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RBS Sempra-Abu Dhabi Partners Seek Treasury Review

Thorny issues of foreign ownership of U.S. energy infrastructure assets could arise in the recently announced partnership of RBS Sempra Commodities and the Abu Dhabi national energy Company, TAQA, which is seeking a stake of up to 10,000 MW in U.S. generating assets. An RBS Sempra executive told NGI last Monday the partners recognized the issue loomed and have filed with a multi-agency committee headed by the U.S. Treasury Department for a review of the partnership's first deal, which was announced Dec. 10.

The partnership, called TAQA Gen X, is not buying the "underlying asset" -- the Red Oak power plant in New Jersey owned and operated by AES Corp. -- but it is bidding to buy the firm with the long-term tolling arrangement for fueling the 830 MW AES generating plant.

Other energy deals are in the works that involve foreign ownership of infrastructure on the U.S. power grid, such as the Electricide de France (EDF) move to buy at least half of Baltimore-based Constellation Energy's nuclear generating plants (see related story). Thus it is likely that the Committee on Foreign Investment in the United States (CFIUS) will be called upon to review the deals and the Department of Homeland Security could play a key role.

In voluntarily filing with CFIUS as it was making public its Abu Dhabi partnership, RBS Sempra doesn't anticipate much, if any, pushback from Treasury. The commodity trading joint venture, which itself is held by parts of the Scottish-based Royal Bank of Scotland, just wanted to get higher-level exposure for TAQA, which currently owns no U.S. assets, according to RBS Sempra's Peter Ford, managing director for North American power operations. In addition to the filing to CFIUS, the partners have held meetings with Treasury and others in the U.S. government, Ford said. Those meetings have included RBS and TAQA, along with their financial advisers at JP Morgan.

"I think we recognize the [foreign ownership] issue, and TAQA has no current U.S. assets," Ford said. "They [the Abu Dhabi company] prudently wanted to get an audience with folks in Washington and present the facts through the filing out of an abundance of caution."

Ford said the partnership's expectation is that CFIUS will agree with them that "there are no strategic asset issues," and even if the partners were buying the Red Oak power plant, there would not be an issue. "But the fact is that this case isn't likely to go that far, and it is our hope and expectation that this will be seen as an administrative [not a legal] matter," he said.

Ford confirmed that part of the partnership's intent is to buy some "underlying energy assets" in the United States. The partners' hope in getting the initial transaction reviewed under the CFIUS process was that it would "introduce" TAQA to the powers that be at Treasury and elsewhere in the federal government. "As we look at assets down the road, the greater level of comfort the folks in Washington, DC, have with TAQA the better," he said.

CFIUS dates back more than three decades, created originally by a 1975 executive order from then President Gerald Ford and amplified by President Ronald Reagan in 1988, who delegated authority after Congress gave the president the authority to review foreign investments. President Bush in January through another executive order delegated most of his authority over foreign investment to Treasury.

In 2005 and 2006, separate cases caused Congress to pass the 2007 Foreign Investment and National Security Act. In the preceding years, controversy arose around the Chinese government's state-owned China National Offshore Oil Corp.'s attempt to buy Unocal, and later the state-owned Dubai Ports World organization's planned acquisition of another company, which was the key operator of a number of major U.S. ports, including New York.

In taking his action, Bush said that Treasury-led CFIUS "will review carefully the national security concerns, if any, raised by certain foreign investments into the United States," according to a report in the Washington Times.

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