China has expressed anger over a decision by Australia to rule out Chinese bidders for an energy grid project potentially worth more than $7 billion on security grounds.
Australia’s treasurer Scott Morrison, who must approve major foreign investments, has blocked the sale of Ausgrid to State Grid Corp of China and Hong Kong’s Cheung Kong Infrastructure Holdings.
Last month, Britain said it would review plans to build two nuclear reactors at Hinkley Point with financial backing from China General Nuclear. Prime Minister Theresa May was reportedly concerned about the security implications of the proposed Chinese investment.
The disqualification of State Grid and Cheung Kong Infrastructure prompted the state of New South Wales (NSW) to restart the tender process for a majority stake in the grid.
“The NSW Government will now move immediately to relaunch the transaction process for the partial lease of Ausgrid and notes the strong market interest for this valuable asset,” NSW Premier Mike Baird said in a statement.
The decision to halt the A$10 billion ($7.6 billion) sale – Morrison made a preliminary decision to block last week before confirming the stance officially on Friday – has caused a rift with China, Australia’s biggest trade partner, just eight months after their A$100 billion free trade agreement took effect.
China’s commerce ministry said in a statement on its website that the decision showed uncertainty in Australia’s investment environment and would seriously hurt the willingness of Chinese companies to invest in the country.
State Grid said it “found it hard to understand and deeply regretted” the decision, adding it had followed regulations set by Australia in its bid and met all the bidding requirements.
The Ausgrid delay is the latest in a series of setbacks for planned privatizations across the country, including the shelving of energy asset sales in Queensland and the Fremantle Port in Western Australia; both of which were disrupted by a lack of support in their state parliaments.
Proceeds from the sale of Australian state-owned assets are designed to be ploughed back into the economy through job-creating infrastructure projects, including public transport networks.
The re-run of the Ausgrid tender opens the way for a local bidder, with Australia’s pension funds likely to play a role as a partner in any fresh offers.
One investment manager at a major Australian superannuation fund told Reuters that the bar on foreign bidders meant his fund would now look more closely at the asset, although he said it would take a long time to be in a position to bid.
Morrison said on Friday that the proposed structure of the Ausgrid bids would be contrary to the national interest. He has previously cited “national security issues”, without elaborating.
Foreign bidders will likely need to restructure their deals and bring in local partners to succeed in Australia, said Matthew Fitzgerald, an Australian-based corporate partner at law firm Herbert Smith Freehills.
“One example would be that rather than have a majority Chinese consortium buying the asset, you might have three or four different investors, some of whom are Australian, some of whom are Chinese,” Fitzgerald said.
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