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Q+A-How does Australia's foreign investment review work?
September 25, 2009 / 3:46 AM / 8 years ago

Q+A-How does Australia's foreign investment review work?

Resource-hungry Chinese firms and other foreign investors may face a 15 percent limit on their investments into Australian mining firms, according to guidelines spelled out by its Foreign Investment Review Board (FIRB), which is responsible for making recommendations on foreign takeovers.

Patrick Colmer, general manager of the FIRB, also wants to limit investments into start-up projects to under 50 percent, the Australian Financial Review reported.

Some experts argue Australia’s 34-year-old foreign investment regime is murky and unpredictable, despite government claims to the contrary, and say the whole process can become a guessing game that turns investment away.

HOW DOES AUSTRALIA‘S FIRB WORK?

The FIRB examines proposals made by foreign interests for direct investment in Australia and makes recommendations to the government on whether those proposals are suitable for approval on the basis of Australia’s national interest, be it economic or security. It does so behind closed doors due to the market-sensitive nature of some of the details it examines.

The FIRB’s functions are advisory only. The treasurer has responsibility for the government’s foreign investment policy and for making decisions on proposals.

WHO MAKES UP THE FIRB?

The FIRB has four members -- a former central bank deputy governor and university chancellor, a company director, a former politician, and a former treasury official.

MUST FIRB ABIDE BY STRICT GUIDELINES?

No. Despite the stated preference to keep foreign equity interest investments kept at or below 50 percent for new or proposed projects and 15 percent for companies with existing projects, the FIRB has no clear mandate to do so.

WHY DO SOME FIRB RECOMMENDATIONS TAKE LONGER THAN OTHERS?

The FIRB tries to make a recommendation to the Australian treasurer with 28 days but can take up to 90 days if it chooses. An extended recommendation period usually means something is out of the ordinary that requires closer scrutiny.

WHAT IS THE FIRB‘S HISTORY ON RECOMMENDATIONS?

The FIRB sometimes opposes foreign investment deals, but more often recommends to the treasurer that the transactions proceed.

Three instances where FIRB was opposed stand out:

SEPTEMBER 2009: Chinese state-owned China Non-Ferrous Metal Mining (Group) Co dropped its $400 million bid to acquire a 50.6 percent interest in Miner Lynas Corp, owner of the world’s richest deposit of rare earths minerals, saying the conditions imposed by the FIRB were too stiff.

APRIL 2009: Treasurer Wayne Swan rejects Chinese state-owned firm Minmetals’ takeover of debt-stressed OZ Minerals on national security grounds, saying its main mine lay too close to a weapons-testing area. Australia finally approved a revised deal whereby Minmetals would buy OZ Minerals’ other mines.

2001: Then-Treasurer Peter Costello rejected oil major Royal Dutch Shell’s takeover of oil firm Woodside Petroleum as not in the national interest.

HOW MANY PROPOSALS DOES THE FIRB NORMALLY CONSIDER IN A YEAR?

In 2007-08, 7,841 proposals worth A$191.9 billion ($164 billion) were approved compared with 6,157 the year earlier. Fourteen proposals were rejected in 2007-08, down from 39.

Mineral exploration and development was the largest industry sector by value, with investment approvals in 2007-08 of A$64.3 billion (A$32.3 billion in 2006-07).The United States was the largest source of foreign investment in 2007-08. ( more details at: here;)

WHAT INVESTMENTS REQUIRE FIRB APPROVAL?

Vacant non-residential land, residential real estate, shares or units in Australian urban land corporations or trust estates, and direct investments by foreign governments or their agencies. (Reporting by James Regan and Michael Perry; Editing by Jonathon Burch)

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