UK to launch ‘wide-ranging’ foreign investment reviews

The UK government has today introduced proposals which will allow it to “call in” transactions that may pose national security risks, including in core infrastructure sectors.

This follows the government’s amendment last month of its Enterprise Act to allow ministers to intervene when the target business’s UK turnover is more than £1 million ($1.3 million; €1.1 million) – down from the previous £70 million benchmark, which primarily applied to the military and quantum technology sectors.

The new National Security and Investment White Paper will apply these laws to sectors across UK industry, including in telecoms, energy and transport companies and assets. The legislation was initially floated in a green paper last year as the National Security and Infrastructure Investment Review, although a spokesman for the Department for Business, Energy & Industrial Strategy told Infrastructure Investor the “infrastructure” tag was dropped to become “much more wide-ranging”.

The white paper also proposes a potential government review in an investment that involves the acquisition of at least 25 percent of a company or 50 percent of a single asset. Currently, it reviews about one deal per year on national security grounds. However, under the new measures the government expects about 200 notifications – of which it says half would be quickly screened out and the remainder subject to more detailed reviews.

In the telecoms sector, the government would consider reviews in cases of investment in networks covering more than one million end-users, as well as the operation of broadcast or satellite infrastructure.

Investments in the energy space the government would review include energy networks, gas and electricity interconnectors, gas storage and organisations owning more than 2GW of energy supply.

It would also examine cases of transactions involving ports accounting for more than 5 percent of UK traffic, operations of major airports and air traffic control services.

“The government believes that the proposed package of reforms published today strikes the right balance between maintaining the openness and attractiveness of the UK as a destination for inward investment, while also providing the government with modernised powers it needs to protect the country,” it said in a statement.

The proposals released are “a step towards [the] clarity” of “a continuation of an open environment for international investment recognising legitimate national security interests”, Jon Phillips, director of corporate affairs at the Global Infrastructure Investors Association, told Infrastructure Investor. He said the group will continue to engage with the government to inform its guidance.

‘New risks’ in UK infra

A recent review into Chinese firm Huawei’s broadband and mobile infrastructure equipment identified shortcomings which “exposed new risks in the UK telecommunication networks” and could only provide “limited assurance that all risks to UK national security from Huawei’s involvement in the UK’s critical networks have been sufficiently mitigated”.

The government explained the proposed laws would bring the UK in line with other countries such as the US, Australia, France and Germany.

A potential issue in Germany receded in March after China State Grid’s bid to buy 20 percent of grid operator 50Hertz from IFM was foiled after Elia exercised pre-emption rights. Germany’s intervention threshold of 25 percent ensured the government was powerless and the issue is now back on the table with China State Grid looking to buy IFM’s remaining 20 percent. The government is reportedly encouraging Elia to use its pre-emption rights again and then sell down the stake to Germany’s development bank KfW.