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Officials in Italy are concerned about Chinese involvement in energy grids

Two government sources say that Italy is worried about the impact of Chinese involvement on its energy infrastructure companies, which could hamper their plans to expand in Europe. Other countries, however, are wary of Beijing-linked deals due to security concerns.

Last week, Rome's concerns were brought into sharp focus when Italian gas grid operator Snam canceled plans to buy a stake in Germany’s largest independent transmission company of gas after Berlin objected, according to officials who declined to be identified due to the sensitive nature of the matter.

According to reports, the German Economy Ministry opposed Snam's deal due to State Grid Corporation of China being an indirect shareholder in Snam.

Berlin is a major supporter of European Union efforts in coming up with plans to combat China's increasing industrial and political power, including Beijing dominance in rare earth production.

CHINA SEEKS INVESTMENTS as Strategic

Sources close to the issue said Berlin wanted to make Snam a financial investor, and thus prevent it from becoming an industrial partner of Germany's Open Grid Europe.

The office of Prime Minister Giorgia Melli declined to make a comment. The State-owned Assets Supervision and Administration Commission of China, which supervises state-owned firms, has not responded to an email seeking comments.

The German economy ministry stated that the decision to abandon this transaction was made by all parties involved.

Foreign trade law allows the review of non-EU investments. In this case, the Ministry of Foreign Affairs said that only the indirect investment planned by the Chinese State Grid Corporation of China was examined.

Italian state lender Cassa Depositi e Prestiti, or CDP, sold to the State Grid Corporation of China a 35 percent stake in CDP Reti in 2014. CDP Reti is a holding firm that owns 31.35 % of Snam and 29.85 % of Terna, a power grid company, as well as 26% of Italgas, Italy's largest gas distributor. Snam owns 13.5% of Italgas.

The same representative of the Chinese state-owned company sits on the board of Snam and Terna. He also serves as a director for Italgas, CDP Reti and CDP Reti. This position gives him a good view into Italian energy policy.

The first two sources claim that China's State Grid told Rome it was strategic to invest in Italian energy infrastructure.

One of them said, "The Chinese group does not plan to sell the stake."

Sources said that to liquidate the Asian investor, it would take billions of Euros. No state-backed company has the funds available.

The indirect stakes in three Italian companies owned by China's State Grid are valued at more than 5 billion euro ($5.76 billion).

CDP has declined to comment.

($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) The CDP-State Grid pact detailing CDP Reti corporate governance expires next November. It will automatically renew unless either party opts out six months prior to the expiration date. ($1 = 0.8682 euro) (Additional reporting from Valentina Za in Milan and Elvira pollina in Frankfurt, with editing by Gavin Jones & Andrew Heavens).

(source: Reuters)