WHO SHOULD READ THIS
- Foreign investors (both private and public) who plan to invest in Australia.
THINGS YOU NEED TO KNOW
- From 31 March 2016, any critical state-owned infrastructure asset sales to private foreign investors over $55 million must be assessed by FIRB.
WHAT YOU NEED TO DO
- Consider the potential impact of these new regulations, together with the entire new suite of foreign investment rules introduced in December 2015, to ensure that all necessary FIRB approvals are obtained. This means seeking specialist FIRB advice at an early stage of any proposed transaction and in particular any transaction that involves the proposed acquisition of critical state-owned infrastructure assets.
On 31 March 2016, the Turnbull Government introduced further changes to the foreign investment rules by granting the Foreign Investment Review Board (FIRB) power to review sales of critical government-owned infrastructure assets to private foreign investors. These sales will now be prohibited if the Federal Government considers them to be contrary to Australia’s national interest.
Previously, FIRB only had the power to review sales of government-owned assets where they were being sold to Foreign Government investors. The new rules now extend the federal government’s power to reviewing proposed acquisitions by foreign private investors of critical infrastructure assets
- public infrastructure (including airports or airport sites; ports; infrastructure for public transport; and electricity, gas, water and sewerage systems)
- existing and proposed roads, railways, inter-modal transfer facilities that are part of the National Land Transport Network or are designated by a State or Territory government as significant or controlled by the government
- telecommunications infrastructure, and
- nuclear facilities,
where those assets are valued in excess of $55 million.
These new rules apply to sales of critical infrastructure assets by the Commonwealth, State or Territory, and local governments, or any wholly owned entities of those governments.
Increased focus on national security
In October 2015, the Northern Territory government granted a long-term lease of the Port of Darwin to a private Chinese-owned company. This sparked significant controversy given the port also serves as a facility used by Australian Defence Force personnel. The deal also attracted international attention after US President Barack Obama informed Prime Minister Malcolm Turnbull that the US would have appreciated being consulted about the deal before it was announced. The difficulty was that, at that point, the Federal Government did not have any jurisdiction over the sale.
While Federal Treasurer Scott Morrison refused to say whether the Northern Territory government’s decision to grant the Port of Darwin lease had any influence on the decision to expand FIRB’s powers, the changes are a further reflection of the Government’s increased focus on national security when considering the appropriate limitations on foreign investment into Australia. National security is already a key consideration when FIRB applies the ‘national interest’ test in determining whether to grant foreign investment approval and FIRB’s focus on this issue was highlighted by the recent appointment of David Irvine, a former Director General of both the Australian Security Intelligence Organisation (ASIO) and the Australian Secret Intelligence Service (ASIS) as an advisor to FIRB on national security issues.
These new regulations, coming in the wake of significant recent changes to the foreign investment rules are a further indication of the Government’s closer scrutiny of foreign investment into Australia. Despite the significant recent strengthening of Australia’s foreign investment rules, the Treasurer continues to maintain that foreign investment in Australia is welcomed as long as it is in Australia’s national interest. However, foreign investors should be aware of the ongoing changes in the regulation of foreign investment, because breaches are now subject to strict penalties.