Four months after failing in its bid to buy a 20% stake in German electricity transmission company 50Hertz, State Grid Corporation of China (SGCC) has a second chance to do a deal, as another 20% stake in the company is up for sale.

Chinese holdings in critical infrastructure companies is a sensitive issue for the German government. However last year when it amended its foreign investment law to subject deals to tougher scrutiny, Berlin set the threshold for a review at 25%.

In February of this year Australia based IFM Investors put half of its 40% stake in 50Hertz up or sale, attracting an offer from SGCC. However the majority shareholder in 50 Hertz (via its holding company Eurogrid International), Belgian transmission system operator Elia System Operator, had the right of first refusal for the stake being sold by IFM.

Elia did exercise this option. Though it was a commercial decision, there was speculation in the German press that the German government held behind the scenes discussions with the Belgian government, encouraging Elia to step up and help block the SGCC move.

Now that IFM has decided to sell its remaining 20% stake, the same problem has arisen again for the German government. But this time Elia may be less enthusiastic.

"The possible transaction will be analysed in the interests of Elia Group and its stakeholders," the company said in a statement. "As in the case of the earlier pre-emption right for the first 20%, any decision will take Elia’s aim of maintaining a strong investment grade rating into consideration."

Elia said that the finalisation of the acquisition in April 2018 was a major step forward in realising the group’s growth strategy. By increasing the share from 60 to 80%, Elia obtained full control of Eurogrid. As a result, the financials of Eurogrid and its affiliates are now fully consolidated in Elia’s group results. The transaction also allows further strengthening of the cooperation between Elia and 50Hertz, and underscores Elia’s ambition to be one of the leading transmission system operators in Europe.

Elia and IFM have shared a successful period of co-control of 50Hertz since 2010. Now that Elia has received a second notification, it has until late July to take a decision on exercising its pre-emption right.

IFM Investors is owned by 27 pension funds, and invests on behalf of institutions globally, including superannuation and pension funds, sovereign wealth funds, insurers, endowments, foundations and universities. IFM Global Infrastructure Fund acquired its stake in 50Hertz in 2010, after the company was sold by Swedish power company Vattenfall.

50Hertz Transmission is one of the four transmission system operators in Germany and owns and operates the electricity grid in the states of Thuringia, Saxony, Saxony-Anhalt, Brandenburg, Berlin, Mecklenburg-Western Pomerania, and Hamburg.

Each of the four transmission system operators is responsible for balancing electricity feeding and take-off in their respective service territories. The past had seen situations where a power surplus in one of the service territories and a power deficit in another were regulated independently of each other. Since May 1 2010, the four transmission system operators have joined forces and cooperate on a system control platform called Grid Control Cooperation (GCC). Balancing operations in the respective service territories are now jointly controlled based on a big-picture view, which saves control power and makes electricity supply in Germany even more secure.

50Hertz distributes power to more than 18 million people and companies. That puts it firmly into the category of critical infrastructure, an area where the German government has made it clear that it has concerns about investment from China.

For the government, Elia exercising its option on the first 20% stake was a convenient solution to the problem. If Elia does not step up this time round, Germany might have to make a more obviously interventionist move.

German media reports suggest that there could be a role for state owned development bank Kreditanstalt fur Wiederaufbau, where the stake could be parked until another long term solution can be found. Though there remains a possibility that the German government might decide not to irritate China and damage its trade relationship, and let the deal proceed.