On 18 March 2016, Federal Treasurer Scott Morrison announced that the Foreign Investment Review Board (FIRB) shall assess the sale of ‘critical state-owned infrastructure assets’ to private foreign investors.
The changes were introduced to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (Regulations) in the wake of growing public scrutiny of Australia’s foreign investment framework.
Changes under the Regulations
Prior to the change, private foreign investors were exempt from obtaining the FIRB’s approval when acquiring an interest in critical infrastructure assets owned by state or territory governments. This exemption did not apply to foreign government investors. As of 31 March 2016, amendments to the Regulations have removed the private foreign investor exemptions for critical state-owned infrastructure assets, which include:
• public infrastructure (an airport or airport site; a port; infrastructure for public transport; 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.
Effect on Private Foreign Investors
This is a significant change for private foreign investors, who will now be required to apply for FIRB approval and receive a ‘no objections’ notification from the Treasurer prior to acquiring an interest in the above mentioned infrastructure. In light of the recent amendments to the Foreign Acquisitions and Takeovers Act 1975 (Cth)’s fee regime, the costs for applications are significant. For example, the fee payable for acquiring an interest in assets of an Australian business is either $25,000 or $100,000, depending on whether the acquisition is for $1 billion or less.
What about Competition Law?
On a practical level, there is often an overlap between the FIRB and the ACCC as both regulators may assess foreign investment proposals. However, the FIRB will assess whether the proposed investment is in the ‘national interest’, whereas the ACCC, under section 50 of the Competition and Consumer Act 2010 (Cth), will examine whether it would be likely to substantially lessen competition in a market. As impact on competition is a relevant factor when considering whether foreign investment is in the national interest, the FIRB typically consults the ACCC before making a decision about a foreign investment.
The practical outcome of the above arrangement is that most applications which the FIRB receives will be referred to the ACCC. With the introduction of new notification requirements for private foreign investors acquiring critical state-owned infrastructure assets, it is foreseeable that such privatisations will now also be open to greater scrutiny by the ACCC. This is of particular interest when taking into account the ACCC’s stance on privatisation.
A Pro-Privatisation Policy?
From a policy perspective, both the ACCC and the FIRB are have endorsed greater scrutiny of privatisations, particularly in relation to infrastructure assets. While the ACCC generally supports privatisations, ACCC Chairman Rod Sims has been critical of state and territory governments seeking to maximise profit without adequate regard to the long-term effects of the sales – notably costs to consumers and decreased public benefit. At the September 2015 Infrastructure Partnerships Australia Conference in Sydney, Mr Sims addressed the issue of privatisation of ‘monopoly or near monopoly assets’, noting ‘[w]ithout appropriate pricing and access mechanisms in place prior to the sale, there is a strong likelihood that under non-government ownership users of privatised infrastructure will face higher prices and restricted access’. Thus, it appears the ACCC will welcome the increase of notifications from the FIRB, taking the opportunity to ensure that appropriate mechanisms are in place to protect competition.
What to Expect Next…
In a climate of steady investor appetite and budgetary pressures, it appears that privatisation of Australian assets is set to continue in 2016. The new Regulations result in greater scrutiny of critical state-owned infrastructure sales to private foreign investors.
Picture: Courtesy Flickr / Mark Coggins