By Foo Yun Chee, Clara Denina and Kane Wu
LONDON/BRUSSELS (Reuters) - China Three Gorges halted talks with EU regulators about its proposed 9 billion euro (8 billion pounds)takeover of Portugal's EDP-Energia de Portugal over a month ago, two sources close to the matter said, casting doubt on whether the deal will progress.
CTG launched a bid to take control of EDP, of which it already owns 23 percent, in May last year, but the transaction has moved at a slow pace.
Sources say CTG has yet to complete regulatory filings in Europe and the United States, although Portugal's regulator said there are no signs the Chinese state-owned utility is preparing to abandon the deal.
Three sources close to the matter said CTG's interest in lifting its stake in Portugal's biggest company has waned due to a combination of factors including a leadership shake-up at the Chinese state-owned utility, the prospect of tougher EU regulations on foreign investment and higher European electricity tariffs.
CTG was not immediately available to comment. EDP and the European Commission declined to comment.
A European Union proposal in November 2018 on rules for a far-reaching system to coordinate scrutiny of foreign investments into Europe, notably from China, will be voted on by the European Parliament in February or March.
Under the plan the European Commission would investigate foreign investments in critical sectors and offer opinions.
"That the anti-Chinese sentiment is also growing in Europe is a fact, and I can see how this is discouraging CTG," a banking source said.
The deal also faces hurdles in the United States, given that EDP's renewables arm, EDP Renovaveis SA (EDPR), has around $7 billion of assets in the country, making it subject to regulatory approval there.
The Committee on Foreign Investment in the United States (CFIUS), which examines deals for national security risks, has stepped up its scrutiny since Donald Trump became president in 2017, with Chinese investment in particular facing closer examination.
CTG has tried to sound out bidders for EDPR including Italy's Enel (MI:ENEI), Spain's Iberdrola (MC:IBE) to reduce the risk of U.S. objections but talks stopped as the process kept dragging on, sources said.
European utilities have been undergoing a wave of consolidation, seeking to create scale partly because of the increasing shift to renewable energy sources that is forcing them to change business models.
