On 29 March 2020, the Australian Government announced that in a COVID-19 affected economy, nearly all foreign investment into Australia will require screening and prior approval through the Foreign Investment Review Board (FIRB).
The Foreign Acquisitions and Takeovers (Threshold Test) Regulations 2020 (Cth) (Threshold Regulations), put this announcement into effect. The Threshold Regulations lowered all relevant monetary thresholds previously available to different types of investors – ranging from $15 million to over $1 billion for free trade partners depending on the asset – to $0. The timeframes for approval were also extended to up to 6 months.
This change may have a significant impact on the process and timing for investment in the Australian market, including on public-private partnerships (PPPs) and other infrastructure projects.
It is important to note though that – despite the previous availability of monetary thresholds and other potential exemptions - many such projects were often caught under the old rules. This was often due to the nature of the various members of project consortia, as well as the nature of projects involving the build, operation, maintenance or supply of critical and other public infrastructure.
The old rules - how were projects previously caught?
Under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), and prior to the introduction of the Threshold Regulations, projects were typically caught based on the nature of the land interest being acquired – that is whether an interest in Australian land was acquired. From a FIRB perspective, interests in land include freehold acquisitions as well as any leases and licences with rights to occupy where the term of the lease or licence is reasonably likely to exceed 5 years (including options).
Certain types of contractors - foreign government investors - required FIRB clearance for all interests in Australian land (regardless of value). Such contractors also required FIRB clearance to the extent they were considered to be 'starting a new business' or acquiring equity in certain bid structures.
For contractors who were private foreign persons, projects were caught within the FIRB rules when they included licences to use, or licences to use and occupy, land where the interest in land exceeded the relevant monetary threshold. No monetary threshold was available for vacant land. However, thresholds of $60m or $275m were available for developed commercial land and the lower threshold typically applied due to critical/public infrastructure in government projects.
TIP: while an exemption was (and continues to be) available for acquisitions from government, it is not available if there is critical infrastructure (including public infrastructure) on the land or where the contractor is a foreign government investor.
The new rules – who is caught now?
As the thresholds for foreign investment in Australia have been reduced to nil, contractors participating in projects will no longer have the benefit of monetary thresholds. This means that more PPPs and infrastructure projects are likely to be caught within the scope of the FIRB regime and more contractors will be required to seek FIRB clearance to participate in projects.
TIP: the FIRB process involves consultation with other government agencies including the ATO and ACCC. Parallel engagement with these bodies by parties going through the FIRB process is highly recommended to ensure as smooth and timely an outcome as possible.
As described above, projects involving freehold interests, leases and licences to use or licences to use and occupy will now be caught – regardless of the type of foreign person involved in the project – assuming that the exemption for acquisitions from government is not available. Licences that provide rights to access only remain outside of the FIRB rules. However, it is not clear whether a licence that include rights to 'use' only will be considered as rights to access or rights to access and occupy. This is an area that needs to be considered on a case by case basis depending on the nature of the services for any particular project and has been the subject of differing views from FIRB.
Recent guidance from FIRB also distinguishes between 'agreements to lease' and 'leases' and states that there are two different 'actions' for FIRB purposes. This new guidance raises a question as to whether licences entered into after execution of a project deed (even if contemplated by that deed) would require separate FIRB clearance.
TIP: for contractors who are foreign persons, they will now also need to consider their FIRB requirements when establishing or capitalising holding structures.
Moving forward
In addition to the changes to the foreign investment rules, FIRB announced a 6-month extension policy, which has seen FIRB extend the date by which a decision must be provided in response to an application by up to 6 months across the board. In this context, we recommend that contractors evaluate their FIRB requirements throughout the bid and project life cycle and to engage early with FIRB.
For governments and other parties involved in tendering for projects, early engagement with FIRB and its consult agencies is highly recommended.
This enables:
- FIRB to obtain an early understanding of the project and any likely sensitivities;
- Tenderers to obtain advice on which steps, if any, of their involvement in the project might require prior FIRB clearance; and
- Tenderers to potentially obtain FIRB clearance during the tender phase, so that they can bid without a FIRB condition.
TIP: a recent engagement process with FIRB enabled a tenderer to proceed without needing FIRB clearance – a copy of the draft project deed was provided to FIRB, who formed the view that it did not confer an ‘interest in land’ for FIRB purposes and hence was not caught by the regime.
