Federal Treasurer Scott Morrison has made a preliminary decision to block the sale of New South Wales electricity provider Ausgrid to Chinese and Hong Kong bidders, citing "national security concerns".

Key points: NSW want to fund infrastructure projects by selling a 99-year lease for a 50 per cent stake in Ausgrid

NSW want to fund infrastructure projects by selling a 99-year lease for a 50 per cent stake in Ausgrid Scott Morrison would not detail the national security concerns that led to him blocking the bids

Scott Morrison would not detail the national security concerns that led to him blocking the bids NSW Treasurer Gladys Berejiklian says there are plenty of other potential bidders

The Chinese Government-owned State Grid Corp and Hong Kong-listed Cheung Kong Infrastructure were both bidding for a 99-year lease of Ausgrid, which supplies power to parts of Sydney, Wollongong and the Hunter region.

The decision is seen as a major setback for NSW Premier Mike Baird and Treasurer Gladys Berejiklian, whose government hopes to lease a 50 per cent stake in the asset for 99 years to help raise funds for infrastructure projects.

Mr Morrison said he could not detail the national security concerns, but said they applied to "all current applications".

"Ausgrid's footprint includes critical power and communications services that Ausgrid provides to business and government," he said.

"The national security concerns are not country-specific and relate to the transaction structure and the nature of the assets."

When pressed on the issue, he said:

"The only person who's security-cleared in this room to be able to hear the answer to that question is me."

Mr Morrison said the bidders would be given a week to respond to the preliminary decision before it was made final.

Last year, the Construction, Forestry, Mining and Energy Union (CFMEU) was criticised by the Government for running an advertising campaign against State Grid Corporation's possible investment in the network.

The ads warned that "selling the electricity network … to another country is just not on", but then-treasurer Andrew Constance said they represented a "racist rant".

Mr Morrison said the Commonwealth had been actively engaged with the NSW Government as they sought to sell the energy provider.

"That process has not enabled us to identify suitable mitigations to protect against the national security issues in this case. And that, at the end of the day, is paramount," Mr Morrison said.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 5 minutes 1 second 5 m Former Foreign Minister Bob Carr says the decision sends mixed signals to China.

Former New South Wales premier Bob Carr said the Federal Government's decision may have been driven by xenophobia in the new political climate.

"I don't want to make a negative interpretation about Australia and Australian policy if I can avoid it, but it would appear to be that this is a reaction to that elevation of xenophobia and economic popular sentiment stirred up by the last election result," he told 7.30.

But Federal Energy Minister Josh Frydenberg denied politics was a factor in the move, saying it had not been made in response to concerns from Senate crossbenchers such as Nick Xenophon.

"This is not a political decision. This is a decision based on national security and based on those reasons, more details can't be provided," he told Sky News.

'A valuable asset with lots of interest': NSW Treasurer

The NSW Treasurer has downplayed the decision, saying if the sale falls over, there are plenty of other bidders.

NSW Treasurer Gladys Berejiklian says there are plenty of other bidders for the electricity provider. ( AAP: Paul Miller )

"The [federal] Treasurer has indicated a timeframe for considering the process, and I want to stress this — no matter what the outcome in a week's time — this is a valuable asset with a lot of interest," Ms Berejiklian said.

She said there was no reason for her government to think there was a problem with either bidder.

"There were a number of people who came forward as bidders in December of last year," Ms Berejiklian said.

"At that time the Federal Government gives its indication as to which bidders were OK to proceed from that point in time."

"So along the process the Federal Government and its agencies had given the bidders every indication that they could continue through the process."

The Treasurer said the decision would not affect the Government's infrastructure vision for the state.

"As you know, we don't bank transactions until they happen," Ms Berejiklian said.

"I was very clear when we delivered the last state budget that the proceeds of Transgrid were in that budget, but the proceeds of this transaction were not accounted for.

"I anticipate that the money for this transaction will be banked in the next state budget."

In November, the NSW Government announced a consortium comprising of Canadian, Middle Eastern and local investors had won the 99-year lease for Transgrid, paying $10.3 billion to seal the deal.

Ausgrid was to be the next of the state's energy networks to be sold, followed by Endeavour Energy.

Opposition stages walk-out over issue

The Ausgrid decision was centre stage during question time at NSW Parliament where the Opposition staged a dramatic walk-out.

Six MPs had already been kicked out by the Speaker when all the other Labor MPs vacated the benches.

Opposition Leader Luke Foley used the decision to goad the Government.

"Your entire plan to pay for roads rail schools and hospitals lies in tatters. What on earth is Plan B?" he asked.

Mr Foley said the Premier's infrastructure plan was now in tatters and the alternative bids would leave the state's coffers seriously short changed.