Australia is putting in place new rules on foreign investors that seek to acquire Australian electricity assets, including power generation, transmission and distribution.
“All future applications for the sale of electricity transmission and distribution assets, and some generation assets, will attract ownership restrictions or conditions for foreign buyers,” said Treasurer Scott Morrison.
The government will officially scrutinise future transactions on a case-by-case basis as it considers a range of factors, including the cumulative level of ownership within a sector, the need for diversity of ownership and the asset’s critical importance. The approach will see the government strengthen its control and actively manage the level of ownership in a single asset or within a sector.
“Parties interested in acquiring or selling critical infrastructure assets are encouraged to engage with the Foreign Investment Review Board as early as possible to identify if ownership restrictions or conditions may apply,” said Morrison.
At our 2017 Melbourne Summit, several participants complained the FIRB took too long to alert bidders to potential problems, with Gary Sorely, a director at the UK’s Foresight Group, suggesting “the introduction of a pre-screening process, where the FIRB could raise red flags would help” keep bidding costs down, now that it charges applicant fees to the tune of A$78 million ($62 million; €53 million), according to the FIRB’s latest annual report.
As foreign investment watchdog, FIRB reviews the applications. The Critical Infrastructure Centre, which is part of the newly established Department of Home Affairs, will also provide advice to support the government’s decision-making on transactions and help assess national security risks.
Morrison added that these conditions codify those already applied on a case-by-case basis to previous transactions. He said this approach should give clarity to potential investors and avoid “surprises” for state governments and private sellers of electricity transmission, distribution and generation assets, which are considered critical national assets.
In 2016, the Federal government rejected bids from China’s State Grid and Hong Kong’s Cheung Kong Infrastructure for the privatisation of Ausgrid, a state-owned electricity distributor in New South Wales, citing concerns over national security.
But despite the negative attention the FIRB sometimes attracts, board member Patrick Secker defended its record to us in an interview last summer:
“About 50 percent of the transactions we oversee end up with no conditions attached; the other 40 percent very rarely get conditions attached, but if they do they are there to ensure Australian interests are represented; it’s only about 10 percent of deals that generate concerns. And when there are issues, they will get very quick action from our department and applicants will get a very quick idea of the nature of the problem.”