29 June 2020

60-Second CFIUS: CFIUS Clears Chinese Wind Farm Deal

CFIUS has cleared a greenfield wind farm project in Texas, to be built by GH America Energy, a subsidiary of Shanghai-listed Guanghui Energy Co., Ltd. The project is in Val Verde County, along the Mexico border. Val Verde County is also home to Laughlin Air Force Base.

As a greenfield investment, the deal would not have been subject to review as a “covered transaction” under the CFIUS regulations. However, it would have been subject to the regulations governing foreign investment in US real property, 31 CFR Part 801. Those regulations focus primarily on whether the real property is proximate to sensitive national security facilities or installations. In this case, the project is within 50 miles of Laughlin Air Force Base. Even though Laughlin is the largest pilot training base in the US, it is not on the list of sensitive US facilities contained in the CFIUS CFIUS regulations on real estate transactions. To clear the deal, CFIUS must have concluded that the wind farm posed either no risk, or an acceptable risk to US national security.

The clearance was first brought to our attention by Albert Schultz at Kaerus LLC, a CFIUS mitigation and compliance consulting firm. It was reported last week in Foreign Policy, which noted that GH America will be required to mitigate the impact its wind turbines could have on low-level flight training routes operating out of Laughlin. It is possible, based on press reports, that the details of the mitigation agreement are still being worked out.

The article quotes Rep. Will Hurd (R-TX) as questioning why the project was cleared, especially since the Chinese company is said to be owned by a former PRC military officer. Local interests apparently have also expressed concern about the impact on wildlife and recreation in the area, including hunting.

Wind farms and other renewable energy projects are critical to US energy infrastructure development, which makes them both welcome and a source of potential concern when backed by foreign investors. Over ten years ago, the Obama Administration required Ralls Corp to divest its interest in a wind farm being constructed in Oregon, near the site of a naval weapons systems training facility. Since then other China-backed energy projects have cleared CFIUS.

This project is an encouraging sign that, where a project is important to the US economy, and the parties are able to work out an arrangement to reasonably address any possible US national security concerns, deals can still be done despite the rhetoric between the two countries.

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