The requirement to obtain approval from the Foreign Investment Review Board (FIRB) prior to undertaking projects in Australia is not a new concept to the resources and renewables sectors.
Mining leases have had a $0 FIRB threshold for a number of years. However, the last two years have seen the introduction of significant amendments to Australia’s regulation of foreign investment and critical infrastructure which directly impact the energy and resources sectors.
In 2020, the Federal Government introduced reforms to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the FATA) which commenced on 1 January 2021. These reforms were closely followed by a tightening of rules relating to the security of Australia’s critical infrastructure pursuant to the Security of Critical Infrastructure Act 2018 (Cth) (the SOCI Act).
This suite of reforms (which are now in force) reflect the Federal Government’s increased focus on Australia’s national security and have had various implications for investment into Australia’s resources and renewables sectors.
FIRB – national security reforms
The 2021 reforms to the FATA saw the introduction of a new category of requirements for foreign investment approval based on national security considerations as well as the granting of sweeping new powers to the Treasurer (administered through FIRB).
Foreign investors are now required to seek FIRB approval before undertaking a transaction which is classified as a notifiable national security action (NNSA). This new type of action is triggered in transactions that relate to:
- a national security business (which has a very broad meaning); or
- national security land.
The reforms also give the Treasurer the power to ‘call-in’ investments that are not otherwise caught by the FIRB rules if the Treasurer considers that the action may pose a national security concern. The Treasurer may call-in an investment for review any time in the 10 years following a transaction, to determine if the investment was contrary to Australia’s national security. Once the Treasurer has reviewed the investment, the Treasurer may issue a no objection notification (with or without conditions), prohibit the action or otherwise order the divestment of the investment if it is considered to be contrary to Australia’s national security. FIRB has published extensive guidance notes to signal the sectors (and areas within specific sectors) that raise national security concerns and which may be called in.
To mitigate the risk of the Treasurer ‘calling in’ an investment, investors can voluntarily submit an application to FIRB under the reviewable national security actions (RNSA) provisions. This application carries a lower application fee but is otherwise the same application process.
These new powers and actions (particularly the RNSA concept) can often capture investment into the resources and renewables sectors. In particular, the critical minerals sector is an area in which FIRB explicitly encourages voluntary notification by prospective foreign investors under the RNSA provisions. The Federal Government’s increasing focus in this space is reflected in global demand for critical minerals and the need for diversification in the critical minerals sector.
Security of Critical Infrastructure
More recently, the reach of the NNSA provisions (i.e. compulsory FIRB notification for national security actions) has been greatly extended because they apply to foreign investment into certain critical infrastructure as defined in the SOCI Act. The areas covered by the SOCI Act are expanding and in recent years an additional 11 sectors have come within those rules. Most importantly for resources and renewables, these sectors include energy, water and transport.
If an entity is subject to the SOCI Act (by reason, for example, of being a responsible entity for or a direct interest holder in a critical infrastructure asset) the entity will be subject to a number of requirements that include:
- providing the Secretary of the Department of Home Affairs regular operational information in relation to the asset;
- providing the Secretary of the Department of Home Affairs information about the entities that have an interest in and control of the asset;
- reporting to the Commonwealth in relation to a cyber security incident that has (or is likely to have) a significant or relevant impact on the asset; and
- now being subject to the FIRB NNSA requirements.
The reforms to the FATA and the SOCI Act are interconnected, as the definition of ‘national security business’ under the FATA includes a business that is carried on wholly or partly in Australia and which concerns an asset deemed to be critical infrastructure.
For example, under the SOCI Act an asset will be a critical electricity asset if it is ‘an electricity generation station that is critical to ensuring the security and reliability of electricity networks or electricity systems in a State or Territory…’. The SOCI Act also casts a wide net by deeming assets which service at least 100,000 customers and are involved in the distribution of electricity (grid assets) as critical infrastructure.
In a similar fashion, freight networks, gas assets and liquid fuel which are “critical” to ensuring reliability and security in their respective areas will also all be caught under the new expansive SOCI Act. Importantly, it is not only foreign persons who are subject to the extensive reporting requirements under the SOCI Act, but also Australian entities who own or control critical assets.
What now for resources and renewables?
These reforms, which are technical and complex in their application to various investors, have already impacted investment into the resources and renewables space. Now more than ever, foreign entities looking to invest in Australia (or entities with interests in critical infrastructure) need to consider their initial and ongoing obligations under the FATA and the SOCI Act well ahead of taking action and also on an ongoing basis to ensure compliance.
Investment into the critical minerals space is subject to a higher level of scrutiny promised by FIRB and now two Federal Governments. Not surprisingly, we have observed a particular interest by the Federal Government in investment that is inbound from China. Foreign investors should carefully consider the potential national security implications when undertaking any investment into this space including at the exploration phase, which is usually exempt from the FIRB rules.
Notwithstanding this scrutiny, investment into the renewables sector from all sources remains positive. This is particularly the case in the context of green field projects because FIRB considers the new supply as being in Australia’s national interest and the ability to negatively impact the grid to be minimal. This approach is consistent with Australia’s now increased emissions reduction targets. Despite the ever-increasing regulation in this space, and much tighter oversight applied by various regulators, FIRB and the Australian Government maintain a positive stance with respect to foreign investment into all sectors, and generally opt to impose conditions on foreign investment to ensure oversight as opposed to rejecting the investment altogether.