Pearls and Irritations

On 19^th August Federal Treasurer Scott Morrison confirmed his earlier decision to block the NSW government’s planned lease of 50.4 per cent of the New South Wales Ausgrid electricity distribution network to two Chinese companies: the Chinese government-owned State Grid Corporation of China and Hong Kong listed Cheung Kong International (CKI). Morrison based his decision on the Foreign Investment Review Board’s advice that these companies represented a threat to the ‘ national interest…on the grounds of national security’. When asked at a press conference what specific security threat was posed by the Chinese bidders Morrison replied: The only person who’s security-cleared in this room to hear the answer to that question is me’.

The Treasurer’s cryptic media release and public comments leave many crucial questions unanswered. In particular, was the security issue the most important factor or were there other important considerations at play? What was this ‘exhaustive process’ and the major parameters applied?

The State Government is pretty interested in this as well. The Minister’s rather cavalier rejection of the Chinese companies’ bid laid waste to the NSW Government’s objective to quickly gain a large pile of moolah to finance crucial infrastructure projects. NSW Treasurer Gladys Berejiklian tetchily remarked that “Whether it was in December last year or at every key point in the process the Federal government and its agencies gave us and the bidders the indication that they could continue through the process”. Her concerns were valid given the lack of previous ‘security’ concerns when the two companies made huge investments in South Australia and Victoria, with State Grid taking over the AusNet and Jemena energy companies, and holding ‘major stakes in multiple strategic assets that control gas and electricity networks from South Australia to Queensland and the NT’^[2].

In the political bear pit context, was the decision coloured by a desire to placate some of the free-range Senators’ xenophobia and protectionism? The Sydney Morning Herald’s Peter Hartcher poo-poos this idea, accepting the assurances by all national security agencies that there is a real danger in this Chinese investment (August 23). He accepts at face value the chair of the Foreign Investment Review Board, Brian Wilson contention that “The proposed structure is contrary to the national security interest because it leaves a material national security vulnerability”. Perhaps more vulnerable than we would have been if we hadn’t destroyed the weapons of mass destruction in Iraq. Nevertheless the security agencies still need to show us why they didn’t oppose the FIRB’s support of other Chinese investments in similar projects. In particular why did the FIRB accept StateGrid’s bid for Transgrid – NSW’S other major distribution network?

Radio 2GB shock jock Ray Hadley sought answers to these ‘materiality’ questions in an interview with the Treasurer. Hadley noted that the State Grid Corporation of China and CKI control assets in two other states – South Australia and Victoria, and asked ‘So, if they can’t control assets in New South Wales, what checks and balances do we have in place to make sure that your concerns aren’t bearing fruit in the southern States?’. Morrison answered with an analogy ‘Well, just before you have bought an apple, doesn’t mean you can buy an orange and that is what this is really about… But if there is a worm in the apple and there might be a worm in the orange, don’t we have a problem?’ was this a way of avoiding coming to grips with what Brian Toohey refers to as the Minister’s ‘disturbing ignorance’ of Ausgrid’s role. Morrison says that ‘Ausgrid provides “critical” communication services to businesses and government’ but Ausgrid says that it ‘doesn’t provide any communications services, critical or otherwise, to business and government. It has no telco customers. Its only communications capability is for internal purposes such as checking faults’.

Mark Kenny turns the wormy apple obfuscation on its head, arguing that ‘Transgrid might be a more sensitive asset from a national security standpoint than Ausgrid’s network would be’. Kenny ponders whether Morrison’s rejection was based on ‘fresh specific intelligence or more generalised strategic and defence assessments’ where the number of accepted Chinese purchases have reached such ‘critical mass’ that the reject button now stops a deal. How can we know just what are the key factors driving such decisions. Does it matter if we don’t?

Given the contradictions and inconsistencies of the Treasurer’s decision, it certainly does matter. In order for us to have confidence in the decision-making process we must critically assess the rationale for each decision. More particularly we need to know whether the government really has a comprehensive, coherent and transparent long-term assessment process. At this stage we have no such confidence.

There are clearly other factors underpinning the Minister’s decision. The most obvious are domestic political expediency, the exceptional lobbying power of military and defence establishment and US’ political and strategic pressure. The trigger for the latter two points appears to be the Landbridge Group’s lease of the Port of Darwin. President Obama expressed his concerns about that deal to the Australian Prime Minister. Obama said the US should have been given a “heads up about these sorts of things”^[3]. Prime Minister Turnbull dismissed the concerns on the basis that the lease “didn’t affect the Australian Defence Forces”. This is open to serious question given the crucial strategic significance of the military base for the US’ future international security and war agenda.

The next part of the story shows an apparent shift in what the government considers to represent a national security threat with FDI. The first indication of this shift is in post- Port of Darwin FDI policy making. The AFR’s Angus Grigg links the Port of Darwin decision to the Treasurer’s 4^th December 2015 appointment of David Irvine to the FIRB’. Irvine is a security establishment insider, formerly as Director-General of the Australian Security Intelligence Organisation and of the Australian Secret Intelligence Service.

With the government falling over backwards to avoid any suggestion that they think China is a clear and present threat, Angus Grigg says the rejection is only explicable in terms of the security establishment’s belief that China constitutes a long term threat. In other words, NSW’s lost opportunity is based ‘not on current Chinese behaviour, (but) rather the longer-term strategic environment. “Who’s to say … (that a) openly hostile Beijing can’t be ruled out over the next half century^[4].

These inconsistencies and contradictions raise questions about due process. As the AFR’s perspicacious and seasoned reporter Laura Tingle argues that ‘despite the fact that there has been a steady stream of sales of critical infrastructure to foreign interests in recent years – most notably the Chinese – our governmental institutions seem utterly at sea about a framework for considering the issues involved, or even if they think there actually are issues’. She refers to the political discussion on foreign investment as ‘equally dysfunctional on this issue’. This gets to the crux of the matter by noting that ‘even eight months after… the TransGrid bid… we don’t have the facility or language to even discuss essential questions like whether the Chinese – whose economic favour we always wish to win – represent a strategic risk if they can flick a switch and turn off our power systems’. Tingle sums up by affirming that ‘Close observers of what has been happening in Canberra in recent months say the process for assessing complex security and foreign investment issues remains “ad hoc, complicated and ineffective”^[5].

John Menedue warned in his post of 12/08/2016 that the military and defence establishment and lobbies are sidelining the Minister for Foreign Affairs and her Department in the shaping of Australia’s foreign policy. This was supported by former senior diplomat Richard Woolcott’s view that both the US State Department and DFAT belief that China is ‘a threat’ raises questions about the extent to which DFAT supports this belief.

Political and strategic resolution

This then goes to the specific issues of political economic and strategic planning – especially where China is involved. Have Australia’s broad interests been fully and concretely assessed in the Ausgrid situation? Perhaps this blog could be used to pursue this line of enquiry – posing the issue from two perspectives: firstly the concerns about the coherency of the decision making process as raised by Laura Tingle, and the rejection of the ad hoc process that seems to vary with each successive case where China is involved. Secondly, and as a corollary, we need to address the Menadue/Woolcott issue of the defence establishment’s apparent domination of foreign affairs and FDI decisions to the exclusion of DFAT. Much of this goes to the difficulties of ensuring that Australia has a coherent political and economic international relations strategic strategy that is transparent and independent. The elephant in all FDI considerations is, as Woolcott suggests, the obtaining of ‘a more appropriate and updated balance in our relations with the US and China’. The only nice thought in a Trump presidency is the shattering of the delusion of the efficacy of our present dogmatic ties to our ‘great and powerful friend’.

Andrew Mack is Adjunct Professor of Economics with Boston University, Division of International Programs, Sydney Internship Program, on the Board of the Evatt Foundation and an editor of the Journal of Australian Political Economy

[2] Laura Tingle The power struggle that nobody wants to talk about Australian Financial Review 22 July 2016

[3] ABC news 19 Nov 2015, http://www.abc.net.au/news/2015-11-19/government-plays-down-obama27s-concerns-over-port-of-darwin-le/6954062

[4] Angus Grigg AFR Aug 11 2016. Beware of China’s confected outrage on Ausgrid

[5] The power struggle that nobody wants to talk about Australian Financial Review 22 July 2016

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