Australia made a preliminary decision to reject bids for its Ausgrid electricity network from Hong Kong billionaire Li Ka-shing and State Grid Corp. of China amid growing opposition to selling infrastructure assets to overseas investors.
Treasurer Scott Morrison said it would be contrary to national security to allow the sale to proceed in its current form. He said the bidders, which he didn’t name, have been given a week to respond.
“I’ve informed the Ausgrid bidders of my preliminary view that their foreign investment proposals are contrary to the national interest,” Morrison said at a news conference in Brisbane Thursday. “That will require a final decision to be made once I have received those responses.”
The move is the latest sign that protectionism is on the rise in Australia, where Morrison earlier this year blocked the sale of the nation’s largest cattle rancher to a Chinese-led group, saying it could be against the national interest. If government-owned State Grid’s bid is ultimately blocked, Australia risks straining ties with its most important trading partner.
Li’s Cheung Kong Infrastructure Holdings Ltd. and State Grid made competing binding bids for Ausgrid last month, people familiar with the matter have said. State Grid didn’t immediately respond to a request for comment Thursday, while CKI couldn’t immediately be reached.
The prospects for Chinese suitors haven’t improved since the July 2 election saw a swag of protectionist independent or minor party lawmakers elected to the upper house Senate. The National Party, the junior partner in Prime Minister Malcolm Turnbull’s coalition, which has been a vocal critic of investment by Chinese state-owned companies, also now has a bigger voice in the government.
“There’s a lot of politics mixed up with this decision,’’ said Paul Williams, a political analyst at Griffith University. “The government is struggling to engage with the electorate and it’s looking to re-establish some political capital. A bit of economic nationalism never goes astray.’’
New South Wales state, which is seeking to sell Ausgrid to raise funds for infrastructure including schools, hospitals and roads, said the Treasurer’s decision wouldn’t delay its planned pipeline of investment.
“We will continue the transaction process for Ausgrid and note strong interest from investors in the asset,” state Treasurer Gladys Berejiklian said in a statement.
Morrison’s announcement comes as Australia balances the need for foreign investment to drive economic growth against mounting public opposition to sales of farmland, real estate and strategic infrastructure, particularly to Chinese investors.
Despite overseas capital being vital to Australia’s future expansion, the government is arguably making it harder for foreigners to invest. Last year, it tightened scrutiny of sales of farmland to Chinese, Japanese and Korean buyers. The government board that vets investments now includes a former spy chief.
When the Obama administration last year raised concerns that a Chinese company had bought a port in the northern city of Darwin, where U.S. Marines are based, Morrison beefed up oversight of the sale of state assets. He’s also blocked the sale of the S. Kidman & Co. cattle station.
“Ausgrid’s footprint includes critical power and communication services provided to businesses and government,” Morrison told reporters. “National security concerns are not country-specific and relate to the transaction structure and the nature of the assets.”
State Grid, which distributes electricity to 1.1 billion people, is bidding for energy assets globally as President Xi Jinping seeks to overhaul the country’s bloated state-owned businesses.
Earlier this year, it bought a stake in Brazilian power distributor CPFL Energia SA for $1.8 billion, and it already owns parts of electricity networks in South Australia and Victoria states. The company missed out last year when New South Wales electricity transmission network TransGrid was sold to a group of investors from Canada, the Middle East and Australia’s Hastings Funds Management Ltd. for about A$10.3 billion.
CKI owns stakes in electricity grids that service cities including Melbourne, Wellington and London.
Australia isn’t alone in pondering national security when it comes to foreign investment in critical infrastructure. U.K. Prime Minister Theresa May has postponed approval for a new nuclear reactor in which China General Nuclear Power Corp. would have a minority stake. May’s long-time adviser warned in a blog last year that China’s involvement in nuclear projects could allow them to “shut down Britain’s energy production at will.”
