Three Gorges beat one German and two Brazilian energy sector rivals to secure the Portuguese government's 21.35 percent stake in Energias de Portugal (EDP), one of the country's largest companies. The investment is Three Gorges' largest ever outside China - and the largest ever by any Chinese company in Portugal.

What tipped the scales for Three Gorges was that on top of 2.7 billion euros ($3.4 billion) they offered for the EDP shares, the Chinese giant pledged 2 billion euros in follow-on investment, and up to 2 billion euros more in financing for the deeply indebted Portuguese concern.

At a recent signing ceremony at the Portuguese Ministry of Finance, Three Gorges Chairman Cao Guanjing said it was just the start of a larger Sino-Portuguese partnership.

Cao was the man of the hour in Lisbon

"This transaction will serve as a catalyst to encourage greater investment by more Chinese enterprises and banks into Portugal," he said. "This will drive closer cooperation in areas such as trade, finance, tourism and cultural exchange."

In a sign of the deal's importance to Portugal, the country's foreign minister and economy minister attended the ceremony. Finance Minister Vitor Gaspar was there as well. He noted China's growing economic clout but added some historical perspective.

"Both Portugal and China are old nations, with mutual relations that date back 500 years," he said. "Today's operation reflects the ongoing deepening of a strategic and long-term relationship. It has not started yesterday. It will last long after tomorrow."

Similar strategies

Cao added that the two companies' shared focus on renewable energy sources makes them a good fit.

"Both companies are highly complementary in terms of competitive strength and development strategies, which provide a common platform and scope to develop EDP into a sustainable, faster-growing and leading international clean energy group."

EDP was already well on its way toward that goal on its own. Under the leadership of Chairman Antonio Mexia, who has been in charge since 2005, the company has pursued a green, forward-looking strategy, investing in hydroelectric dams and windfarms in Portugal and other countries. EDP is now the world's number three wind power company.

EDP spent a lot of money building wind farms

But while all that investment has been a promising long-term strategy, it has helped put the company into debt in the short term. Some analysts said the government was almost bound to go with a suitor who could help EDP pay down its debts now.

"At this moment EDP has debt of 17 billion euros," said Ana Baptista of the Lisbon-based business website Dinheiro Vivo.

"Having a Chinese company coming and giving them money to finance their debt almost immediately - it's amazing, and also gives them some leverage to keep investing in all those projects," Baptista added.

German lessons

Some would have preferred the government to have chosen a European partner, but the only legitimate bidder from within the EU posed its own set of problems.

Until two weeks ago, Germany's E.ON was seen as the front-runner in - not least after company chairman Mexia visited E.ON headquarters in Düsseldorf just days before the Portuguese government announced its decision.

The Portuguese are no fans of Merkel or Germany at the moment

But that visit, along with reports that German Chancellor Angela Merkel was pressuring her Portuguese counterpart to choose E.ON, prompted widespread criticism in the Portuguese press, which have been critical of Berlin's high-handedness in demanding that Portugal undergo structural economic reforms.

Opportunity and risk

Three Gorges' ride to EDP's rescue may seem to have come at precisely the right time for the over-extended firm, but the deal is not without its critics. Once the deal was announced, some began to ponder what it meant for Portugal.

EDP still enjoys a virtual monopoly on the residential retail energy market, and consumers are already feeling squeezed by energy prices. Value-added tax on power was raised from 6 percent to the top rate of 23 percent in October - one of several drastic steps to narrow the budget deficit. And on January 1 energy prices themselves rose 4 percent.

Some fear Three Gorges will press for more price hikes in order to recoup its investment. Others simply don't like the idea of a state enterprise from a non-democratic country has taken a dominant stake in a company that - for all its global reach - assures a key domestic service. Additionally, one of the trade unions serving power company employees has expressed fears for EDP workers' wages and conditions.

Business reporter Baptista, meanwhile, said others have been wondering "if the company will continue to be Portuguese if the Chinese buy a bigger stake and become owners."

"Or if the Chinese decide to sell it to another company, that will tear EDP apart and maybe would risk our - the Portuguese - supply of electricity."

It's a new frontier for Europe as much as for Portugal. But in this case, borrowers can't be choosers.

Author: Alison Roberts in Lisbon (mrh)

Editor: Sean Sinico