Tough Rules May Deter Foreign Buyers From Australian Power Bids

(Bloomberg) -- Australia may lure fewer international buyers and achieve lower prices for its electricity assets as the government imposes tighter conditions on sales to safeguard national security.

Foreign bidders for electricity transmission and distribution assets will face new conditions and ownership restrictions in future sales, Treasurer Scott Morrison said in a statement Thursday. The government will consider the cumulative level of ownership in a sector, the need for diversity and the asset’s critical importance.

The sale of a stake in power network Ausgrid in late 2016 spurred consternation after the federal government barred New South Wales state from accepting an offer from State Grid Corp. of China, citing national security concerns. Ausgrid was subsequently sold to two local funds at a lower price. The new set of conditions “avoids surprises” for state governments and private sellers of power assets, Morrison said in the statement.

“Clearly a consequence of this decision will be fewer buyers,” Tony Wood, energy program director at the Grattan Institute, a Melbourne-based think tank, said in a phone interview. “In the future, you won’t get the price for power assets that you might have otherwise got.”

Confusion over the ground rules for selling sensitive assets like electricity networks had damaged Australia’s reputation among investors, according to Carbon and Energy Markets director Bruce Mountain. “I think Ausgrid was poorly handled,” said Mountain. “The intervention by the Commonwealth government at the last minute to disallow certain bidders was not good from a buyers’ point of view.”

Australia also announced new rules on foreign investment in agricultural land, with Morrison saying such assets must first be advertised to Australian buyers. Morrison vetoed the sale of iconic cattle company, S. Kidman & Co., in 2016 to a Chinese-led group saying it could be against the national interest.

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