With security and intelligence agencies advising against the sale of Ausgrid, how could any Treasurer approve it? Credit:James Brickwood The Treasurer's decision is likely to be met with howls of outrage from government academics and pockets of Chinese state media swift to point out another perceived case of Australian bias against Chinese investment and broader inconsistency in its foreign investment review regime. From the Chinese perspective, the decision will reinforce perceptions of a muddled foreign investment regime, with Australia putting up major infrastructure assets for auction only to then block them from sale, citing national security concerns. Labor treasury spokesman Chris Bowen backed the decision, saying that national security considerations had to be paramount and that "the Opposition is prepared to accept this decision as being in the national interest on the basis that it was based on advice from the national security agencies". The decision does not augur well for other planned asset sales, including the Port of Melbourne and Western Australia's energy assets and potentially signals a shift to a more protectionist stance in Australia's foreign investment review regime.

Mr Morrison dismissed suggestions the decision could deter foreign investors and said it simply demonstrated Australia had a robust process for examining foreign investment in Australia. "We welcome foreign investment in Australia and we [will] continue to do that . . . Australian jobs and Australian businesses depend significantly on the injection of foreign capital into the Australian economy," he said. Banking sources said while the final decision by the federal government on the bids for Ausgrid was a week away, even if it still rejects the bids, it would not prevent the assets from being sold. "China's State Grid missed out in the first asset sale," one banker said referring to the $10.3 billion sale of Transgrid last year," and bidders this time round were concerned that it in particular would 'pay-up' for Ausgrid. Transgrid operates the high-voltage network, which connects the power stations in the Hunter Valley, Lithgow and the Snowy Hydro, to the urban networks which are owned and operated by Ausgrid and Endeavour.

Ausgrid operates the central Sydney and Newcastle networks, with Endeavour serving western and southern Sydney, along with the Illawarra. The Treasurer would not say what specific security concerns there were about the sale of the asset, nor why State Grid could buy SA power assets but not those in NSW, and would not say whether it was possible the security concerns identified were surmountable before his final decision. China State Grid provides electricity to one in seven people worldwide and is aggressively acquiring energy assets globally and already owns major stakes in the South Australian, Victorian and Western Australian power networks through Jemena, ElectraNet and other holdings. Blocking the privately-owned Cheung Kong Infrastructure, backed by Hong Kong billionaire Li Ka-shing, is more of a surprise. CKI could be the collateral damage in the Australian government trying to prove that it has not singling out mainland Chinese investment. Mr Morrison said he would leave it to the NSW government to explain what impact the decision to halt the lease would have on that state's budget.

NSW Treasurer Gladys Berejiklian said the government "respected" Mr Morrison's decision but also noted that all bidders were given the green light to proceed by the federal government from last December. "So along the process, whether it was in December last year, whether it was at every key part of the process this year, the federal government and its agencies had given us [and] bidders every indication that they could continue the process," she said. "This is a valuable asset with a lot of interest and NSW will continue the process of this transaction," she said. Ms Berejiklian said the events "in no way" hamper the government's promised $20 billion worth of infrastructure projects to be bankrolled by its electricity privatisations. Asked if the government was resigned to receiving less money from the transaction, given the two likely highest bidders were likely to be knocked out, Ms Berejiklian declined to speculate.

A leading US cyber expert who investigated the notorious shut-down of Ukraine's power grid in December – widely attributed to Russia – said the sale of critical infrastructure to other countries gave away "political leverage". Robert Lee, CEO of Dragos Security, told Fairfax Media it would be "very risky" to assume Australia could keep control of the grid under Chinese ownership by putting in place safeguards. "It's not just that someone could act maliciously, it's about control. You're losing control and influence over national critical infrastructure. You don't have to assume China's malicious to make that not a good idea," he said. "If you went to China asked them if you could buy portions of their power grid, they would tell you 'No'." Loading

With David Wroe Follow us on Twitter