The Critical Infrastructure Centre: what foreign investors need to know

Key takeaways

In 2016, the Australian Federal Government, following the Foreign Investment Review Board (FIRB) approval process, rejected the bids for proposed partial sale of the New South Wales state owned electricity network company, Ausgrid, from each of China’s State Grid and Hong Kong’s Cheung Kong Infrastructure on the grounds of national security. The rejection occurred at the eleventh-hour and was said to have surprised the vendor (the New South Wales Government) who claimed that it had received no warning from the Federal Government.

In response to wide spread criticism and with a view to reassuring foreign investors that Australia’s infrastructure was open to foreign investment, the Critical Infrastructure Centre (CIC) was established on 23 January 2017 by the Australian Federal Government.

The Critical Infrastructure Centre

The CIC’s aim is to bring together government expertise into a single centre so that all levels of government, owners and operators can work together to identify and manage national security risks to Australia's critical infrastructure. The CIC has a number of key functions, but the most relevant for foreign investors is the CIC’s role of advising on government decision-making on inbound investments to minimise the risk of a malicious foreign actor gaining control of critical assets.

The four priority high risk sectors are telecommunications, electricity, water and ports.

Importantly, the CIC does not modify the existing foreign investment framework (i.e. the FIRB approval process). Rather, the CIC will provide timely advice to FIRB so that parties may more reliably engage with FIRB on national security issues in advance of or in the early stages of the FIRB approval process.   

Discussion paper

The first discussion paper released by the CIC on 21 February 2017, “Strengthening the National Security of Australia’s Critical Infrastructure”, provided a broad overview of the CIC’s proposed role and function. Foreign investors should be aware of the following points set out in the discussion paper.

The register of critical infrastructure assets

The CIC is developing a register of critical infrastructure assets and undertaking strategic risk assessments of those assets but it is not anticipated that the register will be publicly available or otherwise accessible for non-government vendors or purchasers. However, the register will:

• allow Australian government vendors to be aware of national security issues for their infrastructure assets; and
• enable more meaningful early engagement between vendors, purchasers and FIRB to identify what, if any, actions need to be taken by the government vendor or a potential purchaser to limit the impact of any national interest issues.

It is proposed that:

• the register will be a complete record of critical infrastructure assets;
• owners will be given a six month transition period to register existing interests;
• there will be an obligation to notify of an intent to divest a critical asset; and
• there will be an obligation to notify of an acquisition within 30 days.

Investors will be expected to provide the following information:

• details of the investor;
• name and location of the critical infrastructure asset;
• level of ownership interest in the critical infrastructure asset;
• organisational management structure, including key operational decision-making bodies and individuals; and
• details of operational access and control of the critical infrastructure asset.  

“Last resort” powers

The discussion paper asserts that despite the existence of the CIC, the critical infrastructure assets register, and the best efforts of owners and operators, there may be instances where certain national security risks cannot be appropriately mitigated.

Recognising the above and similar to the security reforms already proposed for the telecommunications sector, legislative “last resort” powers are being developed. These powers would include the ability of the Australian Attorney-General or other Australian federal ministers to make a direction for owners of assets in high risk critical sectors to do or to refrain from doing a specified action or thing in certain security-related circumstances. The decision would be subject to judicial review. 

Conclusion

Further details on the CIC, the critical infrastructure register and the last resort powers are expected to be released in the next few months. Despite its non-public nature, we remain cautiously optimistic that its establishment will allow the Australian Federal Government to provide more consistent early guidance about whether certain assets will be subject to greater FIRB scrutiny and the parameters of that scrutiny. 

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).