Chapter XI - The Screening of Foreign Direct Investments into the European Union: Regulation 2019/452 and its Implications for Energy Investments

Summary

INTRODUCTION

In March 2019, Regulation 2019/452 (hereinafter: the FDI-Regulation) was adopted by the European Union (EU) which shall apply from fall 2020 onwards. The Regulation establishes a framework for the screening of Foreign Direct Investment (FDI) into the EU. Furthermore, it creates a cooperation mechanism between the Member States, both inter se and with the Commission on the screening of such investments. The scope of screening mechanisms, which ‘may’ be adopted, maintained or amended by Member States, is limited to investments ‘likely to affect security or public order.’

In general, the EU, and indeed most of its Member States, are known for their relative openness to FDI. This is evidenced by the FDI Regulatory Restrictiveness This is evidenced by the FDI Regulatory Restrictiveness Index of the Organisation for Economic Cooperation and Development (OECD), where 22 EU Member States rank below the OECD average in relation to regulatory restrictiveness, well ahead of other large developed and developing economies such as the United States (US), India, China, Russia, Canada, and Australia. Often cited benefits of FDI include economic growth, job creation, transfer of skills and technology, and increased competitiveness of domestic industries.

It has been said that the FDI-Regulation is not the result of ‘a genuine initiative of the Commission’, but rather of a request made by certain Member States, such as Germany, France, and Italy that were concerned about growing numbers of acquisitions of EU companies in strategic sectors by investors from outside the EU. Although not explicitly named in the FDI-Regulation, these concerns have primarily been sparked by Chinese (attempted) acquisitions of European companies. In the context of the energy sector, one can think of the attempt by the State Grid Corporation of China to acquire 14 per cent of the shares of a Belgian gas and electricity Distribution System Operator (DSO) in 2016. That same company acquired 25 per cent of the Portuguese gas and electricity Transmission System Operator (TSO) in 2012 and has more recently pursued a majority shareholding in the TSO. Similarly, the Chinese company also acquired a share in the Greek electricity TSO in 2017.