Transparency and scrutiny of foreign investment
This chapter examines the scrutiny of foreign investment by the Foreign
Investment Review Board (FIRB). It focuses on the FIRB review process, the
application of the national interest test, mechanisms of compliance with FIRB
decisions and the role of other government agencies.
The chapter discusses the broad evidence base that the committee has
received through hearings and submissions in order to demonstrate the
significant concerns that were identified in the FIRB review process. The
chapter then details two case studies that were particularly important to this
inquiry. The first is the acquisition strategy of Hassad Australia, the wholly
owned subsidiary of a foreign government entity based in Qatar. The second case
study is the sale of Cubbie Station to a consortium of the Australian based
Lempriere Pty Ltd and the private company Shandong RuYi, based in China.
The FIRB review process
Overview of FIRB national interest test
The FIRB review process takes place when FIRB is notified of foreign
investment proposals that are above relevant thresholds. For agricultural land
and assets, there are two key thresholds: $248 million for private foreign
investment and $0 for investment by foreign government entities.
As discussed in chapter two, the legislative scope for the Treasurer to
interpret the national interest is broad. In practice, the review process is generally
conducted by FIRB case managers based in the Treasury. For major cases however,
recommendations are put to the Treasurer by the FIRB board. The board consists
of the Chair, three additional part-time members, and one treasury official who
is the executive member and general manager of FIRB. The application of the
national interest is determined mostly by government policy rather than
legislation or regulation.
The relationship between FIRB and the Treasury was described by the then
general manager of FIRB, Mr Frank Di Giorgio, as follows:
Treasury provides secretariat services to FIRB and is
responsible for the initial examination of foreign investment proposals
received and for preparing recommendations for the Treasurer. FIRB's role, on
the other hand, is to advise on the more significant proposals received by
Treasury. FIRB is a non-statutory advisory body. It is not a decision-making
body and has no decision-making powers under either the Foreign Acquisitions
and Takeovers Act or foreign investment policy.
Treasury officials explained that the national interest test is a
'negative' test and the application of the national interest stems from the
broad principle that 'Australian governments have consistently welcomed foreign
investment that are not contrary to Australia's national interest.'
In interpreting the national interest, officials stated that the following matters
are taken into consideration:
The government looks at a range of factors in assessing the
national interest. These include national security, competition, wider
government policies—such as taxation—an investor's impact on the economy and
the community, and the character of the investor involved. Where a proposal
involves a foreign government or related entity, the government also considers
whether the investment is commercial in nature or whether the investor may be
pursuing broader political or strategic objectives that may be contrary to
Australia's national interest, and all direct investment proposals from
government related entities are reviewed by the government. The relative
importance of factors can vary, depending on the nature of the target
FIRB officials also described the screening process as 'rigorous',
'thorough', and 'relatively broad and consultative'.
The committee also heard throughout its inquiries that FIRB often seeks comment
from other relevant government agencies, such as the Australian Competition and
Consumer Commission (ACCC) regarding competition matters, the Australian Taxation
Office (ATO) on tax matters, and the Department of Agriculture, Fisheries and
Forestry (DAFF) in agriculturally sensitive cases.
When consulted, these agencies summarised their role as follows. The
ACCC stated that:
The ACCC does not have any formal role under the Foreign
Acquisitions and Takeovers Act. However, it is routinely consulted by the
Foreign Investment Review Board on transactions which FIRB considers may
potentially raise competition issues for consideration. In responding to these
consultations, the ACCC advises FIRB whether or not it considers the proposed
transaction is likely to raise competition concerns in breach of section 50 of
the Competition and Consumer Act 2010. It is understood that FIRB then takes
the ACCC's section 50 competition assessment into account as well as other
factors as part of its assessment of the national interest test...
Section 50 of the Competition and Consumer Act prohibits
mergers or acquisitions that would have the effect or would be likely to have
the effect of substantially lessening competition in any market in Australia.
In making its assessment, the ACCC is confined to considering the effect on
competition in a relevant market in Australia in accordance with the tests provided
in the act.
The ATO outlined its involvement as:
...Of the numerous requests FIRB gets, the business investment
proposals, the ones greater than the [$248] million threshold are the ones that
we consider mostly. There is some vetting by FIRB in the first instance. We do
not receive all the applications that they receive. If they consider there is a
tax implication, they will flick it to us for our consideration. Historically,
we have received through this process about 200 to 300 proposals annually for
consideration...We do some analysis to determine whether there are tax
implications in those investment proposals.
We also have a separate process in relation to real estate
transactions of a more general nature. There is some data matching protocols
between the agencies in relation to that for our general intelligence purposes.
Some of the tax aspects that we would look at would be the attributes of the
acquirer, the target, the vendor and the structure proposed.
General views of the FIRB review process
The committee heard a range of views regarding the effectiveness and
desirability of the current FIRB review process. There was some evidence that
the flexibility of the current arrangements regarding the FIRB review process
were effective and helped facilitate foreign investment. In particular, this
evidence drew contrasts with the New Zealand model of the national interest
test (discussed in chapter two). For these submitters, the New Zealand model
was too restrictive and discouraged foreign investment in general. For example,
according to Cargill:
A key feature of Australia’s foreign investment laws is that
they apply a negative test – an investment proposal can only be rejected if it
is found to be contrary to the national interest. This compares with New
Zealand’s foreign investment laws which require a foreign investor to establish
a benefit to New Zealand (and, in some cases, a substantial and identifiable
Australia’s negative test demonstrates that Australia
welcomes foreign investment with foreign investors treated equally with
domestic investors. A positive test suggests that foreign investment is not as
welcome, that domestic investors are preferred.
This view was similarly supported by TFS Corporation:
Whist the transactions undertaken by TFS would comfortably
meet the provisions in NZ, TFS believes that the [New Zealand] system is too
prescribed and cumbersome. This in turn would not create an attractive
environment for foreign investment.
Some submitters were concerned about possible negative impacts from
changing the current system.
For example, the independent livestock agency, Vicstock, stated in its
Our laws are rock solid, and the FIRB review process, as
liberal as they seem to the uninformed, is actually doing its job while not
restricting the flow of new capital into our ailing rural sector.
I would counsel any government against making any decision
that would impede foreign capital from flowing into our Agricultural sector at
this time because our rural and regional communities desperately need it.
In its submission to the inquiry, TFS Corporation—a publicly listed
company and grower of plantation sandalwood—told the committee that the company
had recently received foreign investment of over $65 million from a Middle
Eastern sovereign fund and an AAA rated US-based institution. The TFS
Corporation also argued for the importance of a balance between confidentiality
and transparency in relation to FIRB decisions:
Whilst TFS would not support publication of applications for
approval of foreign investment, it has no objection to a public register of
land (particularly agricultural land) which is the subject of foreign
Publicising an application for approval of foreign investment
would deter investors and could have detrimental commercial consequences. The
situation is quite different however once approval has been granted.
One of the most common criticisms of the current situation related to
the lack of information available about FIRB decisions. This concern was
expressed from a wide variety of stakeholders from companies that were
otherwise generally supportive of FIRB arrangements, to agricultural industry
bodies (discussed below) and individuals interested in the process.
For example, in its submission, the United States based agribusiness
Cargill, noted that its experience of the FIRB approval process was somewhat
difficult to discern.
Cargill noted that the type of information provided by FIRB was usually limited
to ad hoc sources such as speeches and press releases about difficult
cases. The company also expressed concerns about the clearance process, arguing
that it was too lengthy and, in some cases, re-examined issues previously
considered by the ACCC. Whilst in its submission Cargill did not advocate for
the legislative prescription of the national interest test, it does argue that
there is a need for greater clarity in the process.
To counter the issue of a lack of transparency the South Australian
Farmers Federation (SAFF) called for a codification of the national interest
While we [SAFF] believe it is important for the Treasurer to
have flexibility to determine at a particular point in time what might the
national interest be, we also feel that there needs to be some agreed standard
measure of quantification that will enable clearer and consistent boundaries
for the interpretation.
Some submitters also considered that the current assessment process did
not consider issues that were important to the agriculture sector and rural
communities. For example the Western Australia Farmers Federation (WAFF) stated
...we seek a change in the current assessment criteria, which
would result in the Foreign Investment Review Board being able to consider a
greater number of applications by foreign investors into Australian
agriculture. This change would allow the National Interests Test to be more
broadly applied, and to identify the applicant’s likely impact on rural
communities, Australia’s long term food security and capacity to develop and
maintain export markets for agricultural products.
In response to questioning about this matter, FIRB stated that the
impact on local communities was a factor considered alongside other national
This issue is discussed further in chapter five regarding investment thresholds
and the impact of purchases below $248 million on local economies.
In addition to the review process, the committee heard evidence about
the mechanisms of compliance that are available to FIRB and the government
should foreign investors renege or deviate from their undertakings. In general
terms, FIRB explained its compliance depending on three key terms: intentions,
undertakings and conditions. The former FIRB Chair explained this and the
relevant compliance mechanisms available:
Mr Phillips: ...A statement of intentions is where the
company merely tells us what they intend to do and then we take that into
consideration and we check it out as much as we can. It is a voluntary
statement, if you like, given by—
CHAIR: Which they don't have to comply with?
Mr Phillips: Yes. Undertakings are usually
undertakings which are given to us in the course of the application or the
inquiry which are then built into the Treasurer's letter of approval so that
they become, if not formal conditions, at least part of the basis on which the
approval is being given and therefore can be acted on if the undertakings are
not followed. Conditions are formal conditions which are laid down and which
would give immediate rights to divestiture if they were not [met]...
However, the committee also heard of the limited compliance mechanisms
available to FIRB—formally the only form of penalty available to FIRB is forced
divestiture of foreign acquisitions. For example, the FIRB Chair, Mr Brian
Wilson, was asked to comment on the compliance mechanisms for the conditions
placed on the sale of Cubbie Station. Mr Wilson responded:
In this case, there certainly would be because the
acquisition was not under the policy but under the act, and under the act there
is divestment capability. Obviously, that is a pretty blunt instrument and it
has never been used.
At a hearing on 21 March 2103, Mr Wilson reiterated the limitations of
divestment as a compliance mechanism when asked about the penalty for not
reporting foreign acquisitions to FIRB. As the following exchange shows:
CHAIR: I made a point earlier from the evidence
received from your predecessor that if by design they avoid reporting, is there
Mr Wilson: The answer to that is there can be a
penalty under the act.
Senator NASH: What is it?
Mr Wilson: Divestment.
CHAIR: Has it ever been used?
Mr Wilson: Not to my knowledge, but we can only deal
with the act as it is. It is up to the legislature to determine what the act
CHAIR: I understand that. We look forward to making
some recommendations on updating it.
Mr Wilson: In other areas in which I have been
involved, we have looked hard at proportionality of penalties—so, waterfall
penalties according to the frequency and severity of the poor behaviour. The
problem with a single, nuclear option is that the button is not often pushed.
The evidence received by the committee indicates that ensuring
compliance with undertakings and conditions after foreign acquisitions had been
made could also be problematic:
Senator XENOPHON: ...are there requirements in the way
you attach the various conditions to it [a foreign acquisition]—say, if five
years down the track they say, 'Sorry; we can't do it'? ...
Mr Phillips: There was one [case] in particular. I
will not mention what it was, but it was a very long time ago. There were a
couple of others who worked very hard to try not to do it. I have to say that
in recent years we have managed to deal with all those companies that have not
toed the line. They give an undertaking that there will always be a majority of
Australian independent directors, and you suddenly find that the list of
directors does not look that way. So you have to go to them. So far they have
always toed the line and changed the system. Where they have undertaken to
maintain their head office and the bulk of their business, that is happening.
I agree with you that relying on the act [FATA] after a
passage of time is very difficult, because it is very hard to unpick the thing
after it has all been put together, and it is very difficult for the Treasurer
to order divestment. It is not difficult in real estate, but it is very
difficult in the case of multiple businesses.
Although the FATA has certain penalties that can be imposed, FIRB is
more constrained in relation to ensuring compliance with government policy
under the AFIP. The difference between the FATA and the AFIP was explained in
reference to the Cubbie Station case by the FIRB Chair, Mr Brian Wilson:
Can we just be clear: there are two aspects here. If we are
talking about Cubbie, that is not sovereign. It is under the act and there are
specific penalties. If we are talking about the policy, which obviously does
not have a legislative basis, I think it is true that there is no explicit
For those foreign investors that failed to appropriately notify FIRB
prior to their investment, FIRB explained the compliance regime in terms of an
CHAIR: ... Does FIRB have a formal program to identify
foreign investors who have not submitted applications when required to do so?
Do you have some sort of scheme, audit system, trigger point?
Mr Di Giorgio: We have a compliance regime.
CHAIR: Could you describe it to us?
Mr Di Giorgio: The compliance regime is one of
educating the community, the people who need to know, about the rules and
regulations. For example, we have spoken with lawyers in Sydney and will do so
in Melbourne. We have got information on the website. That is the first part of
compliance: to let people know.
CHAIR: It is a volunteer arrangement.
Mr Di Giorgio: That is a typical part of compliance.
We also have a phone line. People phone in with cases they believe do not meet
the criteria and we follow those up. We also monitor newspapers and if it
appears that a foreign company has not abided by the act [the FATA], we make
inquiries about it. So we work within those general parameters.
In terms of foreign government entities complying with foreign
investment undertakings, FIRB sought to reassure the committee that such
undertakings could be upheld through 'soft power' and 'international pressure'.
As the FIRB representatives explained:
Ms Reinhardt: There are significant international pressures
that can be brought to bear from government to government if we do not get
compliance with those. We also have the ability to consider further
applications in the future from those countries or companies.
Mr Wilson: I think the saying that has been used in
the past is, beware the soft power of a sovereign government. Generally,
foreign governments and foreign entities, no matter how large and powerful they
are, tend not to want to come to other countries and act in an unacceptable
way. In the end, the Australian government does have capacity to change laws
and make life difficult. Under the policy I do not think there is a legislative
redress. Under the act [the FATA] there is. But I must say, I have not seen
situations where I believe a foreign party, including a foreign government, has
deliberately gone out to tell lies or circumvent the things. Obviously, with
the help of lawyers and so on, foreign governments as well as commercial
enterprises, both Australian and foreign, do attempt to operate their affairs
in the most effective and efficient manner.
Ultimately, as mentioned above, FIRB stated that the Treasurer did have
power to order divestiture if undertakings were not met. This has occurred for
real estate investments of a number of occasions.
However, divestiture and prosecutions were far from common as FIRB told the
committee in a response to a question on notice:
For the 2010-11 financial year there were no prosecutions
initiated for failing to obtain foreign investment approval or for failing to
comply with approval conditions. There were also no divestment orders were
There were also no divestiture orders made at all by FIRB in 2011/12.
Hassad Australia case study
The committee heard evidence from Hassad Australia at its public hearings
on 16 November 2011 and 9 April 2013. Hassad Australia is an Australian company
with a single shareholder which is the Qatari government-owned Hassad Food
based in Qatar. Hassad Australia was established in 2009 and has its headquarters
As Hassad Australia is directly owned by a foreign government entity,
its appearance before the committee provided a case study of FIRB's review
process for foreign government entities investing in Australian agriculture.
Furthermore, because Hassad Australia was open about its role in the Qatari government's
strategy to improve Qatar's long term food security, it is a case that directly
represents a number of the key terms of reference of the inquiry.
Hassad Australia described the role of food security for its business as
...the initial plan that the Qatari government put in place
under the banner of the Hassad Food company, their initial investment was
driven by food security and, obviously, the mid-2000 issues of food shortages
in those areas. But when they put the plan together—and I have to advise that
most of the key advisers within their company are actually Australian—they
realised that it would not be successful if it did not have a commercial
outcome. To invest just for the purposes of producing food is not sustainable
in the long term.
Furthermore, Mr McKeon noted that 'Qatar have identified that they wish
to secure 30 or 35 per cent of Qatar's food supply, principally grains and
livestock, from Australia.'
Because of Hassad Australia's relationship with the Qatari government,
the company's investments in Australia are subject to a zero dollar threshold
for FIRB review.
In terms of its relationship with FIRB, Mr Tom McKeon, Chief Executive Officer
of Hassad Australia noted:
Currently all investments that Hassad Australia makes,
regardless of value, are subject to approval by the Foreign Investment Review
Board, even if it is one dollar. There is no threshold and every transaction
and acquisition must be approved by them. This is a process which Hassad
Australia fully supports. We continue to cooperate with FIRB in that regard and
our plan is very transparent to them.
Hassad Australia also provided evidence to the committee about how the
process of its purchases of agricultural land took place and the role of FIRB
in this regard. As Hassad Australia's representatives told the committee:
Mr Corbett: The process is highly driven around
governance as much as the [FIRB] requirements. We identify a property and we
negotiate with the landowners on a purchase price. As part of doing our desktop
due diligence, if you like, we enter into a term sheet with the vendors and
then proceed from the term sheet into a contract. The contracts are signed
subject to FIRB. At the same point in time as we go to contract we also
complete our FIRB application. So that details the acquisition—the style of
properties that we are buying, how we intend to use them, how we intend to
staff them and how we intend to operate them. That then goes into FIRB as part
of the process. Meanwhile, we continue to finish our due diligence around
valuations, agronomy, assessments and the like. That FIRB process takes
somewhere between 50 and 60 days. If there is anything in the application that
FIRB have questions about, they come back to us. We found it has been a fairly
smooth process. We have been very transparent with them all the way along, and
that has assisted in the dialogue lines between us and FIRB.
Mr McKeon: To add to that, in the initial stages of
the first couple of property aggregations or properties that we purchased it
was a very protracted process with FIRB because we did not know what they
wanted in the application. They kept on coming back with questions, so the
process was protracted. Probably six months ago we learnt our lesson. We went
and put our whole plan in front of FIRB and said, 'Here's the plan.' We gave
them the details and they understand it now. If we put an application in, they
measure it against the plan and it is a pretty seamless process. Prior to that
there were a lot of questions. If I could make one comment there, a lot of the
questions coming back were not structured questions; they were questions
relating to public perceptions coming back through the ministers to FIRB.
However, Hassad Australia indicated that there was little discussion
about compliance mechanisms if it was to significantly change its business
practices as reviewed by FIRB:
Senator NASH: Were you required to give an undertaking
that you would maintain the practices as you had set out in your submission?
Mr Corbett: There is no formal undertaking in that
regard, but one of the things from our perspective is that we have no problems
in coming back and letting them know that we are doing that...
Senator EDWARDS: ...Suppose that in five years time
they come back to you and say, 'We want to do an audit,' and you have not done
what you [said you would] have done—in fact your shareholding has changed or
whatever and you are no longer growing sheep, fat lambs and all those things;
you are actually just land-banking and not employing anybody anymore. Just say
hypothetically. Did they say at any stage during that whole process that they
would do that and that they reserved the right to unwind your business
Mr Corbett: Not at any stage.
At the committee’s hearing on 9 April 2013 it received an update from
Hassad Australia about its operations. Since the first appearance in November
2011, Hassad Australia had purchased an additional 80 000 hectares of farmland
(including 40 000 hectares in western Victoria and 'partly' South
Australia, and 30 000 hectares in Western Australia) to give it total holdings
of about 250 000 hectares. Hassad Australia stated all its purchases were
reviewed by FIRB.
In light of a recent media report,
Hassad Australia was asked whether it was willing to pay above market prices when
purchasing agricultural properties and if it used confidentiality agreements with
potential vendors. Hassad Australia stated that did not pay above market prices
for its agricultural land purchases and specifically denied paying above market
rates in the reported case of acquisition of land in the Eyre Peninsula—as the
following exchange shows:
CHAIR: ...There are reports from Cameron England in
the Adelaide Advertiser that maybe you are paying up to 40 per cent
above the going rate for Eyre Peninsula land—in some cases, $5,000 a hectare...
Mr McKeon: Sorry, could I interrupt in relation to the
Eyre Peninsula. I can make quite an emphatic statement there. We did go back
and check out the real estate values there. Most of the real estate value over
there is selling for more than $5,000 a hectare. The other thing is that we do
not pay above market values; we cannot. We cannot do it within our system.
Every property we purchase must undergo a totally independent valuation, and
that independent valuation must stack up to local valuations. There are many
instances where we have walked away from real estate deals because we could not
It was in line with its general approach to paying market value for
properties that Hassad Australia justified using confidentiality agreements
with potential vendors. As Mr Tom McKeon, Hassad Australia’s CEO put it:
The fact that we do not want to encourage inflated property
prices is precisely why we employ the standard best practice approach of using
confidentiality agreements with potential vendors. Widespread knowledge, as you
know, of a buyer in the market inevitably pushes up market values. There have
been a number of instances where we have actually pulled out of the market
because of that issue.
In addition, Hassad Australia noted that, with the possible exception of
malicious breaches, the confidentiality agreements may not be enforced. As
Mr McKeon explained in the following exchange:
CHAIR: ...[If] I have signed the confidentiality
agreement, and I go down to the Illabo pub, get pissed and let it be known to
someone that I have signed up, and someone says, 'I'll give you $500 an acre
more,' what is the penalty for breaching the confidentiality clause?
Mr McKeon: Basically none at all, because the heads
of agreement is a non-binding agreement. It is actually stated on it that it is
a non-binding agreement. But in all our dealings Australia wide we have only
ever had that happen once.
CHAIR: But are you prepared to put it on the record
that, sure, you sign them up to a confidentiality agreement, but if they want
to breach the confidentiality agreement there is no penalty? You do not say,
'Well, we're not going to buy the property from you'? Or, if someone else comes
along and offers them $500 an acre more, they are free to sell?
Mr McKeon: Again, I would have to take that one on
notice, but the basic principle is that, if there is no maliciousness in the
intent of the person in breaking that confidentiality agreement, there is
really no recourse for the person—
CHAIR: That is fair enough.
Mr McKeon: they had the agreement with to seek a
penalty for it. But, if there is maliciousness and it does cause damage,
obviously there may be some recourse.
Hassad Australia further clarified its approach regarding enforcement of
confidentiality agreements in an answer to question on notice, stating that:
...if the confidentiality clause was breached, HA [Hassad
Australia] would weigh the quantum of the loss suffered by HA as a result of
the breach of confidentiality and make a commercial decision as to whether
there would be any merit in enforcing its contractual rights against the
Cubbie Station case study
Lempriere Pty Ltd appeared before the committee on 24 October 2012 to
discuss its involvement in the purchase of Cubbie Station. Lempriere Pty Ltd is
a wool trading company established in Australia in 1857. It also has a 'variety
of different agricultural farming interests' in Australia and New Zealand.
In mid-2012, Lempriere Pty Ltd joined with a private Chinese company,
Shandong RuYi, to form a private Australian company to purchase the large Queensland
cotton producing farm, Cubbie Station. At the point of purchase, Lempriere Pty
Ltd held a 20 per cent stake in the company and Shandong RuYi held the
remaining 80 per cent.
As Cubbie Station is one of Australia’s largest agricultural properties,
with vast water resources and had been subject to external administration, its
potential purchase from foreign interests was controversial. The bid went
before FIRB which approved the investment in August 2012. FIRB sought a number
of undertakings from Lempriere and Shandong RuYi as part of the approval
process. Some of the details of the undertakings were made publicly available
by the Treasurer in a media release announcing FIRB approval.
There were several issues of concern to the committee and the wider
public about the nature of the foreign investment by Shandong RuYi in Cubbie
Station. A number of these concerns were allayed by the evidence provided by Mr
William Lempriere, Manager Director, Lempriere Pty Ltd. The key issues will be
discussed in turn.
First, the committee noted that Shandong RuYi had committed to reduce
its 80 per cent stake in Cubbie Station to 51 per cent in three years from
the completion of the acquisition—which reportedly took place on 15 January
2013. The committee heard that this undertaking was a proposal made by Shandong
RuYi rather than a condition put forward by FIRB.
The committee questioned both FIRB and Lempriere Pty Ltd about the
undertaking to sell down to 51 per cent within three years and what mechanisms
were in place to ensure that this occurred. The FIRB Chair, Mr Brian Wilson,
noted that although in some circumstances – such as a market 'crash' – an
extension to the sell down period may be granted, he stated that:
It would not be a case of: 'We can't get the right price; we
don't want to sell.' It is not an undertaking to sell at a particular price or
at the price they have bought or for a gain; it is an undertaking to sell.
Furthermore, FIRB noted that there were powers under the FATA to force
divestiture. In this regard Mr Wilson noted:
Ultimately the decision to force divestment is with the
minister, not with the board. But I would have thought, if it was the selldown
obligation, it may well be that the minister would insist that divestment
occur. It has occurred in the past in some cases. It has certainly occurred in
real estate cases where people have not honoured their obligations and forced
divestment has been made.
Evidence received from Lempriere Pty Ltd confirmed the undertaking for
Shandong RuYi to sell down. However, it was also noted that FIRB had not placed
restrictions on the vendor (i.e. Shandong RuYi) financing bids from third
parties for the 29 per cent stake required to be sold.
Despite this, the committee was given evidence that the parties that already
had shown interest in potentially purchasing some or all of the 29 per cent
stake are, according to Mr Lempriere, 'independent, and certainly do not need
any vendor finance.'
A second area of concern for the committee was the extent to which
Shandong RuYi and Lempriere Pty Ltd were to manage Cubbie Station on a
commercial basis. The committee was re-assured by Mr Lempriere that this would
be the case:
Under the structure that we have agreed with the Treasurer
the independent manager has full responsibility and freedom and independence to
manage the property as it sees fit and, in addition to that, to be responsible
for the sale and potentially local processing of the product. So I think it is
relevant to say that we have every incentive to maximise the profitability of
this business within Australia and every intention—and we have, as I said, the
independence to ensure that this occurs—of making sure, if it is a profitable
enterprise, as we hope it will be, that it will be paying tax in Australia.
The commercial nature of the transaction was reaffirmed in Mr Lempriere's
response to a question about how Shandong RuYi would be able to obtain product
from Cubbie Station:
We have an undertaking that, if they [Shadong RuYi] are willing
to pay more than anyone else, we will sell it to them. But that has to be
demonstrated. Certainly I personally have no interest in selling it to them for
anything less than full price.
Finally, the basis for the commercial management of Cubbie Station
stemmed from an agreement of independent management between Lempriere Pty Ltd
and Shandong RuYi. This agreement was still in draft form at the time of the
public hearing on 24 October 2012. However, Mr Lempriere described it as a
'binding contract that gives us the necessary independence to ensure that we
operate that place in the way in which we best see fit.'
While the committee was reassured by Mr Lempriere's statement, the
committee notes that the FIRB did not request to see this agreement of independence
prior to granting approval for the transaction to go ahead. The committee did
receive evidence that this would be made available to FIRB if requested and as
a part of future reporting requirements regarding Lempriere's undertakings to
The committee also notes that subsequent to this October 2012 hearing
there were media reports that Cubbie Station’s new owners were reviewing and
considering the potential sale of its water entitlements to the government
under the Murray‑Darling Basin water buyback scheme.
The committee was often frustrated by the difficulty in uncovering information
from the FIRB and the Treasury about how the FIRB process worked. Although the
committee appreciates the extensive time that FIRB and Treasury officials,
including the previous and current FIRB chairs, gave to the committee during
their multiple appearances as witnesses, the committee was nevertheless often
confronted with a dearth of information about the FIRB process.
The committee is deeply concerned about the lack of a systematic
approach by FIRB to the conduct of the national interest test. Although it was
encouraged by the input of numerous government departments in conducting the
national interest test, the committee is of the view that the flexibility
designed into the system is potentially detrimental to the interests of
Australian agriculture. The committee is also concerned by the lack of
information made publicly available by FIRB regarding the cases reviewed and decisions
made about foreign investment in Australian agriculture.
In addition, the committee was left with little evidence to suggest that
the current regulatory framework and the FIRB national interest test could
effectively prevent foreign government-owned entities from acting in a manner
that could distort Australia's agricultural capital and trading markets. In this respect, the committee was not reassured
by the FIRB explanation that 'soft power' and 'international pressure' provided
incentive for foreign government-owned entities to comply with conditions that
may be placed on foreign acquisitions. The committee considers that such
'international pressure' will become increasingly difficult to apply in light
of the strategic concerns that countries will face due to the growing global
Furthermore, the scope of FIRB's compliance powers
appears to the committee to be out-dated given the evidence that food security
is a strong motive for Hassad Australia's operations. Indeed, Hassad Australia's
evidence indicated strongly that its goodwill was essential to it operating in
a manner consistent with the undertakings it had made to FIRB. The committee,
however, was not presented with any evidence that in the absence of such
goodwill, the FIRB undertakings – and hence the national interest – would not
Although the committee has some concerns about the role of food security
in Hassad Australia's long-term strategy for investment in Australian
agriculture, the committee acknowledges the evidence provided by Hassad
Australia that it will operate on a commercial basis.
The Hassad Australia case demonstrates that FIRB makes initial questions
and investigations about a proposal. The committee notes that FIRB's process
does not follow a standard pattern. It appears that in Hassad Australia's case
it was only because the proponent proactively pursued the matter that there was
any ongoing certainty about the process.
Furthermore, the clear absence of effective compliance arrangements for
the years following FIRB approval shows the potential for foreign investors to
act in ways that are contrary to the national interest. The committee believes,
therefore, that continued oversight of the operations of foreign investors
after approval is necessary.
The committee is reassured by the openness of Hassad Australia both with
FIRB and with the committee. However, in the way that Hassad Australia
described the process, the committee reaffirmed its view that the FIRB review
process relies as much on the goodwill of prospective foreign investors as it
does on the scrutiny of FIRB.
Finally, the committee was reassured by Hassad Australia's clarification
that it does not pay above market prices for its purchases of agricultural
land. The committee is hopeful that this will remain Hassad Australia's practice
into the future. In this respect, the committee’s preference is for openness
and transparency wherever possible.
The committee recognises that the sale of Cubbie Station to the joint
bidders Shandong RuYi and Lempriere Pty Ltd, has caused a significant and
somewhat justified angst in the community. The committee chooses not express a
view about whether or not the particular case should have been approved by FIRB.
Nevertheless, the committee is of the view that the Cubbie Station sale is an
illustrative example of how the FIRB process often causes unnecessary public doubt
about whether the national interest is being upheld.
In addition, the committee has expressed general concerns in its inquiry
into the management of the Murray-Darling Basin about the value for money the
buyback program has offered Australia’s taxpayers.
The committee notes that Cubbie Station has access to extensive water resources
and that, in this case, the government buyback would be from a company that is
majority owned by foreign investors. As such committee urges the government to
be especially mindful in this case of ensuring that water buybacks represent
value for money for Australian taxpayers.
The committee recommends that, in line with recommendation 4, the
government develop a stronger, more rigorous and more transparent system for
examining cases of foreign investment in Australia, including Australian
agriculture. Particular focus should be made on forensically examining:
- company structures (including management relationships in joint
- the relationship between a foreign government's acquisitions
strategy (such as food security) and the commercial operation of their
subsidiary businesses in Australia; and
- ways of setting clear and auditable ongoing undertakings that are
in the 'national interest'.
The committee recommends that the government amend the FATA to create more
effective compliance mechanisms for companies that do not rigorously and
continually adhere to the undertakings and conditions of FIRB approval. In
addition, the government should develop further mechanisms to improve
compliance with FIRB policy and decisions. Any new compliance regime should
provide the Treasurer and relevant officials with a wide variety of compliance
tools, in addition to forced divestiture, so that compliance matters can be
resolved more efficiently and in proportion to the severity of any breaches.
The committee recommends that the government increase the transparency and
public awareness of the national interest test so that it has the following two
- providing precise and unambiguous instructions to prospective
foreign investors about their obligations to FIRB and the Treasurer, and how
the national interest test is conducted; and
- building the confidence of the public, FIRB stakeholders and the Parliament
that the national interest test is being rigorously and fairly applied and
takes in to account all relevant factors including impacts on rural communities
and the agriculture industry.
This recommendation relates to water entitlement buybacks conducted
under the government's Restoring the Balance Program and the Sustainable
Rural Water Use and Infrastructure Program as part of the water recovery
process under the Murray-Darling Basin Plan. The committee recommends that any
such water buybacks that are from companies that have had acquisitions subject
to FIRB review (including Cubbie Station) should be forwarded to the Australian
National Audit Office (ANAO) for review. The ANAO should publicly report on
whether water buybacks in such cases represent value-for-money for Australian
taxpayers. The committee accepts that any review by the ANAO would occur after
a water buyback has occurred.
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