20 July 2016
by Angela Macdonald-Smith

Xenophon demands answers on Ausgrid sale to Chinese firm

South Australian senator Nick Xenophon has written to federal Treasurer Scott Morrison to raise concerns about the possible sale of NSW electricity distributor Ausgrid to China's largest state-owned utility in a flare-up of security and national interest worries over what is likely to be the country's biggest ever privatisation.

In the letter emailed to Mr Morrison's office on Monday, Senator Xenophon specifically asks whether advice has been sought from security and defence agencies on the possible $10 billion sale by the Baird government of Ausgrid to State Grid Corporation of China, one of two bidders expected to lodge a final offer by the July 25 deadline.

"Any sale to a foreign government-owned company should raise significant national interest concerns on this basis alone,"

Senator Xenophon writes.

"Can you please advise whether advice has been sought from ASIO and Defence in relation to any concerns that they may have about this proposed transaction," he asks, referring to issues that arose when the lease of Darwin Port to China's Landbridge were examined.

Senator Xenophon said the structure of the national electricity market made the sale of Ausgrid of national significance despite it being a NSW asset.

"The fact we have a national electricity market means that this has national implications," he said, adding that the market structure and the interlinkages between different state markets meant that an event in one state could have "a domino effect" on the market.

Senator Xenophon also advises he intends to re-introduce a bill to amend the Foreign Acquisitions and Takeovers Act to strengthen the national interest test and increase transparency of foreign investment decisions.

Two Chinese bidders
Fellow independent Bob Katter, who is a Queensland MP, is also known to harbour grave concerns about the Ausgrid sale. While he has not made specific representations about Ausgrid, foreign ownership of Australian assets was one of the items specifically discussed with Prime Minister Malcolm Turnbull in the potential hung parliament negotiations.

The sale of 50.4 per cent of Ausgrid, which delivers power to more than 1.6 million homes and businesses in Sydney, the Central Coast and the Hunter regions, has come down to just two bidders, China State Grid and Hong Kong-listed Cheung Kong Infrastructure. It is seen as likely to raise more than the $10.3 billion sale price of NSW transmission grid owner TransGrid in December.

Late last week the state government took the unusual step of advising the two bidders that it would accept bids conditional on approval by the Foreign Investment Review Board. The move goes against standard practice in a privatisation of insisting on binding, unconditional bids and was driven by concerns that issues around FIRB clearance could scuttle one of the bids, removing any competitive tension in the auction process.

But Senator Xenophon tells Mr Morrison in his letter that if he is not inclined to reject the bids, "then you should delay making any such decision until all relevant considerations are properly considered", including the matters he raises.

'Tokenistic'
Those include the increasing market concentration of State Grid in the Australian energy sector, where it already owns an extensive gas network in NSW, as well as the security concerns. He also raises worries about how undertakings would be enforced to limit a foreign company's control of an Australian asset, saying that stipulating that a chairman must be Australian or that certain data must be held in Australia are "tokenistic and do not in fact limit control".

Senator Xenophon also questions to what extent reports alleging a poor human rights record at State Grid would be considered in the approvals process for a bid.

​NSW Treasurer Gladys Berejiklian declined to comment on the auction process or the FIRB issues other than saying: "There has been extensive engagement between the NSW government, bidders and bodies such as the ACCC [Australian Competition and Consumer Commission], ATO [Australian Taxation Office] and FIRB throughout the Ausgrid transaction process."

The date for final bids for Ausgrid has already been put back as the FIRB approval process was held up by the general election. The move to accept conditional bids for Ausgrid allows the process of considering the two bids and the foreign investment approvals required, to take place behind closed doors, with the federal and state governments both heavily involved in the negotiations and consultations required.

Approval from FIRB is expected to be more of an issue for State Grid Corporation, China's biggest state-owned company, than for CKI, which, while it also has its roots in China, is Hong Kong-listed and privately controlled by billionaire Li Ka-shing.

But Senator Xenophon said he was also concerned about the growing concentration of Australian energy assets within CKI.

State Grid controls the extensive Jemena gas and electricity networks in Victoria and NSW, as well as networks and pipelines in South Australia and Queensland. CKI's local portfolio includes gas and power networks in South Australia and Victoria that have been involved in fiscal disputes with the Australian Taxation Office.

Senator Xenophon said he would also write to NSW Premier Mike Baird on the issues.

In April, Mr Morrison all but knocked back a proposal for the sale of Australia's largest cattle empire S.Kidman and Co to a Chinese-led consortium because he said it was contrary to the national interest. The consortium had lodged a $370 million revised bid to buy Kidman and an initial bid by a related Chinese company Pengxin was also rejected by Mr Morrison.