January 27th 2018


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COVER STORY Loy Yang just latest critical asset to go offshore

EDITORIAL Behind the power shift in the Middle East

CANBERRA OBSERVED Freedom of religion just an afterthought?

GENDER POLITICS Family Court washes hands of gender-dysphoric kids

INTERNATIONAL AFFAIRS Western sanctions have forced Russia to upskill

INTERNATIONAL AFFAIRS China exerts soft power on our southern neighbour

ENVIRONMENT Senate committee puts marine life before people

SEXUAL ABUSE Royal commission report ignores cause of abuse

HIGHER EDUCATION Critical thinking and the culture of skepticism

INTERNATIONAL AFFAIRS U.S. urges Taiwan rearmament to counter China threat

PHILOSOPHY A reflection on thoughts of Richard Dawkins

MUSIC Group theory: A good band is greater than its parts

CINEMA Darkest Hour: A long time till dawn

BOOK REVIEW 'Populism' and the new social divide

BOOK REVIEW Poems outshine dross of inept introduction

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COVER STORY Loy Yang just latest critical asset to go offshore

by Chris McCormack

News Weekly, January 27, 2018

The decision to allow wholly Chinese-owned company Alinta Energy to purchase the Loy Yang B power station in Victoria, ahead of a majority Australian-owned consortium bid casts doubt on the efficacy of the Foreign Investment Review Board’s (FIRB) process and the Federal Government’s oversight.

Lord, preserve us, should it come to this!

A consortium comprised of 100 per cent Australian-owned Delta Electricity and U.S. private equity firm Apollo Global Management bid unsuccessfully for the power station.

Delta Electricity director Trevor St Baker confirmed that his consortium had been subject to a condition that Australian ownership of the coal-fired Loy Yang B not fall below 56 per cent. The Delta/Apollo consortium was 67 per cent Australian owned.

Mr St Baker, speaking to The Australian Financial Review (November 23), questioned how, if this same condition was applied to Alinta Energy, a 100 per cent Chinese-owned company, it was able to win the bid for Loy Yang B. A third bidder was a Chinese government-owned corporation.

Mr St Baker said that the prospective acquirers of Loy Yang B were subject to the following conditions:

FIRB conditions ensuring the sale and acquisition would not be contrary to the national interest, and approval by Federal Treasurer Scott Morrison.

Recommendations of the Critical Infrastructure Centre of the need for critical infrastructure assets to be maintained under Australian control, and under which electricity generation stations that are critical to ensuring the security and reliability of an electricity network in a state or territory, are critical electricity assets.

Upon hearing of Alinta’s success, Mr St Baker said the concession granted to foreign-owned companies (namely, that 100 per cent foreign ownership could be overcome by the presence of majority Australian-resident directors) was not appropriate when there were Australian companies that fulfilled the foreign investment conditions and were willing to buy the asset, or where the asset was part of critical national infrastructure.

Apparently, as part of the deal, Alinta had secured a six-month period for full compliance with the foreign-ownership conditions after representations were made to the FIRB from Loy Yang B’s former foreign owners, Engie and Mitsui & Co, foreign-owned sale and acquisition manager Rothschild Australia, and Alinta itself. Mr St Baker commented that awarding such a concession to the other bidder “would not seem to be an even-handed approach to the respective bidders”.

He expressed concern that “there seemed to be a campaign to legitimise different foreign-ownership conditions on foreign-owned companies involving a critical electricity generation asset compared with Australian entities … As local ethical business persons, the Delta Electricity owners do not have the ‘front’ nor the clout that foreign vested interests seem to be capable of bringing to bear, notwithstanding announced government policy, fairness in application of the laws and rules, or just plain national interest.”

Ownership trail

Alinta Energy was sold to Chinese company Chow Tai Fook Enterprises in April 2017. According to The Australian, Chow Tai Fook (CTF) had told Alinta that the FIRB had no objections to the acquisition.[1] The sale meant CTF took control of a utility with 800,000 electricity and gas customers and electricity generation of up to 1957 megawatts.[2]

The November 2017 acquisition of the 1,050 MW Loy Yang B power station means CTF/Alinta’s share of electricity generation now exceeds 3000 MW. Loy Yang B alone generates around 17 per cent of Victoria’s electricity.

The CTF takeover of Alinta in April came around the same time as the Federal Government approved a $7.3 billion takeover of Duet Group by another Chinese company, Cheung Kong Infrastructure Holdings (CKI). That resulted in three out of five of Victoria’s electricity distributors and two out of three of its gas distributors being controlled by CKI, as well as controlling the sole gas conduit for Perth and coastal Western Australia: the 1600-kilometre Dampier-to-Bunbury Natural Gas Pipeline.[3]

In January 2017, Attorney-General George Brandis and Treasurer Scott Morrison released a joint statement announcing the establishment of a Critical Infrastructure Centre that would “develop coordinated, whole-of-government national security risk assessments and advice to support government decision-making on investment transactions.” It would also “provide greater certainty and clarity to investors and industry on the types of assets that will attract national security scrutiny”.

This was being done, they added, because “with increased privatisation, supply chain arrangements being outsourced and offshored, and the shift in our international investment profile, Australia’s national critical infrastructure is more exposed than ever to sabotage, espionage and coercion”.[4]

Yet, despite the statement saying the “Centre’s initial focus will be on the most critical assets in our electricity, water and ports sectors”, the aforementioned three separate sales involving critical infrastructure being sold to Chinese companies have since been approved. And the supposed “greater certainty and clarity to investors” from the Centre did not form any part of the sale of Loy Yang B, as the successful Chinese bidder managed to gain concessions in relation to foreign ownership rules while edging out a majority Australian-owned bidder.

The three approvals come in the wake of critical infrastructure acquisitions by the Chinese Government-owned State Grid of China (SGOC), which, according to the Lowy Institute, is “intimately tied to a wide range of military and intelligence agencies across China”.[5] SGOC effectively controls electricity distribution in north-western Melbourne, co-owns Victoria’s network of poles and wires and electricity distribution in eastern Victoria, and gas distribution in western Melbourne and regional Victoria.[6]

The approvals also follow the decision to lease the Port of Darwin for 99 years to Chinese company Landbridge in 2015. In June 2017, The Guardian reported that Landbridge was seeking a loan of up to $500 million from Chinese Government-owned Export-Import bank (Exim) to expand its operations, and was putting up the port as security. The Northern Territory Government said that the lease agreement did not allow Landbridge to offer the port as security and that Landbridge would have to form a new agreement with the NT Government to do so. The Defence Department’s access to the port expires in 2040, 74 years before Landbridge’s lease ends.[7]

A loan default where critical infrastructure is offered as security could end in a messy and protracted fight over ownership of the asset, not to mention the issue of Defence and others relying upon foreign interests to access the port.

It is critical that other Australian ports, such as Port Hedland, one of the largest iron-ore loading ports in the world, and the Port of Freemantle, both of which the West Australian Liberal government was in the process of privatising before losing the election to Labor, not be privatised or sold to a foreign bidder, without regard for the very real risk to Australian sovereignty and jobs.

“The Government is willing to privatise the only point of egress for the next generation of WA’s miners in the region as a short-term fix,” Association of Mining and Exploration Companies (AMEC) chief executive Simon Bennison was quoted as saying in Perth Now in November 2016, after the legislation to sell the Pilbara port passed through the WA Parliament. AMEC claimed that up to 2000 jobs and $1 billion worth of trade was at risk if the port was privatised.[8]

The WA Labor Government has not indicated an intention to sell the Utah Point Bulk Handling Facility at Port Hedland or the Port of Freemantle.

The Port of Newcastle was sold off in 2014 with China Merchants Group acquiring a 50 per cent share.[9] The Victorian Government sold a 50-year lease on the Port of Melbourne in 2016 to a private consortium of which 60 per cent was foreign owned. Twenty per cent is owned by the state-owned China Investment Corporation, 20 per cent is owned by Canadian pension funds, and another 20 per cent is owned by Global Infrastructure Partners, based in the United States.[10]

And what do we get in return? The Victorian Labor Government indicated a large proportion of profits from the sale would go towards removing rail level crossings. So, now we can queue in congested Melbourne traffic, minus the level crossings, safe in the knowledge that we’ve handed over control of Australia’s largest port to majority foreign ownership.

In addition to Victoria, two other states and one territory’s selloff of critical electricity infrastructure makes for sobering reading. In South Australia, Chinese company CKI and subsidiary Power Assets Holdings own a 51 per cent share, on a 200-year lease, of the SA Power Networks Electricity Distribution network.[11]

In the ACT, foreign company Jemena owns half the electricity distribution network. Sixty per cent of Jemena is owned by the Chinese Government-owned SGOC, while the other 40 per cent is owned by Singapore Power International.[12]

In December 2015, the NSW Electricity Networks consortium comprising 65 per cent foreign ownership (25 per cent Canadian and 40 per cent Middle Eastern) won a 99-year lease of TransGrid’s transmission network for $10.3 billion. The SGOC was one of the bidders cleared by the FIRB but did not ultimately win the bid. Is it conceivable that FIRB gave the green light to a Chinese Government-owned company to acquire such critical infrastructure?[13]

A favourite ploy of advocates of foreign ownership, including past and present parliamentarians, is to label anyone opposed to it a xenophobe, as if a desire to ensure sovereignty over and security of critical infrastructure assets somehow makes one racist. Such ad hominem attacks are a diversionary tactic aimed at preventing any debate or resistance to foreign ownership.

Between 2013 and 2015 Chinese- linked companies and individual benefactors donated more than $5.5 million to the Liberal and Labor parties.[14] The question is, what do they expect in return for these large gifts? And are these influencing government decisions on Chinese investment in Australia’s assets?

Notwithstanding the Government’s proclamations that the Critical Infrastructure Centre would assess the risks associated with foreign ownership of critical infrastructure, decisions continue to be made in favour of 100 per cent foreign ownership, even when a majority Australian-owned buyer is bidding. Australians deserve to know whether foreign buyers are favoured when bidding for Australia’s critical infrastructure assets and, indeed, why we are selling our critical infrastructure assets to foreign buyers at all.

References

[1] Robb M. Stewart, “Chow Tai Fook Enterprises wins nod to take over Alinta”, The Australian, April 25, 2017.

[2] “Alinta Energy shareholders sign binding agreement to sell company to Chow Tai Fook Enterprises”, alintaenergy.com.au.

[3] Josh Gordon, “Melbourne's electricity and gas facing greater Chinese control”, The Age, April 9, 2017.

[4] Attorney-General George Brandis and Treasurer Scott Morrison, “Keeping Australia’s critical infrastructure secure”, www.attorneygeneral.gov.au.

[5] Geoffrey Wade, “The State Grid Corporation of China: Its Australian engagement and military links”, the interpreter, lowyinstitute.org.

[6] Op. cit. [3]

[7] Helen Davidson, “Refinancing of Port of Darwin raises fresh concerns over Chinese lease”, The Guardian, June 9, 2017.

[8] Stuart McKinnon, "Lobby group's fury over Pilbara port sale", Perth Now, November 18, 2016.

[9] Glenda Korporaal, “Chinese stake in Port of Melbourne bid a sign of times”, The Australian, September 20, 2016.

[10] Ibid.

[11] Chris Uhlmann, “Chinese investment in Australia's power grid explained”, ABC News, August 21, 2016.

[12] Ibid.

[13] “TransGrid”, Wikipedia, accessed November 7, 2017.

[14] Chris Uhlmann and Andrew Greene, “Chinese donors to Australian political parties: who gave how much?”, ABC News, June 8, 2017.




























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