Also read Paulo’s introductory op-ed on the hypocrisy of the EU governments – first endorsing and now condemning Chinese investment: The smart, the stupid and the gamblers
Context: The Troika arrived in Lisbon in May 2011. Seven months later, Portugal sold two of its most important energy companies: EDP (Energias de Portugal), the main producer, and REN (Redes Energéticas Nacionais), the grid. Both were bought by Chinese companies (China Three Gorges and State Grid) that were advised by the same investment bank, the Portuguese BESI (Banco Espírito Santo Investimento).
José Maria Ricciardi used at least four cell phones. And on that last
day of January 2012, they didn ‘t stop ringing. The situation was
critical. There were doubts within the government as to whether the
privatisation of REN should proceed, feared the banker of the Espírito
Santo group. What’s more, its own customers, the powerful Chinese State
Grid, which is now the fifth largest company in the world, according to
the Fortune ranking, were feeling harmed by the rules of the game.
Ricciardi who was CEO of BESI , one of the two major investment banks
in Portugal at the time, received message after message from its
closest employees, telling him to call the Prime Minister, Pedro Passos
Coelho. Ricciardi tried, but Passos Coelho, with whom he was a long-time
friend, didn’t answer right away.
Friends in government
This is the story of how an investment bank’s strategy can be based
on its proximity to policy-makers, and a group of people close to them
who moved at ease between both groups. The bankers commented on the
unpreparedness and ignorance of the cabinet members. Ricciardi had a
list of allies in the government, to whom he addressed with bullet
pointed arguments, and another of enemies, of whom he complained. And at
the decisive moment, he raised the stakes and made a threat.
After trying to talk to Passos Coelho, Ricciardi called Miguel
Relvas, a deputy minister. If the government decided to stop
privatisation, he argued, China could cut diplomatic relations with
Portugal and stop all investments (besides EDP and REN, Chinese
companies would buy part of BCP, Fidelidade and important sectors of the
Espírito Santo group, such as health or BESI itself).
Seven years later, Miguel Relvas told IE what he remembers of those
events. Of the various contacts he had with José Maria Ricciardi at the
time, Relvas minimises the apparent diplomatic threat posed by BESI.
“They never pushed me, and if they had pushed me, they’d have the right
answer.” For the former minister, the idea that there could be a cut in
relations with China is nothing more than “excessive zeal”. “They never
told me that. Would China ever say such a thing?”
“Threats” from China?
But the banker’s pressure didn’t stop at Miguel Relvas. The same day,
Ricciardi made another attempt to get the Prime Minister’s attention.
He called Angelo Correia, a friend and former boss of the Prime
Minister, at Fomentinvest, and used exactly the same arguments he had
used with Relvas.
We contacted Ângelo Correia who remembers Ricciardi’s phone call
perfectly. “It’s true. They told me that. And I warned the Prime
Minister of that.” The argument used was clear: “China may not invest
and sever the relationship.” So Ângelo Correia explains that he called
Passos Coelho to warn him of the problem. “I thought the seriousness of
what they were telling me was so great that I suggested that someone
should tell the Portuguese Government. They told me that in a serious
Passos Coelho, according to Ângelo Correia, did not react: “He did
not ask me anything. He just listened.” But the threat referred to by
Ricciardi was made. “If they had a mandate from the Chinese, I don’t
know,” warns Ângelo Correia. “But they told me that with a serious
Diplomatic sources, contacted by IE, reject any possibility that
there has been any kind of threat of diplomatic retaliation from State
Grid, or China. “That would be blackmail. It never happened. It doesn’t
But throughout the day of January 31, 2012, Ricciardi again used the
same threat with other cabinet members. After talking to Relvas and
Correia, he called Carlos Moedas, who at the time was the Deputy
Secretary of State to the Prime Minister and the person responsible for
monitoring the Troika, in the Council of Ministers. Moedas was in London
with Finance minister Vitor Gaspar and his secretary of state, Maria
Luís Albuquerque, when he received Ricciardi’s call. Carlos Moedas does
not remember the exact content of the conversations, but he remembers
that: “One of my duties was to receive every day a large number of
entities, representatives of the real economy and of civil society, who
wanted to convey complaints or opinions, thus preventing them from
disturbing the Prime Minister.”
Any “threats” would be ineffective
Ricciardi had tried to arrange a lunch with Carlos Moedas for the
following day, February 1, the eve of the Council of Ministers, which
would finally decide whether and how privatisation would proceed. Carlos
Moedas doesn’t remember if that lunch happened, but denies having been
pressured: “I don’t remember the specific lunch you mentioned with José
Maria Ricciardi. But I’d certainly remember if I’d felt any kind of
pressure, which wasn’t the case.”
The next day, February 1, Passos Coelho returned the call to
Ricciardi. Today, the then Prime Minister assures IE that Ricciardi’s
approaches to the government would have had “zero weight” in the way
REN’s privatisation was decided. “Privatisation went ahead without any
political calculation by the government,” he says. “None of the
privatisation processes had any political-diplomatic evaluation. The
decisions were not taken on the basis of such criteria.” For Pedro
Passos Coelho, José Maria Ricciardi’s contacts are explained in another
context, that of “negotiating tactics”, but they did not influence
either the calendar or the executive’s decision. “I’ve never felt any
pressure,” he says.
As for the content of the threat made by Ricciardi, and also
communicated to Passos Coelho by Ângelo Correia, he attests that he has
no memory. “I don’t remember, honestly. If it happened, I didn’t give it
IE also contacted José Maria Ricciardi, who asked not to be quoted in
this article. The former banker is now on trial in a case opened in
2013 by the Public Prosecutor’s Office, and has been under investigation
for more than six years by the Central Department of Investigation and
Criminal Action (DCIAP) in Lisbon. Passos Coelho and Miguel Relvas have
already testified in this case. Through the services of the Attorney
General’s Office of the Republic, we have tried to find out what stage
the judicial investigation is at, and who are the defendants, in
addition to Ricciardi, suspected of having committed the crimes of
“influence peddling, improper use of secrecy and abuse of information”.
The response from the Public Prosecutor’s Office (OPG) was brief: “The
inquiry is under investigation and is subject to judicial secrecy”.
It was through telephone tapping that DCIAP researchers learned that
BESI’s banker knew in advance the offers of the candidates competing for
the purchase of part of EDP and REN. In the case of EDP, where BESI
provided financial advice to China Three Gorges, Ricciardi was heard
telling his cousin, Ricardo Salgado, that he knew “inside” the value of
the opponents’ proposals, on the last day of the competition (December
9, 2011). With this, the prosecutors believe, he was able to lower the
price proposed by his client, from €3.60 per share to €3.45. This
decrease has the exact value of €117,095,067.30. These were the millions
that the state lost to China Three Gorges original, higher offer.
In the case of REN, the judicial investigators also suspect a fall of
10 cents per share in the offer of State Grid, managed by BESI. To
corroborate this suspicion is a message sent by the chairman of Caixa
BI, the other major Portuguese investment bank at the time, and a rival
of BESI, that was then the advisor to the State. In this message, Jorge
Tomé speaks, in coded words, about the price of shares with Ricciardi:
“The other corridor is closer to 2.6 meters, but it would be good if the
main corridor reached 3 meters. Hug.”
However, in this case, the information given by Jorge Tomé does not
seem to have been confidential. It was sent on 24 January, when these
values were public and the competitors presented only non-binding
proposals. This is the argument put forward by Jorge Tomé, who is also
accused in the same case as Ricciardi. The former Caixa banker explains
that in the case of REN there was not even a competition between the
bids of the competitors. State Grid and Oman Oil were the only
candidates for the purchase, and did not dispute the same lot of shares.
The Chinese company applied for a larger percentage (25%), while Oman
Oil proposed to buy another 15%. In the end, both were chosen for direct
selling, and the values per share are close to those of the non-binding
proposals. State Grid paid €2.9 for each share, while Oman Oil paid
less, €2.56 per share.
Conflict of interest
Banking sources also explain that there is another factor to be taken
into account. With that message, Jorge Tomé could only be suggesting
that BESI’s clients’ offer should be higher, which is justified given
his role as financial advisor to the State, the seller.
For judicial investigators, this close relationship between rival
banks (Caixa and BES) is an indication that privatisation tenders were
subject to informal rules, when there should be more transparent
processes. And this story is full of signs of that excessive closeness.
To be chosen as State Grid’s financial advisor at REN’s
privatisation, Ricciardi had to knock on several doors. But before that,
he tried his hand as an adviser to the State, that is, to be on the
other side, in the same business. It sounds confusing – and then it gets
even more confusing. In a privatisation audit, the Court of Auditors
considered that BESI should never have been admitted as a consultant
because it had had previously had a role in the evaluation of REN that
was used in the privatisation, and this represented a ‘conflict of
This did not, however, prevent BESI from being an informal consultant
to the State – talking to ministers, giving them summaries of the
matter, regularly contacting all stakeholders on the other side of the
business, from Caixa to REN’s management, including its minority
The Chinese giant State Grid had not yet decided to hire BESI for the
business and Ricciardi was already asking Miguel Horta e Costa, his
number two at the bank, to meet with Paulo Portas, the Foreign Affairs
minister and leader of the CDS – People’s Party, the minor coalition
party in the government.
But there was another strategy to convince Paulo Portas, number two
in the government. Filipe de Botton, who refused to talk to IE about
this issue, was one of REN’s minority shareholders. On January 8, after a
long meeting with Portas, Botton gave Ricciardi a summary: the Minister
of Foreign Affairs was undecided about privatisation. Botton argued
with the minister that the situation was urgent. REN needed a capital
injection of €800 million, which the state did not have. Ricciardi and
Botton were convinced that the government was not at all well informed.
Therefore, Botton made a list of talking points to use with the
And that was the strength of the strategy of those who wanted
privatisation. Even though the contract with State Grid was only
formalised days later, Ricciardi called journalists to explain the
advantage of the operation. It was necessary to show the strength of the
sale, because the risk was obvious: in 2011, EDP and REN had their
worst stock market performance of the last 10 years, with the price of
their shares reaching historic lows.
But the bankers’ information could also be flawed. The doubts of the
ministers never led to any debate inside the government on the
postponement or cancellation of the privatisation of REN. In fact, weeks
before this generated panic at BESI, Passos Coelho received an email,
sent by Vítor Gaspar, in which the Finance Minister detailed the process
and proposed keeping to the initial timetable.
Opponents to the deal
Based on this seemingly false doubt about the government’s intention,
BESI’s men began to identify who their opponents would be in the
executive branch. The first name to emerge is that of the former
Secretary of State for Energy, Henrique Gomes. BESI proposed to the
government his resignation, which happened after the privatisation, in
March 2012, two months after it was suggested by the bankers.
Henrique Gomes did not know this detail of his history, and reacts
with irony: “I am satisfied. That’s a good sign.” As for the
effectiveness of the bankers’ suggestion that he’d be dismissed, he
cannot assess whether it was decisive (Gomes resigned at his own
request, after having assessed the conditions he had to exercise his
mandate). Has BESI pressed for the government to accept the resignation?
“It’s very possible…”
What is strange about Henrique Gomes is the conviction of BES that he
would be an “enemy” of privatisation. “I was never against
privatisation. My conviction at the time, which was based on the wrong
premise, was that it’s not the ownership of assets that’s important, as
long as there’s strong regulation. But now I know that there are no
conditions in Portugal for a strong regulation and, therefore,
possession is important.”
While the bank justified its consultancy, sending State Grid detailed
information on all contacts it had with the Prime Minister, or Paulo
Portas, Ricciardi tried to find out from government sources what Maria
Luís Albuquerque, the cabinet member in charge of privatisations,
thought. The former Finance Minister responded to IE by email, stating
that he preferred not to not to comment on this case.
The afternoon of January 27, Ricciardi learned that Maria Luís
Albuquerque had asked the Chinese ambassador to go to the Finance
Ministry for a meeting. The banker’s went berserk. Why is that? What
would the meeting mean? Would that mean the business would stop? Or that
it was already won?
For answers, Ricciardi contacted Miguel Relvas. The former minister
has no memory of it, but says he didn’t give much weight to their
importance: “I would always consider it more illegitimate for the
government to give in than for the private sector to exert pressure”.
It was then, on the eve of the business decision, that the strongest
and most unusual pressure came to bear on the Government: the threats
that China might cut-off relations made by BESI officials, without any
diplomatic support or precedent in history. In fact, Beijing has never
severed relations with any country for economic or business reasons.
On 2 February, the Council of Ministers approved the direct sale of
REN’s shares to both the buyers that had made bids, Oman Oil and State
Grid (which did not respond to the questions sent by IE). As soon as he
heard the news, Ricciardi sent several thank-you messages. One for Jorge
Tomé, his rival at Caixa BI, another for Miguel Relvas and six for
Pedro Passos Coelho. In just under a month – BESI’s advisory contract
with State Grid was signed on January 10, 2012, and the sale was decided
at the Council of Ministers on February 2 of that year – the bank
received €14 million euros for its financial services.
Also read Paulo’s introductory op-ed on the hypocrisy of the
EU governments – first endorsing and now condemning Chinese investment: The smart, the stupid and the gamblers
And find out more about the team’s full investigation and see where we’ve published: China: Rescuer or Rival?