When a deal’s not a deal, it’s a risky business

There’s more at stake in Australia’s review of Chinese-owned Landbridge Group’s long-term lease of the Port of Darwin than national security.

When Australia’s Northern Territory government awarded the long-term lease of the Port of Darwin to Chinese energy and infrastructure company Landbridge Group in 2015, the decision wasn’t exactly welcomed with open arms by everyone on the Australian side of the aisle.

The A$506 million ($392 million; €325 million) deal has continued to be a thorn in the federal government’s side ever since, with members of the federal opposition and national security experts in particular viewing it as nothing short of a colossal mistake.

Given all this, the recent call for a review of the 99-year lease by Australia’s Department of Defence (DoD) is hardly surprising. Indeed, taking into account new critical infrastructure laws passed in 2018 giving the federal government increased oversight of such assets – as well as escalating diplomatic tensions between Australia and China over the past year – the review seems, at a glance, to be as justifiable as it is inevitable.

It bears mentioning, however, that when Landbridge Group took over the ownership of the Port of Darwin six years ago, it did not happen in a vacuum. Reviewed at the time by the DoD, the Foreign Investment Review Board (even if it didn’t have the power it has today) and the Australian Security Intelligence Organisation, the lease did meet all legislative and regulatory requirements that were then in place. It wasn’t ideal, perhaps, when viewed through the lens of long-term national security and the current state of the relationship between the two countries. But still, it was a deal. And if the review currently being undertaken should lead to that deal being unravelled, this would surely result in its own set of less-than-ideal consequences for Australia.

Not least among the likely ramifications – on top of the financial fallout of reneging on a commercial deal of this nature and further worsening its relationship with China – is that Australia could very likely see its sovereign risk profile compromised. Countries where some deals are upheld and some deals are suddenly deemed less equal than others are bound to be less attractive destinations for foreign direct investment, and rightly so.

After all, to what extent can Australia, or any country in a truly globalised world, afford to let ever-evolving diplomatic relations determine their foreign investment rules?

As QIC head of infrastructure Ross Israel pointed out in Infrastructure Investor’s most recent Big Debate, countries that are seen to be inconsistent in applying foreign investment rules “dramatically lift uncertainty for foreign investors” and run the risk of reducing their own future economic growth, productivity and living standards. This is surely an outcome Australia would prefer to avoid if it can, which is different from saying it should do nothing if it feels its national security is indeed being threatened.

The real question, then, is how to strike the right balance.

In that sense – and regardless of whether the review results in the termination of Landbridge Group’s Port of Darwin lease – the idea of 99-year foreign investment commitments in the midst of such rapidly shifting power dynamics between nations already seems to belong in another century.