The $13 billion deal Australians should be concerned about
A DISTURBING picture of Australia’s electricity and gas network is emerging as experts warn about the implications of a new $13 billion deal.
THERE are serious concerns about the $13 billion takeover of an Australian energy company with experts warning it is “entirely the wrong move” with implications for national security and gas prices.
Australians are just starting to realise how much of the country’s electricity and gas assets are owned by Chinese-linked companies and the huge dominance they now have.
The latest move from Hong Kong-based company Cheung Kong Infrastructure (CKI) to take over Australian-owned company APA will give it control over 60 per cent of Australia’s gas pipelines.
But the picture becomes even more concerning if you look at all the other assets that are essentially controlled by the Chinese Government.
This is what’s going on.
WHAT’S THE BIG DEAL?
APA is the company at the centre of the deal and it’s easy to understand why.
The company owns or manages $20 billion worth of energy assets.
It has a 15,000km network of pipelines that deliver half of Australia’s natural gas usage. It supplies gas to 1.3 million Australian homes and businesses, as well as having interests in gas-fired power stations and wind farms.
As Institute for Energy Economics and Financial Analysis (IEEFA) energy analyst Bruce Robertson told news.com.au: “It is a fabulously profitable company.”
In fact if you bought shares in APA when it first listed on the stock exchange in 2000, your investment would now be worth 18 times more than what it was.
But this impressive profit actually points to one of the reasons why people are so worried about the sale.
When the Australian Competition and Consumer Commission (ACCC) looked into the gas market in 2016 it found evidence of monopoly pricing among the pipeline operators that transport gas along the east coast of Australia.
This is because the pipelines are owned by a small group of companies that can essentially charge what they like.
CKI already owns a lot of gas pipelines, powerlines and electricity generators around Australia.
So if you combine the two companies, CKI would suddenly control 68 per cent of the gas transmission and distribution pipelines in Victoria, 86 per cent in South Australia and 72 per cent in Queensland.
But it gets even more interesting when you add the assets controlled by other Chinese companies, particularly another company called State Grid, which is a Chinese Government-owned company.
HOW MUCH ARE WE ACTUALLY TALKING?
When you combine the assets of all the companies you start to understand why some experts are so worried.
Australians rely on pipelines and powerlines to transport electricity and gas around the country and into their homes. Transmission networks move the energy around the country and distribution networks are the smaller lines that deliver it into their homes.
If the APA takeover went ahead, 100 per cent of electricity transmission and distribution in three states and territories would be partly controlled by Chinese and Hong Kong interests, according to national security expert and Australian Strategic Policy Institute (ASPI) executive director Peter Jennings.
Chinese and Hong Kong companies would essentially have a stake in all the electricity powerlines that deliver energy to homes and businesses in Victoria, South Australia and ACT.
For example, the electricity network in the ACT is run by Evoenergy, which is 50 per cent owned by the ACT Government. The other half is owned by Jemena, of which the Chinese-controlled State Grid owns 60 per cent.
When it comes to gas, Chinese and Hong Kong companies have a stake in 99 per cent of the transmission and distribution network in Victoria, 100 per cent in NSW and the ACT, as well as 86 per cent in South Australia, 78 per cent in Queensland, 74 per cent in NT and 62 per cent in WA.
“There is a real vulnerability to having a vast bulk of our gas and electricity assets owned by two foreign entities — State Grid and CKI,” Mr Jennings said.
“Taking that into account, and looking into the risks of cyber hacking, the Government would be well advised not to let this particular takeover go ahead.”
IT MAY ALSO KEEP GAS PRICES HIGH
While Australia’s national security could be at stake, Bruce Robertson also believes the takeover will be bad for gas prices.
The ACCC has already pointed to possible monopoly pricing among gas pipeline operators and a spokeswoman told news.com.au this was still a problem.
“The ACCC continues to have concerns about prices charged by pipeline operators,” the spokeswoman said.
Changes have been made to improve transparency about pipeline prices and to improve the bargaining power of companies negotiating with pipeline operators but Mr Robertson said prices for Australian gas were still too high.
“There’s been massive profiteering in this sector,” Mr Robertson told news.com.au.
“We are still operating in la-la land when it comes to gas pricing.”
Mr Robertson said in August Australian companies were paying between $10 to $12 per gigajoule for contract gas, compared to about $4 in the US, if you look at the Henry Hub Natural Gas Spot Price.
“The price of gas is so extortionately high; it’s well above international prices for gas,” Mr Robertson said.
This is despite the fact that Australia is one of the largest exporters of gas in the world. In what appears to be an absurd situation, Mr Robertson said there are now four consortiums looking to build import terminals in Australia to bring in cheaper gas from overseas.
“It is just unbelievable, the mess we’ve got ourselves into on the east coast of Australia,” Mr Robertson said. “If we go down the route of exporting gas and then importing it, we’ve totally lost.
“God help us if we can’t provide energy that’s produced here, to our own people.”
Gas prices overseas are very cheap at the moment because there is a lot of competition so gas companies are choosing to charge more in Australia because there are only a few major players operating in the market.
Deakin Business School’s Dr Shuddha Rafiq told The Australian that there was a lack of competition in transportation and transmission in Australia, with only one major company and a few others involved.
He said the main demand for gas was in Australia’s east but the main producers of gas were located offshore in the west. Without significant investment in infrastructure, prices would continue to be high thanks to transport and transmission costs.
“Both sea transport and pipeline transmission move the gas, and there’s a considerable cost involved,” Dr Rafiq said.
“Because there’s only a handful of companies involved, they’re not always open to investing in overhauling transmission technologies for the future welfare of society.”
He said the system should be overhauled to increase competition and to encourage investment in infrastructure.
Mr Robertson also supports change and believes the Government should regulate prices for use of the main transmission lines that move gas around the country.
“In the US they have regulated all interstate pipeline because they are monopoly assets,” he said.
While the ACCC has already made some changes, Mr Robertson believes more needs to be done and the APA takeover will make this harder.
“If a Chinese-linked company bought assets under one set of rules and then the Australian Government changes the rules, I don’t think they will be happy at all and they’re not the type of people you want to upset,” he said.
“If you start with the proposition that gas pipelines are too profitable and consumers are suffering, then selling the pipelines to a Chinese-linked company is entirely the wrong move.”
WILL THE TAKEOVER GO AHEAD?
The ACCC released a statement on September 12 that it would not oppose the takeover, as long as CKI sold its gas assets in Western Australia.
Mr Jennings said the ACCC was really limited in what it could do because the takeover wouldn’t really change the competition picture for the supply of gas, which was already bad.
But the takeover could still be stopped by the Australian Foreign Investment Review Board, which will also consider the national security implications.
“I don’t think it should be allowed to happen,” Mr Jennings said. “I think the assets should remain in Australian hands.”
Even if the takeover didn’t go ahead, Mr Jennings said the extent of foreign ownership of Australia’s gas and electricity network was concerning.
“These decisions were taken back in the 1990s when a lot of these assets were privatised and China was less of a concern,” he said. “Cyber also wasn’t as big of a feature.”
However, changes to how critical infrastructure was operated in the 1990s and 2000s to allow pipelines and other operations to be controlled remotely has now made them susceptible to cyber hackers.
“Frankly, I don’t think we are in a good place when it comes to guaranteeing their security even if the assets are Australian-owned or majority Australian-owned,” Mr Jennings said.
“I know it’s an issue concerning a lot of people in the public service and national security community.”