Australia blocked the A$10 billion (US$7.7 billion) sale of its biggest energy grid to State Grid Corp of China and Hong Kong's Cheung Kong Infrastructure Holdings. [File photo]

Australia blocked the A$10 billion (US$7.7 billion) sale of its biggest energy grid to State Grid Corp of China and Hong Kong's Cheung Kong Infrastructure Holdings citing security concerns, a blow to the country's privatization plan.

Nine months after clearing the sale of TransGrid to an investor group 40 percent controlled by Kuwaiti and Abu Dhabi interests, Australian Treasurer Scott Morrison said yesterday he was rejecting the sale of Ausgrid to the rival Asian bidders because of risks to the national interest.

"During the review process national security issues were identified in critical power and communications services that Ausgrid provides to businesses and governments," Morrison said in a statement.

State Grid, China's dominant power distributor, did not immediately respond to requests seeking comment. Cheung Kong Infrastructure, controlled by Hong Kong billionaire tycoon Li Ka-Shing, said the decision was not related to CKI.

Australia's decision to reject the bids deprives the New South Wales state government of what would have been a record haul for a single privatization sale, and also underscores the country's changed political climate since a handful of protectionist senators took power in general elections last month.

The Australian Senate cannot block offshore sales, but Morrison's conservative government needs to maintain favorable relations with the crossbench which now holds the balance of power in the upper house.

The decision also sets new parameters to the relationship between Australia and its biggest export partner just eight months after a A$100 billion free trade agreement took effect.

"If you put your biggest trading partner in the category of ‘security risk,' it might start to impact on the overall atmosphere, and on Chinese involvement in other areas," said Hans Hendrischke, a professor of Chinese business at University of Sydney's business school.

"That is not necessarily something you want with bidding for other big infrastructure projects," he added, noting Chinese interests have routinely bid in Australian infrastructure sales.

Apart from Ausgrid and TransGrid — which State Grid also tried to buy last year — the government of NSW, Australia's most populous state, has put up a third grid for sale, rural-focused Endeavour Energy.

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