Treasurer Scott Morrison has made a surprise decision to block two consortiums from bidding on a 99 year lease of New South Wales electricity network operator Ausgrid, in a move that would complicate a sale of Western Power.
The move, which Mr Morrison highlighted as a preliminary decision, was on the back of national security concerns.
The two bidders, one the State Grid Corporation of China and the other Hong Kong-based Cheung Kong infrastructure, will have a week to respond to the decision, he said.
"The national security concerns, (are) country specific and relate to the transaction structure and the nature of the assets," Mr Morrison said.
"At this stage the government has not indented mitigations that would appropriately address those concerns.
"These issues affect all current applications.
"I’ve informed the Ausgrid bidders of my preliminary view that their foreign investment proposals are contrary to the national interest and I have provided them with the opportunity to respond to my concerns."
It follows a third potential bidder dropping out.
NSW premier Mike Baird won re-election in 2015 on a platform of selling stakes in a series of the state’s electricity assets, with proceeds to be reinvested into infrastructure projects.
The first such sale, of high voltage transmission operator Transgrid, went to a team led by Hastings Funds Management at a price of $10.3 billion.
The Ausgrid lease, which featured a 50.4 per cent stake in the corporation, had been expected to raise slightly more.
It isn't the first state government attempting a privatisation to attract criticism from a national security angle, with the Port of Darwin sale in the Northern Territory coming under scrutiny from United States officials.
For a sale or lease of Western Power, which the state government is currently considering, today's announcement might dilute the potential pool of bidders.
Even if a sale proceeded, it might mean that the state government isn't able to extract the highest asset multiple and price possible.
