Ausgrid: Treasurer Scott Morrison shuts China out of electricity grid

Scott Morrison’s decision to block two bids for Ausgrid on security grounds has cast a shadow over our China relationship.

Treasurer Scott Morrison. Picture: Renee Nowytarger

Scott Morrison’s decision to block two Chinese bids for NSW’s electricity assets on national security grounds has cast a shadow over Australia’s relationship with its biggest trading partner and the prospects for foreign investment in critical infrastructure.

The Treasurer said the foreign investment rejection was a preliminary decision and he gave the two bidders — the publicly listed Hong Kong business Cheong Kong Infrastructure (CKI) and China’s government-owned State Grid — seven days to amend their offers for Ausgrid, which owns the electricity grid from Sydney to Newcastle and the Hunter Valley.

However, Mr Morrison said the government had tried and ­failed to find conditions it could impose on the sale, expected to fetch up to $14 billion for the NSW government, that would satisfy the national ­security ­concerns.

Asked what the concerns were, he said: “The only person who’s security-cleared in this room to be able to hear the answer to that question is me.”

The Hong Kong company CKI, controlled by business magnate Li Ka-shing, immediately questioned the motives for the ­decision. “We believe that the Australian government must have reasons beyond the obvious which led them to make today’s announcement. The issue is unrelated to CKI,” the company said in a statement.

The decision has blown a hole of up to $14bn in the NSW infrastructure budget, with money ­already committed to projects. Other potential bidders for the asset may not be prepared to pay as much as the rejected bidders.

Mr Morrison said the decision was not aimed at the Chinese but was related to the nature of ­Ausgrid’s assets, which include supplying electricity and communication services to business and government, and to the ­nature of the transaction, under which the bidders were being ­offered a 50.4 per cent stake in a 99-year lease. He said national security was his “paramount” concern and noted he had appointed former ASIO director David Irvine and an adviser to the defence white paper, David Peever, to the Foreign Investment Review Board to ensure this was reflected in its recommendations.

“My preliminary view is that the foreign investment proposals put to me for this transaction are contrary to the national interest, in accordance with the required provision on the grounds of ­national security,” he said.

GRAPHIC: Blocked bids from China

There are concerns the decision, coming after the rejection of a Chinese bid for the Kidman cattle stations and controversy over the lease of Darwin Port to a Chinese company, will damage Australia’s relationship with China.

“It is going to be another thing that shows we are not the reliable friends and partners they believed that we were,” said the director of the ANU’s China Institute and former assistant director of the Office of National Assessments, Richard Rigby.

Former NSW premier Bob Carr, director of the Australia-China Relations Institute at University of Technology Sydney, said it reflected the mood of the federal election. “The Treasurer’s decision yesterday is a huge concession — the first major policy sacrifice — to the witches’ Sabbath of xenophobia and economic nationalism stirred up in the recent federal election,” he said.

Australia and China signed a free-trade agreement last year that was intended to foster a greater flow of investment, but Professor Rigby said there was a danger that under Malcolm Turnbull, Australia’s relationship with China was entering a rocky period similar to 2008-09 under Kevin Rudd.

He said the Ausgrid decision added to unrelated problems ranging from Australia’s strong criticism of China’s activity in the South China Sea to Australian swimmer Mack Horton calling his Chinese rival Sun Yang a drug cheat at the Olympics, to destabilise the relationship.

“The cumulative effect of a number of discrete decisions and positions we’ve taken has moved us into a more adversarial stance,” he said, adding that only the Prime Minister could resolve this.

Labor Treasury spokesman Chris Bowen said he accepted Mr Morrison’s rejection of the bid: “Labor assumes and trusts that the Treasurer is acting on advice of the national security agencies.”

CKI has been operating parts of Victoria’s electricity grid since 2002 and also operates South Australia’s grid, while State Grid owns power distribution assets in Victoria and widespread gas assets.

It is possible Mr Morrison was concerned that Ausgrid supplied defence establishments although other privatised electricity distributors do this too.

Advisers to the deal said Treasury had concluded it could be approved with conditions similar to those in the privatisation of NSW’s high-voltage power grid last year; they believed the decision was swayed by political considerations.

Initial views from China were similar.

The professor of inter­national political economy at Peking University, Zha Daojiong, said investments in electricity assets should be based on quality and durability of service to customers, whether in China or Australia.

“The rejection by the Australian government seems to fit into a general pattern of de-globalisation that is going on around the world,” he said. “National security is a very convenient phrase to pick for ­justification.”

NSW Treasurer Gladys Berejiklian said she was surprised by the rejection because the federal government had not raised any concerns when the identities of the two bidders were disclosed last year. She said the government would try to find other bidders.

Potential bidders include Westpac-owned Hastings Funds Management and Canadian pension fund manager Caisse de depot et placement du Quebec, IFM Investors, Queensland Investment Corporation and China Southern Power Grid and its partner, Global Infrastructure Partners. Chief executive of Infrastructure Partnerships Australia Brendan Lyon said the decision risked deterring further foreign investment in Australian infrastructure.