In brief

  • A Senate inquiry was recently launched, to be chaired by Senator Bill Heffernan. The findings of the inquiry are due on 30 November 2011.
  • The Senate is inquiring into the adequacy of the ‘national interest test’ after community concerns about foreign acquisition of Australian agricultural land.
  • This is of particular concern to M&A in the mining and energy sectors.

Australia’s foreign investment rules continue to be in the spotlight, with the federal Senate launching an inquiry into the adequacy of the current foreign investment ‘national interest test’.

The inquiry is said to have been spurred by Shenhua Watermark Coal's (a Chinese-controlled mining company) acquisition of 43 properties in the grain-bearing black soil region of Liverpool Plains.

National interest test – food security

The current inquiry focuses on the elements of the national interest test, which is the fundamental basis for FIRB’s decision on foreign investment applications. The treasurer must have regard to whether a proposed foreign investment is in the national interest before the investment can proceed.

The inquiry has noted that it will investigate whether food security concerns have a place within the national interest test. A possible outcome might be requiring FIRB to have greater regard to whether an acquisition will affect the availability of food sources in making decisions about foreign investment.

More transparency?

The decisions of FIRB on whether to approve or deny a foreign investment are currently reported by media release. FIRB has been criticised for the paucity of information included in the media releases. It is said that the releases do not disclose the reasons for whether an investment is in the national interest at an appreciable level of detail.

The inquiry has therefore noted problems relating to transparency of decisions made by FIRB. It is hoped that there will be a change in the way that FIRB decisions are reported. This outcome, if ultimately achieved, could promote greater certainty in M&A and investment activity.

Relationship between federal and state government

There is some overlap between the roles of the federal and state governments in approving a foreign investor’s proposed land use in the mining context.

The inquiry suggests that food security concerns should be addressed in assessing whether an investment is in the national interest. This may, in practice, exacerbate the overlap, as food security has previously been the sole responsibility of state government.

It is, of course, likely that the federal and state government interests will align in most cases. However, the potential for inconsistent approaches, if the federal government were to block foreign investment on the basis of food security concerns and the state government were to grant an exploration licence, would be a disappointing outcome for foreign investors. It is hoped that the inquiry will seek to address this overlap issue.

Where to from here?

The inquiry is expected to report on 30 November 2011.