Australia rejects bids for electricity supplier Ausgrid

[SYDNEY] Australia made a preliminary decision to reject bids for its Ausgrid electricity network from Hong Kong billionaire Li Ka-shing and State Grid Corp of China amid growing local opposition toward selling domestic infrastructure assets to overseas investors.

Treasurer Scott Morrison said it would be contrary to national security to allow the sale to proceed in its current form. He stressed it was a preliminary decision and the bidders, which he didn't name, had been advised they had a week to respond.

"Ausgrid's footprint includes critical power and communication services provided to businesses and government," Mr Morrison told reporters.

"National security concerns are not country-specific and relate to the transaction structure and the nature of the assets."

The move is the latest sign that protectionism is on the rise in Australia, where the government earlier this year blocked the sale of a cattle company to a Chinese-led group, saying it could be against the national interest.

Mr Li's Cheung Kong Infrastructure Holdings Ltd and State Grid made competing binding bids for Ausgrid last month, people familiar with the matter have said. State Grid didn't immediately respond to a request for comment Thursday, while CKI couldn't immediately be reached.

"I've informed the Ausgrid bidders of my preliminary view that their foreign investment proposals are contrary to the national interest and I have provided them with the opportunity to respond to my concerns," Mr Morrison said.

"That will require a final decision to be made once I have received those responses from the bidders and considered them."

Mr Morrison's announcement comes as Australia balances the need for foreign investment to drive economic growth against mounting public opposition to sales of farmland, real estate and strategic infrastructure, particularly to Chinese investors.

If State Grid's bid is ultimately blocked, Australia risks straining ties with its most important trading partner.

Despite overseas capital being vital to Australia's future expansion, the government is arguably making it harder for foreigners to invest. Last year, it tightened scrutiny of sales of farmland to Chinese, Japanese and Korean buyers. The government board that vets investments now includes a former spy chief.

When the Obama administration last year raised concerns that a Chinese company had bought a port in the northern city of Darwin, where US Marines are based, Mr Morrison beefed up oversight of the sale of state assets.

He's also blocked the sale of the iconic S Kidman & Co cattle station to a Chinese-led group saying it could be against the national interest.

State Grid, which distributes electricity to 1.1 billion people, is bidding for energy assets globally as President Xi Jinping seeks to overhaul the country's bloated state-owned businesses.

Earlier this year, it bought a stake in Brazilian power distributor CPFL Energia SA for US$1.8 billion, and it already owns parts of electricity networks in South Australia and Victoria states.

The company missed out last year when New South Wales electricity transmission network TransGrid was sold to a group of investors from Canada, the Middle East and Australia's Hastings Funds Management Ltd for about A$10.3 billion (S$10.64 billion).

CKI owns stakes in electricity grids that service cities including Melbourne, Wellington and London.

Australia isn't alone in pondering national security when it comes to foreign investment in critical infrastructure. UK Prime Minister Theresa May has postponed approval for a new nuclear reactor in which China General Nuclear Power Corp would have a minority stake.

Ms May's long-time adviser warned in a blog last year that China's involvement in nuclear projects could allow them to "shut down Britain's energy production at will." The prospects for Chinese suitors haven't improved since the July 2 election saw a swag of protectionist independent or minor party lawmakers elected to the upper house Senate.

The National Party, the junior partner in Prime Minister Malcolm Turnbull's coalition which has been a vocal critic of investment by Chinese state-owned companies, also now has a bigger voice in the government.

BLOOMBERG