Devastating Ernst & Young report about Guangdong Zhenrong Energy

WILLEMSTAD - There is more uncertainty around the Chinese State Company Guangdong Zhenrong Energy (GZE). This can be concluded from a confidential report presented by Ernst & Young and the Government’s Accountants Bureau (SOAB) to the Council of Ministers.

One of the reports indicates that the Multi-Disciplinary Project Team (MDPT) deliberately misinformed the government.

Ernst & Young reports the following

Overall Rating

>GZE ability to acquire government approval for overseas projects is weak. The estimated time for GZE to acquire the required approval is approximately 3 years. To date, GZE appears to be in the early stages of a difficult approval process

Current Status

>GZE claims it has submitted the application for the Curaçao project to the DRC Guangdong at the end of 2016

>No evidence was found through DRC Guangdong sources or other GZE provided sources to verify the current process

>Standard practice is for a Chinese outbound investment to possess both a filing letter and approval letter from NDRC. GZE is unable or unwilling to provide either

Key Issues

A) Extended approval process

B) Abnormal approval practice

>The Curaçao project to DRC Guangdong is abnormal. According to regulations enacted in 2014, overseas projects scaled larger than 1 billion USD should apply through the NDRC, but GZE claims to have only filed the 5.5 billion USD project in their regional DRC

C) No confirmation letter evidence

>GZE could not or is not willing to bring forth a DRC/NRDC confirmation letter, which should be issued within 7 days after the project is submitted to the DRC. Without this confirmation letter, binding contracts are not allowed and should not be signed between GZE and its Curaçao counterpart. Additionally, for a Chinese company to sign any final and legally binding investment documents, the company must provide the NDRC record-filing notice or approval document

By Yves Cooper