Security services told treasurer Scott Morrison that Chinese interests could sabotage Ausgrid

These are not the strategically sensitive assets you’re looking for. Picture: Getty Images

The Foreign Investment Review Board concluded unanimously that a 99-year sale of the Ausgrid power network to Chinese interests would pose an unacceptable security risk, the board’s chairman said.

In a rare intervention in a major political issue, Brian Wilson said the seven-member board advised Treasurer Scott Morrison after research by multiple agencies, including Treasury, the Defence Department, the Department of Foreign Affairs and Trade and the Australian Security Intelligence Organisation, to veto the estimated $10 billion partial sale of Ausgrid, which supplies electricity to Sydney and surrounding regions.

“The proposed structure is contrary to the national security interest because it leaves a material national security vulnerability,” Mr Wilson told The Australian Financial Review. “Almost by definition it is not a security issue you can disclose.”

He would not reveal the nature of the threat, although a source with security connections said government officials were concerned about a foreign owner shutting off or damaging the network in a crisis at some point during the 99-year proposed lease or using Ausgrid’s power lines for espionage.

The decision damaged relations with China, which expressed outrage, upset free-trade advocates and will hurt the NSW government, which wants to sell the network – at the urging of the federal government – to pay for infrastructure, including freeways, a railway tunnel under Sydney Harbour, and hospitals.

Political opposition

Mr Wilson flat-out denied claims by Labor leader Bill Shorten, former foreign minister Bob Carr and others that blocking the Chinese was designed to shore up public support for the Coalition.

Mr Shorten accused the government of blocking the sale to please minor parties in the Senate it may need to implement its policies, and some commentators said the weakened government was pandering to anti-Chinese sentiment for political purposes.

“There’s no doubt the government is twitchy about the crossbench and you have to wonder if the government is trying to make One Nation happy and Nick Xenophon happy,” Mr Shorten said last week. “This is a government in full horse-trading mode with the crossbench.”

By knocking out two bidders, China State Grid and Cheung Kong Infrastructure, the largest listed infrastructure company in Hong Kong, Mr Morrison has made it harder for NSW to sell the lease and could have reduced the company’s value by billions.

Mr Wilson said he felt obliged to make a rare intervention in the public debate because he had previously called out investment vetoes made on political grounds and wanted to be consistent.

“I really want to correct the record,” he said. “This particular decision was in no way politically influenced. It came down to a genuine national security issue that became apparent as the detailed work was done on the asset sale.

China State Grid is the world’s largest electric utility company. Picture: Getty Images

“Sometimes at the end of the day, a government might make a decision to keep the general public happy. This is not one of those cases.”

Asked if any US, British or New Zealand bidders for the 50.4 per cent of Ausgrid on sale would receive the same response, Mr Wilson said: “The issue that arises in the case of Ausgrid would arise with many countries. Individual transactions are considered on a case-by-case basis.”

Man years

Many observers were surprised by the decision given the Foreign Investment Review Board last year approved the sale of another NSW power company, Transgrid, to Canadian and Middle Eastern investors.

Mr Wilson said the Foreign Investment Review Board and the Treasury department co-ordinated work across the government on the Transgrid and Ausgrid sales that was so intensive it consumed “man years” of time.

“Until you get into the really detailed aspect of the asset, your initial view is not always the correct one,” he said.

After the board decided to oppose the sale, its recommendation went through “testing and checking” because of the size and significance of the investment, he said.

He said the NSW government was kept informed of developments. NSW Treasurer Gladys Berejiklian said her government had been working with the Foreign Investment Review Board since December.

Mr Carr, who heads a Chinese research centre funded by Chinese money, was one of the most prominent critics of the decision.

“It would appear to be that this is a reaction to that elevation of xenophobia and economic popular sentiments stirred up by the last federal election result,” he said last week.

A former senior defence official, Ross Babbage, said the length of the lease increased the security risk because circumstances can change a lot during decades.

“Ninety-nine years is a substantial time,” he said. “The risk of Australia’s sovereignty being undermined in a crisis in the future can’t be ruled out.”

This story first appeared in The Australian Financial Review. Read it here or follow the Financial Review on Facebook.

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