On February 1, the Commonwealth Government announced new restrictions on foreign investment in energy – future applications for the sale of electricity transmission and distribution assets, and some generation assets will have ownership restrictions or conditions put in place for foreign purchasers (http://sjm.ministers.treasury.gov.au/media-release/005-2018/)

In today’s piece we look at:

  • what we know from the Government’s announcement;
  • whether it changes the status quo;
  • how it relates to the Security of Critical Infrastructure Bill 2017 currently working its way through Parliament;
  • new guidance for the purchase of agricultural land that has been announced at the same time.
By Dr Drew Donnelly, Compliance Quarter.
foreign investment in energy
Photo by NeONBRAND on Unsplash

The announcement on foreign investment in energy

The announcement does not actually list the ownership conditions and restrictions. Presumably, they will be forthcoming at some future point. All that we know is that there will be such conditions and in determining the conditions that will apply in a particular case, the Government will look at a range of factors, including:

  • the cumulative level of ownership within the sector;
  • the need for diversity of ownership;
  • the asset’s critical importance.

The announcement notes that any ownership restrictions will be flagged as early as possible in the process.

How does this differ from the existing approach to foreign investment in energy?

The Government suggests that this will codify what is already happening on a case-by-case basis, yet its notable that the proposed method also involves making foreign investment in energy decisions on a case-by-case basis. The Shadow Treasurer, Chris Bowen suggests that this is not a substantive change from the current process under the foreign investment framework.

Presumably, the announcement comes as a response to the controversial 2016 decision of Commonwealth Government to block the sale of interests in NSW’s Ausgrid to China-based investors on national security grounds (https://www.theguardian.com/australia-news/2016/aug/11/scott-morrison-blocks-ausgrid-sale-on-national-security-grounds). It looks as though this is a move towards providing more clarity to applicants (as well as vendors, such as state governments) as to how foreign investment in energy decisions will be made before applications have been developed, rather than after the fact.

In the announcement the Government also notes that the advice will be strengthened by ownership information to be included in the proposed ‘critical infrastructure assets’ register contained in the Security of Critical Infrastructure Bill 2017, currently before the Parliament.

What is the critical infrastructure assets register?

The purpose of the ‘Register of Critical Infrastructure Assets’ is to provide the Government with a better understanding of who owns and controls electricity, water, gas, port and telecommunications assets. Businesses involved in these kinds of assets will be required to provide interest and control information and operational information within a certain timeframe. This will help the Government understand who owns and controls assets, board structure, ownership rights of interest holders, and operational, outsourcing and offshoring information (for more information see https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=s1118).

It is clear that this information would be useful in working out whether or not a particular foreign investment in infrastructure should be permitted.

Guidance on foreign purchase of agricultural land

This announcement with respect to infrastructure is indicative of a general tightening of the ability of foreign entities to invest in Australia. At the same time as the infrastructure announcement, the Government announced a tightening of the rules in relation to foreign investment in agricultural land (http://sjm.ministers.treasury.gov.au/media-release/006-2018/).

Under the new guidance, foreign investors will need to show that agricultural land they wish to purchase has been:

  • part of a public sales process; and,
  • marketed widely to potential Australian bidders for a minimum of 30 days.

They will also need to demonstrate that Australian bidders have had an opportunity to participate in the sale process.

If you would like to know more or schedule a short call with the team at Compliance Quarter please leave your details here or email us directly here.

 

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