By Richard E. Caroll
The Committee on Foreign Investment in the United States (CFIUS) has its genesis in the Foreign Investment and National Security Act (FINSA) of 2007. CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons, in order to determine the effect of such transactions on the national security of the United States.
FINSA was an act to ensure national security while promoting foreign investment and the creation and maintenance of jobs, to reform the process by which such investments are examined for any effect they may have on national security, to establish the Committee of Foreign Investment in the United States, and for other purposes. FINSA focuses solely on national security concerns – not broader policy interests – posed by mergers acquisitions and takeovers that could result in foreign control of a U.S. business.
FINSA was amended in 2018 by the Foreign Investment Risk Review Modernization Act (FIRRMA). FIRRMA expands the jurisdiction of CFIUS to address growing national security concerns over foreign exploitation of certain investment structures which traditionally have fallen outside of CFIUS jurisdiction. Additionally, FIRRMA modernizes CFIUS’ processes to better enable timely and effective reviews of covered transactions.
The Use of Sovereign Wealth Funds in International Diplomacy
Sovereign Wealth Funds in the world have been quietly, and subtly, using their economic power to further their economic, political and military interests in the international arena.
The Investment Corporation of Dubai, one of two SWFs from the United Arab Emirates (UAE), has been using DP World, which it purchased in 2006, to expand its political and military influence in the sensitive Persian Gulf. DP World has purchased a 30-year lease from the breakaway state of the Republic of Somaliland, with an automatic 10- year extension in the Port of Berbera on the Red Sea. The Port of Berbera easily dominates the Straits of Bab-el-Mandeb through which 30 million barrels of oil transit each day. The Republic of Somaliland is a break- away province from Somalia. The UAE’s military is training Somaliland’s armed forces, as well as establishing a naval base in the port. With the UAE just having purchased modern arms, to include the F-35, from the United States, the UAE’s military position is at present unassailable.
China’s SWF the China Investment Corporation with assets of almost $1 trillion, is also involved in the construction of a high-speed rail project in Laos, with an investment of half of Laos’ annual GDP. This type of loan, characterized as a predatory loan, seeks to entrap sovereign countries into indebtedness to China, to sway their support in the international community.
This is only the recent behavior of SWFs to use their financial strength to increase their country’s influence in international affairs.
Sovereign Wealth Funds Investing in Commonwealth Fusion Systems
While foreign investment in new technology in business’ in the United States is nothing new, three of the major investors in Commonwealth Fusion Systems are Sovereign Wealth Funds (SWFs). SWFs are state owned funds, and some SWFs have been used by nation-states on the international stage for their own national security interests.
Temasek, is a SWF from Singapore. Temasek recently led a consortium of investors in raising $82 million for Commonwealth Fusion Systems. It is unclear at this time how much investment of the recent $82 million influx into Commonwealth Fusion Systems Temasek is responsible for.
The first major investor in Commonwealth Fusion Systems was ENI with a $50 million investment. The Italian SWF CDP Equity has a 25.96 share of ENI. Combined with the Italian Ministry of Economy and Finance share of ENI at 4.37%, Italy is the largest shareholder in ENI with a stake of slightly over 30%. What is interesting about shareholders in ENI is that Norges Bank has a 1.537% stake in ENI. Norges Bank is the bank which manages the Norwegian Government Pension Fund which is the largest SWF in the world. There are two parts to the Norwegian Government Pension Fund, the Government Pension Fund Global (GPFG) and the Government Pension Fund of Norway (GPFN)
Equinor, is a Norwegian state-owned energy company which the GPFG has a three percent stake with the government of Norway having a 73% stake. Equinor is part of the recent $82 million investment in Commonwealth Fusion Systems.
Commonwealth Fusion Systems
The stunning breakthrough in the development of a three ion fuel by the Massachusetts Institute of Technology (MIT) by the MIT Plasma Science and Fusion Center (PSFC) in September 2016, which for the first time in history showed a net energy output in a fusion reactor called a tokamak, has led to the spinoff of Commonwealth Fusion Systems (CFS). CFS is a privately held LLC, and has received investments of over $200 million, the majority of which is from foreign entities.
In September of 2016, the MIT Planet Science Fusion Center (PSFC) on its Alcator-C Mod tokamak used for the first time a three-ion fuel. This groundbreaking experiment combined Helium-3 (He-3), Deuterium and Hydrogen. Using radio frequency, the He-3 was ignited, which in turn ignited the Deuterium and Hydrogen. By concentrating its radio frequency on the He-3 portion of the three-ion fuel, the resulting energy output achieved a mega-electronvolt energy output.
This was the last experiment on the Alcator-C Mod tokamak. The experiment produced 10 times the energy output that had been previously recorded using only a two-ion fuel. The experiment was so exciting that researchers operating the Joint European Torus (JET) in Oxfordshire U.K. repeated the experiment and achieved the same amount of energy output as the original experiment at the PSFC in MIT.
“These higher energy ranges are in the same range as activated fusion products,” said MIT fusion research scientist John C. Wright. “To be able to create such energetic ions in a non-activated device—not doing a huge amount of fusion—is beneficial, because we can study how ions with energies comparable to fusion reaction products behave, how well they would be confined.”
Using the new and innovative chemical YBCO which is applied to superconductor magnets, Commonwealth Fusion Systems hopes to produce the SPARC by 2025. The SPARC will only demonstrate that Commonwealth Fusion Systems does have the ability of manufacturing fusion tokamaks that can be used to generate electricity. If successful, and there is no reason to believe that they will not be successful, Commonwealth Fusion Systems will rapidly dominate the market for electricity production in the United States.
The cost of producing electricity from a fusion tokamak will dramatically reduce the cost of electricity for business and home consumption of electricity. The retail cost for electricity sales in the US for 2019 was $401.7 billion. The retail cost for electricity, once tokamaks from Commonwealth Fusion Systems are being utilized, assuming all other things being equal, will be roughly $40 billion (this is an estimate based on the Solow-Swan theorem). This will have a positive externality to the US economy with approximately $360 billion being left over for additional consumption and or investment. With a multiplier effect taken into account, this theoretically could increase the money supply in the United States to $3.6 trillion per annum.
A Free Market Approach for Funding
The PSFC decided that a commercial approach would be the best way to further develop a working fusion tokamak, rather than depending on money from government research grants. So, MIT spun off Commonwealth Fusion Systems. ENI was the first major investor with Commonwealth Fusion Systems with a $50 million investment. There are other investors in Commonwealth Fusion Systems to include Breakthrough Energy Ventures led by Bill Gates and Jeff Bezos. But the major investors into Commonwealth Fusion Systems appear to be the three SWFs previously described.
When contacted about the investment of the SWFs, Lindsay Daly, Public Relations Manager for Commonwealth Fusion Systems, replied in an email:
Following up with your questions here. As I mentioned, we cannot comment on the individual stockholdings of our investors for confidentiality reasons. That said, we can assure you that we are keenly aware of the laws applicable to us, including the FIRRMA implementing regulations promulgated by CFIUS. We can also say that our regulatory counsel and regulatory counsel for several of our investors each performed an exhaustive analysis of the application of CFIUS regulations and reporting requirements to us and our investors’ investment and believe that we fully complied with the requirements applicable to the investment.
The relevant part of FIRRMA that would apply to CFIUS monitoring any “critical” private equity in a US based enterprise is:
Most notably for private equity, FIRRMA amends the definition of “covered transaction” to extend CFIUS jurisdiction. Currently, CFIUS has jurisdiction to intervene in any “mergers, acquisitions, or takeovers that could result in foreign control.” Prior to the enactment of FIRRMA, CFIUS extended the definition of control, based on a series of factors in its regulations, to cover minority foreign investments that have the power to determine, direct, or decide important matters affecting an entity. Under this standard, control may be effectuated through a majority or dominant minority voting interest, board representation, proxy voting, special share, or some other arrangement.
The phrase “…or dominant minority voting interest…” suggests that the investment of three SWFs controlled by three different foreign countries in Commonwealth Fusion Systems should be under active monitoring of CFIUS due to their apparent minority dominant investment in Commonwealth Fusion Systems.
Commonwealth Fusion Systems has achieved fusion in a laboratory setting. Its results have been verified world-wide. The question now is not whether fusion is possible, but how to translate the results of the 2016 experiment into a functioning tokamak.
While the SWFs investing in Commonwealth Fusion Systems are currently friendly to the United States, as Lord Palmerston once observed:
“We have no allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow”.
Richard E. Caroll is a retired economist and soldier.