Australian Treasurer Scott Morrison blocks sale of 99 year lease of Ausgrid to Chinese and Hong Kong bidders

WHO SHOULD READ THIS

• Any foreign person who is considering investing in Australia.

THINGS YOU NEED TO KNOW

• Australian Treasurer Scott Morrison intends to reject the foreign investment proposals by Chinese and Hong Kong bidders to acquire a 99 year lease of 50.4 percent of Ausgrid, as he considered these proposals would be contrary to the national interest.

WHAT YOU NEED TO DO

• Seek advice on whether your proposed investment will be contrary to the national interest.

On 11 August 2016, Australian Treasurer Scott Morrison announced his preliminary view that the foreign investment proposals for the acquisition of a 99 year lease of 50.4 percent of Ausgrid (a New South Wales electricity distribution network) by each of State Grid Corporation (a Chinese government-owned entity) and Cheung Kong Infrastructure Holdings (a Hong Kong-listed company) were contrary to the national interest on the grounds of national security.

In his media release, Mr Morrison noted that “national security issues were identified in critical power and communication services that Ausgrid provides to businesses and governments”.

These preliminary decisions have been regarded as a major setback for the New South Wales Government who had hoped to complete the transaction to help raise funds for infrastructure projects. In any case, Mr Morrison has invited the bidders to make submissions by 18 August 2016, which will be considered for the final decision. .

Until recently, the acquisition of assets by a private foreign investor from Australian local, State or Federal government entities would not have been subject to review by the Foreign Investment Review Board (FIRB). However, following the concern surrounding the acquisition of a 99 year lease over the Port of Darwin by a Chinese company, changes to the FIRB rules were pushed through to ensure the Federal Government (through FIRB) had the opportunity to review any proposed sale of critical infrastructure, such as Ausgrid.

The rejection of each of the Ausgrid proposals is likely to have wider ramifications, particularly in terms of increasing the level of uncertainty over foreign investment approvals for applications by large international investors. Given the preliminary decisions, it is clear that FIRB is reluctant to approve foreign investment applications which result in a foreign person acquiring a majority interest in an entity that provides key services to Australian governments and businesses.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.