electric Corp to build the Stanari power plant in northern Bosnia was simple: "sacrifice profits for a toehold in emerging Europe".

The logic was clear, according to Savo Markovic, head of the coal plant, where construction began in May.

"Dongfang offered to carry out the job at almost half the cost, and the China Development Bank lent [the funds] for the project at favourable terms."