2016-08-11

The Treasurer Scott Morrison has handed down a preliminary decision stopping the sale of New South Wales electricity network Ausgrid to a Chinese consortium on national security grounds.

The New South Wales government was planning to lease a 50 per cent stake in Ausgrid for 99 years, providing it with the funds for infrastructure projects.

Mr Morrison said letting the lease proceed was contrary to Australia’s security interests.

“There has been an extensive period of engagement with the New South Wales Government and the bidders around the proposed lease. This has involved a detailed examination of national interest issues and possible measures which could mitigate identified risks,’’ he told reporters.

“In particular, during the review process national security issues were identified in critical power and communications services that Ausgrid provides to businesses and governments.

“I am, of course, open to consider what the bidders put to me, but at this stage no suitable mitigations have been identified that would, for the proposed transaction structure, appropriately address the identified risks.”

He said his government had been working with the Baird Government as it looked to offload the energy provider.

“That process has not enabled us to identify suitable mitigations to protect against the national security issues in this case. And that, at the end of the day, is paramount,” Mr Morrison said.

The decision is preliminary only and it gives the two Chinese bidders, state-owned company State Grid, and Hong Kong-based Cheung Kong Infrastructure, a week to put their case.

“I have invited the bidders to make submissions to me by 18 August 2016 in order to make a final decision after that time,” Mr Morrison said.

Mr Morrison would not detail what the security concerns were specifically. “The only person who’s security-cleared in this room to be able to hear the answer to that question is me,” he said.

Cheung Kong Infrastructure Holdings, owned by HK billionaire Li Ka-shing, put out a statement questioning Mr Morrison’s 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.

“CKI is a global infrastructure company that owns and has a strong successful track record of managing infrastructure assets such as electricity networks, gas networks, and water company in United Kingdom, Australia and New Zealand the past 25 years.

“Our investments in Australia is significantly more than that of Hong Kong and Mainland China and over 90 per cent of our profit contributions are generated outside of Hong Kong and Mainland China. Incidentally, CKI is incorporated in Bermuda and not in Hong Kong.”

The decision has also drawn a lot of criticism.

Hugh White from the Australian National University said it was hard to work out what the national security concerns were because Mr Morrison had not spelled them out.

“When the government decided to stop Huawei from buying the national broadband network in 2012, that made sense,” says Professor White told the BBC.

“If you have a lot of intelligence equipment in the national broadband network, you can conceivably gather a lot of sensitive data. But what’s the concern over a power grid – that the Chinese might turn off the electricity? That’s absurd.”

“Australian governments have proved to be very poor at understanding how to manage relations with China – they are a bit bewildered by China’s rise. We need to figure out how we live in a world where China has become the principal economic player in our neighbourhood.”

Former Foreign Minister Bob Carr was even more scathing.

“It would appear to be that this is a reaction to that elevation of xenophobic and economic populist sentiment stirred up by the last Federal election result and if that’s the case, I think Australians are challenged and we’re just going to have to think through some of the choices we might have forced on us,’’ Mr Carr told the ABC.

The issue has been politically difficult for the government coming after the controversial lease of Darwin’s port to a Chinese-owned company, the government approving the Kimberley Ord River cattle ­station sale before the election and its rejection of the sale of the Kidman cattle properties over security concerns.

Concerns about the sale have already been raised by One Nation leader and newly elected senator Pauline Hanson, South Australian senator Nick Xenophon and Independent MP Bob Katter

The Baird government went to last year’s state election on a platform promising to use the sale proceeds to fund the state’s biggest infrastructure building program since the Sydney Olympics in 2000.

And yesterday, it made it clear it was pressing ahead with the sale.

Treasurer Gladys Berejiklian said she would complete the Ausgrid sale before the state budget in June.

“I anticipate the money for this transaction will be banked in the next state budget,” Ms Berejiklian told the Australian Financial Review. “This is a very valuable asset which much interest. There were a number of people who came forward as bidders in December last year.”

Prospective bidders might include AustralianSuper, IFM Investors and Canadian pension funds.

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