Treasurer Scott Morrison is about to get another big foreign investment test.
It involves his ability to manage the anti-Chinese investor sentiment most openly represented in politics by the combination of Pauline Hansen, Nick Xenophon and the Nationals but also an increasingly potent force in the broader community.
Then there are the policy issues arising from security concerns about foreign control of vital national infrastructure. Yet this is all to be somehow negotiated by Morrison without badly offending the Chinese or further inflaming domestic politics.
At issue is the NSW government’s decision to get as much money as possible in selling off 50.4 per cent of the state’s largest electricity distribution network, Ausgrid, via the political formula of offering a 99-year lease.
Senator Pauline Hanson: “Alarm bells ringing.”
Senator Pauline Hanson: “Alarm bells ringing.” SBS Publicity
The two bidders are China’s biggest state-owned company, State Grid Corporation, and the Hong Kong listed Cheung Kong Infrastructure Group, which is 30 per cent owned and controlled by Asian billionaire Li Kashing, and has considerable global investments operating and owning infrastructure, including Australia.
Hanson is already making plain her views, posting on her Facebook page that everyone should be alarmed at the prospect of China wanting to take control Australia’s electricity supplies.
“Alarm bells ringing,” she declared. “No foreign government – especially Communist China – should own and have control of our electricity here in Australia.”
Nick Xenophon has written to the Treasurer to inquire whether security concerns have been fully considered. And the Nationals are keener than ever to find outlets to express their new political power within the Coalition.
So just imagine the rhetoric and momentum that would inevitably follow if Morrison were to allow the bid from a giant Chinese state-owned business to proceed.
The bids went to the NSW government last week but are conditional on approval from the Foreign Investment Review Board which has been repeatedly delayed.
Informally, that always means personal approval from the Treasurer, who is expected to provide his preliminary views and draft conditions to the parties later this week or the beginning of next week. His final decision is expected very quickly after that.
This is clearly a high stakes games – and not just due to the expected bid prices of well over $10 billion, money supposed to help pay for Mike Baird’s new infrastructure rounds.
Despite the fashion for investment in infrastructure assets offering stable, long-term returns, Australian superannuation funds and other local investors are just not willing to pay the increasing sort of international money on offer – especially, it seems, from Chinese SOEs, like State Grid.
In the wake of community concerns as well as furore over the lease of the port in Darwin to Chinese interests, the government did appoint the former head of ASIO, David Irvine, to FIRB.
The fundamental issue remains whether imposing conditions such as Australian chairmen and particular board composition and local domicile in exchange for the money can ever offer sufficient protection of Australian interests.
The common expectation is that a state-owned Chinese company will be willing to pay considerably more even than CKI.
State Grid has a variety of funding sources, including Australian banks, but its ultimate financier is, of course, the Chinese government. NSW will be focused on the amount of money it can get even though it will also want guarantees about investment in upgrading and managing the network.
So the test for Morrison is likely to become, effectively, whether a Hong Kong listed company is a safer, better alternative in national security terms than a Chinese state-owned enterprise.
But there’s no clear framework for the federal government to assess this and division within government and bureaucracy about how important an issue it is.
No Australian Treasurer wants to say all this out loud, of course, especially when things are, ahem, a little sensitive with the Chinese and Australia insists it has a non-discriminatory foreign investment policy.
But it is also true that very few developed countries around the world allow Chinese SOEs to control their vital infrastructure as opposed to just being passive investors with minority stakes.
The new UK government under Theresa May is already taking a different view to her predecessor David Cameron, for example, delaying approval of the UK’s first nuclear power station in decades, apparently due to concerns about the level of Chinese SOE involvement in the project.
Yet previously, foreign ownership and effective control of Australia’s key infrastructure, including by State Grid, has not been considered a problem.
State Grid already has a substantial stake of Australian assets in an industry heavily reliant on foreign investment. This includes 44 per cent of ElectraNet, South Australia’s transmission grid.
In 2013, State Grid also purchased 20 per cent of Ausnet, whose assets include Victoria’s high-voltage network, from Singapore Power in a deal which meant Singapore Power retains 30 per cent ownership.
There was more unease about its purchase of 60 per cent of Jemena from Singapore Power in late 2013, meaning State Grid also effectively controls and operates Sydney’s gas network. But at the time, Joe Hockey had unexpectedly rejected a bid for Graincorp by America’s Archer Daniels Midland.
The Jemena approval was seen as a transparent attempt by Hockey to prove he did welcome foreign investment but was willing to treat each decision on its merits rather than on nationality.
Political concerns about the growing control of State Grid over Australian infrastructure have still been growing, obvious in the mutterings over its bid last year for another NSW electricity asset, Transgrid. This dilemma was conveniently avoided after it was outbid by another consortium.
That seems most unlikely this time. And that will require a very big decision and even more careful wording by the Treasurer.