Chalmers must stand up for Australia’s interests with proposed Santos bid by UAE’s ADNOC

Hundreds of millions of dollars will be spent on lobbyists, public and government relations firms, lawyers, bankers and advisers who want the deal to go through.
Santos shareholders and management are advocating to sell and cash out.
The UAE will bring diplomatic pressure to bear, and the US may weigh in given the involvement of an American private equity firm and the recent Donald Trump visit to the UAE.
In the face of this tremendous pressure from vested interests, who will stand up for Australia’s interest? That is left to one man, our Treasurer. Jim Chalmers will be supported by various government agencies – including Australia’s excellent and dedicated national security personnel – reporting through to the Foreign Investment Review Board.
FIRB’s advice will be cognisant that energy and resources are not just a commercial matter: They are used as a strategic and coercive tool by foreign actors.
Three sets of our critical domestic energy infrastructure are at stake. If any of these were to be turned off, or fall into disrepair, it would cause an economic crisis. Santos also holds the largest stake in the most important economic asset in Papua New Guinea, and assets of strategic significance for East Timor.
Australia risks losing these strategic economic interests if the deal goes through.
ADNOC’s ownership by the UAE government poses unique national security risks for the deal. ADNOC and the UAE are widely viewed in a positive light in both industry and diplomatic circles.
But FIRB needs to consider how confident we can be that this will remain the case for decades ahead.
We can’t afford another Port of Darwin debacle. Once ADNOC owns Santos, it will be almost impossible to undo it. Whatever ADNOC’s intentions now, which may well be positive, sincere and genuine, one cannot rule out that this could change in the future.
Recent events show political leanings in the Middle East can change rapidly.
ADNOC’s strategy can be highly dependent on an individual, and may change as quickly as their current strategy was put in place (ADNOC’s global vehicle XRG was only formed last year). A change of just a single individual in the family-based UAE government could see policy towards Australia suddenly shift.
FIRB must consider the risk the Santos deal could become a Trojan horse for malign influence.
The deal risks introducing an overt cartel mindset to Australia’s energy landscape, given the UAE are already active members of the world’s largest cartel in OPEC.
ADNOC ownership of Santos would damage our region’s unique strategic position as an Asian source of energy supply independent of middle eastern influence.
Australia’s major Asian trading partners and LNG buyers are likely to view ADNOC ownership of Santos unfavourably, and may (quietly) feed this back to our government.
If one assumes FIRB would not allow Chinese ownership of Santos, then FIRB must also consider if similar risks could be indirectly posed via UAE ownership.
China will hold greater influence with the UAE than Australia ever will: China and the UAE have a comprehensive strategic partnership, the UAE is part of China’s Belt and Road initiative, and UAE’s China trade is an order of magnitude greater than Australian trade.
If China (or Russia or anyone else) leaned on the UAE to influence ADNOC's Australian assets, what confidence can we have that the UAE wouldn’t be receptive? How would we even know who, or what ends up influencing ADNOC's decisions over its Australian assets?
The level of confidence Australia can have towards UAE ownership is all the harder when they are not a values-aligned democracy.
The New York Times has recently highlighted issues with UAE’s foreign investments, including citing frustration by US officials at the lack of co-operation of the UAE in the 1MDB scandal, and claiming the UAE “coddled warlords and autocrats as part of a sweeping Emirati drive to acquire ports and strategic minerals”.
The UAE supported China on issues such as China’s Hong Kong security law and Xinjiang policies at the UN, which Australia did not support.
The British government prevented the UAE from acquiring a venerable newspaper last year, fearing it could affect press freedom, according to the New York Times.
If the UK won’t even allow the UAE to buy a newspaper, should we allow the UAE to buy multiple sets of our critical economic infrastructure, and the energy infrastructure of our pacific neighbours?
The Santos deal appears an early target in ADNOC’s broad global ambitions, which may include ownership of more sensitive assets around the world. We can expect an unusually strong UAE diplomatic offensive to make its early targets a success.
The UAE could offer Australia commitments regarding energy supply, and broader trade enticements, as it did for Germany with the Covestro deal. Indeed, Chalmers could put together a wish list for approval, and it may be granted.
But any unusually strong offerings by the UAE and ADNOC in support of the deal highlights the level of political influence at play here, and thus the precise national security risk this deal poses. The UAE’s political influence in support of this deal could easily become malign influence over these assets in support of a different political agenda in the future.
Australia should welcome investment from all over. In many ways, the UAE is a beacon of success in the region, and investment from the UAE is definitely welcome here. But that doesn’t mean allowing multiple sets of strategic assets to be handed over in one swoop to a UAE company with no track record. It’s doubtful the UAE would allow Australia to buy its critical infrastructure if the situation were reversed.
The UAE can build investment here just like Japan has done, starting with minority non-operating stakes, and proving a constructive relationship over time before control of more sensitive infrastructure is placed under consideration.
The trust required for sensitive investment in Australia must be earned, not merely bought. This is Chalmers’ chance to make clear that all of Australia isn’t simply up for sale if the price is right.
Saul Kavonic is head of energy research at MST Marquee
Massive lobbying is underway to push for Santos to be sold out of Australian hands to the United Arab Emirate’s national oil company ADNOC.