CK Infrastructure’s APA bid to test security regime
APA Group suitor CKI has been a steady accumulator of major Australian energy network assets for a long time.
APA Group suitor CK Infrastructure has been a steady accumulator of major Australian energy network assets for a long time.
But the bid for APA — worth $22 billion after including $9bn in debt — could be its biggest challenge yet, amid heightened local concerns about foreign ownership of critical infrastructure and the increasingly assertive role of China in CKI’s home base of Hong Kong.
Australian Strategic Policy Institute executive director Peter Jennings said the bid should trigger concerns in the government about the growing foreign ownership of critical infrastructure, including ports, electricity and communications infrastructure.
“I would be surprised if this one received Foreign Investment Review Board approval,” Mr Jennings told The Australian yesterday. “The question will be, can you get confidence that the company can … control all of the east coast gas supply system and do it in a way to prevent Chinese intelligence services doing damage to it.”
The bid is likely to test the critical infrastructure regime centred in the newly created Department of Home Affairs under national security hawk Peter Dutton.
FIRB has also been headed by former national security chief David Irvine since last year.
The critical infrastructure centre maintains a list of assets and provides advice to FIRB on any security issues arising from a bid. Legislation before parliament and linked to the Foreign Interference Bill would also require companies and assets on the critical infrastructure register to sign up to a new security regime.
The heightened scrutiny comes amid growing global concerns about the ability of foreign governments and other bad actors to hack systems controlling critical infrastructure and use it for espionage and sabotage.
The bid was expected to trigger heightened interest because APA controls most of the gas transmission market on Australia’s east coast among 14,000km of pipelines linking gasfields to major population centres and industrial users, as well as metropolitan distribution networks.
Morningstar analyst Adrian Atkins said the deal would attract heightened regulatory scrutiny because of the size and significance of APA’s east coast network.
“If it was just one or two pipelines no-one would care, but it is an important piece of infrastructure,” Mr Atkins said.
CKI already owns gas and electricity distribution and transmission assets, including half of Victoria’s electricity network and all of South Australia’s. It has also passed FIRB approval to buy the gas distribution business Envestra and DUET — which owned the biggest pipeline Dampier to Bunbury — in a $10bn acquisition spree between 2014 and 2017. But it and State Grid Corp of China were blocked by Treasurer Scott Morrison from buying the Sydney-centred Ausgrid electricity network in 2016 because of unnamed national security concerns.
A report by KPMG this week found investment in Australia from Hong Kong and China dropped 11 per cent in 2017, with investments from SOEs falling for the first time since 2014.
The reports authors cited China’s clamps on capital outflows and changes to investment rules for strategic infrastructure assets as the main causes.
Mr Jennings said that while it might have been “barely defensible” to allow acquisitions such as CKI made ten years ago, any deal had to now be seen in light of a more assertive China.
“As Hong Kong finds itself increasingly under the dead hand of the Communist Party in China they (public companies in Hong Kong) have to be considered in the same light as state-owned enterprises,” Mr Jennings said.
The deal is also expected to face significant challenges from the Australian Competition and Consumer Commission, which conducted a previous review of gas networks that was critical of pricing.
That review has led to a new approach to gas transportation contracts that has strengthened the hand of new and renewing customers in negotiating prices with pipeline operators.
CKI deputy managing director Andy Hunter said yesterday that the bidder “supports increased regulatory oversight and transparency in the gas transmission sector.”
The ACCC yesterday said it would soon open a 12-week public review of the proposed takeover. The review would investigate the impact of the proposed takeover on competition for gas transportation, and on upstream and downstream gas markets.
“We will also be looking at the impact on competition for the construction of new pipelines in the future.”
CKI has also offered to sell three Western Australia pipelines to eliminate concerns about reduced competition.
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