Hong Kong's biggest electricity provider, CLP Power, and state-owned China Southern Power Grid (CSG), will each pay HK$12 billion to acquire Exxon Mobil's 60 per cent stake in Castle Peak Power Company (Capco).
The deal strengthens CLP's presence in Hong Kong and brings a mainland player into the city's closed electricity market for the first time.
It is not expected to affect tariffs as it involves only shares, without adding fixed assets.
But analysts said a strengthened partnership between the largest power suppliers in Hong Kong and southern China could help CLP meet a new 2020 emissions target that may require more clean energy to be imported from the mainland.
After the transaction, CLP's stake in Capco - which owns three power plants in Hong Kong - will jump from 40 per cent to 70 per cent. CSG will hold the remaining 30 per cent.
CLP vice-chairwoman Betty Yuen So Siu-mai said it was a natural commercial decision to bring CSG into talks that started more than a year ago when Exxon Mobil, the world's biggest independent oil company, expressed a desire to exit the market.
"All electricity imported into Hong Kong must pass through the CSG network," Yuen said.
"Our partnership with CSG will make any transmission of cleaner energy from the mainland easier."
Pierre Lau, managing director and head of Asian utilities research at Citigroup, said the closer ties might also cushion CLP from competition if regulators open up the city's electricity market.
"Any power supplier who wants to enter Hong Kong must first get past CSG. Of course, it would give CLP an edge if it has a good relationship with CSG," he said.
CLP will also buy out Exxon Mobil's 51 per cent stake in Hong Kong Pumped Storage Development for HK$2 billion in cash.
The whole deal will remove Exxon Mobil from the city's commercial power generation market - its only such investment worldwide. An Exxon Mobil spokeswoman said it planned to explore other opportunities....