21 Jul 2016
Ausgrid strategic risks must be tested
The potential sale of 50.4 per cent of Ausgrid should only happen after the most careful assessment of the national security implications.
There are two potential purchasers: Stategrid, a Chinese State Owned Entity which is intimately tied to China’s political apparatus and the Communist Party, and the Hong Kong-listed Cheung Kong Infrastructure, already active in Australia. Hong Kong’s political separation from Beijing is tenuous and under threat.
To specialists on China, links between Party and business are commonplace. Sydney University’s Linda Jakobson writes: ‘Each enterprise in China — everyone, for that matter, in an authoritarian one-party state — is expected to bear in mind the party-state’s interests.’
Senior federal Treasury officials argued in Senate Committee hearings last December that it is necessary to ‘look past’ the influence of the Chinese state ‘otherwise just about every company coming out of China would be defined as such.’
While substantial Chinese Foreign Direct Investment is welcome in the right areas, Australia can’t afford to be naïve when it comes to investment in critical infrastructure.
China’s aggressive behaviour in the South China Sea shows that Beijing operates according to its own strategic priorities. In rejecting The Hague’s Permanent Court of Arbitration ruling against Chinese island building, Beijing flouts the ‘rules based global order’ that is so central to Australian security.
The same one party apparatus directing Chinese behaviour in the South China Sea is the owner of Stategrid and is the ultimate power in Hong Kong. That should give pause to Australian policy makers wanting to privatise NSW’s electricity distribution system.
Ausgrid provides power to 1.6 million households and businesses in Sydney, the Central Coast and the Hunter regions, this includes critical defence industries and facilities and State and Federal government offices.
These facilities are potentially vulnerable to power disruption. While that risk might seem acceptable in current strategic circumstances, imagine a situation where a rapidly deteriorating strategic situation in the Asia-Pacific creates significantly more tension.
This riskier strategic world is starkly described in the Defence White Paper released last February and is the reason why we are massively investing in stronger defence capabilities.
The United States is increasingly worried about the vulnerability of its own electricity grid to cyber hacking.
Like Australia the US grid is a mix of old and new technology, run by industrial control systems that regulate the power flows. ‘Malign cyber actors’ as they are known in the intelligence world can potentially hack into these control systems.
This is not just theory. The Russians hacked three nodes of the Ukrainian power system in December 2015, briefly cutting power to hundreds of thousands and doing lasting physical damage to industrial control systems.
After Russia, China is one of the most active users of hacking for espionage. Chinese strategic thinking readily embraces ideas of pre-emption and lateral ways of attacking an enemy.
Strategies can be adopted to harden the security of Australia’s electricity infrastructure, but these go far beyond ensuring that security-cleared Australians sit on boards.
The need is to place stringent security controls around individuals who have access to the hardware and software of industrial control systems and to be constantly alert to different cyber-attack strategies.
Since 2003 the federal government has maintained a Trusted Information Sharing Network for critical infrastructure resilience. The network provides a secure environment for critical infrastructure owners and operators to share information about security and business continuity across seven areas, including electricity.
Would the bidders for Ausgrid become part of this trusted and secure network? Will Government and the rest of the electricity sector be prepared to share the latest information on protection against cyber hacking?
It’s possible that there is a way to resolve these conflicting priorities. This is not simply a case of smart money versus dumb xenophobia.
A necessary start point must be to accept that there are real and pressing security issues that a serious country should address and that this is best done through a predictable and open assessment process.
Peter Jennings is the executive director of the Australian Strategic Policy Institute.
Originally published: Australian Financial Review. 21 July 2016