Australia to block Chinese USD9b energy takeover bid

Not for sale: Powerlines run across a section near Brisbane

The Australian government yesterday warned it intends to block a Hong Kong and Chinese consortium’s 13 billion Australian dollar (USD9 billion) takeover bid for an energy infrastructure company because it conflicts with Australia’s national interest.

The CK Consortium needed approval of Australia’s Foreign Investment Review Board to take over APA Group, which owns more than 43,700 kilometers (27,100 miles) of gas pipeline in Australia.

Treasurer Josh Frydenberg said he had told the consortium of his preliminary view that the takeover was not in Australia’s interests.  In practice, the decision to block the sale is final.

“I have formed this view on the grounds that it would result in an undue concentration of foreign ownership by a single company group in our most significant gas transmission business,” Frydenberg said in a statement.

The Foreign Investment Review Board was unable to reach a unanimous recommendation, expressing concerns about the national interest implications of such a dominant foreign player in the gas and electricity sectors over the longer term, Frydenberg said.

Peter Jennings, executive director of the government-established Australian Strategic Policy Institute think tank, had been advocating for weeks for the government to veto the sale on national security grounds.

“My sense is that if the FIRB and the treasurer are taking national security considerations seriously into account, they should say ‘no’ to this particular proposed takeover,” Jennings said in September.

The consortium is led by Hong Kong-registered Cheung Kong Infrastructure Group, better known as CKI. CKI and Chinese state-owned State Grid Corp. were in 2016 blocked on classified national security grounds from leasing for 99 years a 50.4 percent stake in Ausgrid, a Sydney electricity grid, for more than AUD10 billion.

That decision was made by Prime Minister Scott Morrison when he was treasurer.

While reasons were not detailed, there was speculation that the consortium was blocked because Ausgrid included an electricity node that was connected to the secretive joint U.S.-Australian intelligence facility at Pine Gap in central Australia.

Jennings said the finding that the sale of APA to Chinese interests was not in Australians’ interest was a “no-brainer.”

“If the takeover proceeded, we’d have about 70 percent or more of electricity and gas infrastructure would be owned by either CKI, a Hong Kong company, or State Grid, a Chinese state-owned entity,” Jennings said.

“I just think that’s a risk that no country would really find acceptable,” he added.

In 2016, China’s state-run Xinhua News Agency criticized Australia for rejecting the Ausgrid bid along with Britain’s recent move to delay a decision on a new nuclear power plant backed by Chinese investment. The agency said that although China’s “dramatic development, huge population and unique culture” may cause concern for some countries, it could also result in “China-phobia.”

The Chinese Embassy noted this was the second time in 2016 that the government has decided not to back applications by Chinese bidders to invest in Australia.

Morrison had earlier blocked a Chinese-led consortium Dakang Australia Holdings from buying an 80 percent stake in Australia’s largest private landholding, S. Kidman & Co. Ltd.

The embassy said the two decisions showed “a clear protectionist tendency and would have serious impact on the enthusiasm of Chinese firms which want to come and invest in Australia.”

The embassy did not immediately respond on Wednesday for a request for comment on the government’s latest decision.

In 2015, President Barack Obama raised questions with then Prime Minister Malcolm Turnbull after Australia allowed a Chinese company, Landbridge, to secure a 99-year lease over the strategically important Port of Darwin, which has become a U.S. Marines training hub in northern Australia. Turnbull said Australian defense and security officials determined the AUD506 million deal did not threaten national interests.

The Australian Competition and Consumer Commission, that fair trade watchdog, approved the APA deal in September on condition that the consortium reduced its gas market dominance in Western Australian state by selling some of its pipelines there. The bid was made in June. Rod McGuirk, Canberra, AP