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1 Sep 11
Senate inquiry into foreign investment 'national interest' test

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Recent acquisitions of Australian rural land by foreign investors have sparked public debate about foreign investment regulation and food security. Senior Associate, Duncan Bedford, discusses the potential tightening of foreign investment regulation that may arise from the Senate Committee Inquiry into these issues.

The recent acquisitions of what some may consider ‘prime’ agricultural land by foreign interests has raised questions about the adequacy of Australia’s foreign investment regulations. Extensive media coverage has been given to the acquisition of large areas of farmland and significant water entitlements in the Liverpool Plains area of New South Wales by Chinese state owned mining company Shenhua Watermark.

It is common commercial practice for mining companies to acquire the land underlying their mining tenements to alleviate compensation and access issues. Obtaining Foreign Investment Review Board (FIRB) approval in these circumstances has, in the past, generally been a relatively straightforward process. That may be about to change.

At the moment the government does not have the power to prevent acquisitions of farmland by foreign investors under a $231 million threshold (unless the investor is foreign government owned). Even for acquisitions above the $231 million threshold, those acquisitions are only prohibited if they are contrary to the Australian ‘national interest’.

In response to concerns raised in the media and in the rural and farming community, the Senate Standing Committee on Rural Affairs and Transport (Committee) has been given the task of examining the national interest test applied to purchases of Australian agricultural land by foreign entities. While the Committee will largely focus on issues surrounding food security, this is likely to impact on the ability of foreign mining companies to buy the farmland on which they conduct their mining and exploration activities.

Some of the specific issues that the Committee will consider include:

  • how the national interest test was applied to purchases of Australian agricultural land by foreign entities in the past 12 months
  • the role of the Government, regulators and receivers in upholding the national interest test, and
  • how similar national interest tests are applied to the purchase of agricultural land in countries comparable to Australia.

The aim of the Committee is to improve the transparency of decisions made by FIRB under Australia’s national interest test. This may impact on the application of the national interest test itself, as well as the acquisition thresholds under which FIRB currently does not have any power to review.

The Committee is due to report back to the Senate on 30 November 2011. We will continue to monitor and report on developments arising out of that report and how they may impact on land acquisitions by mining companies.

Given the likelihood of changes in this area, for those mining companies with a number of potential acquisitions over the next 12 months, consideration should be given to obtaining an annual approval from FIRB allowing multiple acquisitions up to an approved threshold without having to seek individual approvals. This will allow more certainty during the mine planning and development stage. We have extensive experience in assisting clients to obtain these annual approvals from FIRB.

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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