Australian government blocks Chinese investment in electricity network

The Australian government has preliminarily blocked competing bids from Hong Kong and Chinese companies from acquiring a controlling stake in the country's largest electricity network, citing national security issues.

Australian Treasurer Scott Morrison said in a statement to media that the bids from Chinese and Hong Kong companies "were contrary to the national interest."

Chinese state-owned State Grid Corporation and the Hong Kong-based Cheung Kong Infrastructure, had been in the race for a 99-year lease for the 50.4-per cent stake in Sydney electricity grid Ausgrid, in a deal where the Australian government would have netted around $10 billion.

Ausgrid is New South Wales's electricity distribution network and the largest in Australia.

After evaluating the two bids, Morrison said "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.''

"I have invited the bidders to make submissions to me by 18 August 2016 in order to make a final decision after that time."

The two bidders will now have to address these concerns, if they intend to continue to be in the race for the deal.

''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.''

''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 added.

Morrison told reporters that, "When it comes to foreign investment, particularly in an asset such as this, the national security issues are paramount," but he did not elaborate what the security concerns were.

But some analysts opine that if Ausgrid was in control of the Chinese, it could be vulnerable to cyberattacks from hackers from Russia, who had in December hacked the Ukraine electricity grid.

Cheung Kong Infrastructure, owned by Hong Kong billionaire Li Ka-shing, said that that it had been operating power, water and gas networks in the UK, Australia and New Zealand for 25 years, and ''We believe that the Australian government must have reasons beyond the obvious which led them to make today's announcement.''

Surprisingly Cheung Kong Infrastructure owns electricity and gas distribution networks in several Australian states, while State Grid Corp holds stakes in three local power companies.

Australia has blocked several Chinese deals in the recent past. In April this year, Scott Morrison blocked the sale of Australia's largest private land holding to Dakang Australia Holdings Pty Ltd, a Shenzen-listed company controlled by the conglomerate Shanghai Pengxin, saying that the sale was not in the national interest.