Security agencies are closely monitoring foreign companies bidding for the NSW power grid, amid warnings about the vulnerability of energy networks to cyber attack.
The Australian has learned the state government, which is hoping to raise up to $9 billion from the sale of TransGrid, has been discussing concerns about a Chinese-backed bid with the Foreign Investment Review Board.
The federal government’s Australian Cyber Security Centre last month revealed there had been 11,073 cyber “incidents” involving Australian businesses in the past year, 153 of them on systems of national interest such as critical infrastructure.
The centre said none of those episodes constituted a cyber “attack” that would seriously compromise national security, stability or prosperity. But energy topped the sectors targeted, representing 29 per cent of incidents reported to the Computer Emergency Response Team.
Security agencies have previously intervened in foreign investments. ASIO urged the previous Labor government to block Chinese company Huawei’s involvement in the National Broadband Network because of security concerns.
The Australian has been told some of those involved in the NSW process have raised concerns about the sale of a piece of critical infrastructure to a company controlled from Beijing that might give China the ability to shut down or overload power to the state, including defence facilities, in a future crisis.
The TransGrid network, which is to be sold by the end of the year, supplies power to much of the nation’s east coast, including the total NSW and ACT load from Snowy Hydro. TransGrid also has a telecommunications network used by industry and government clients and it controls 2000km of fibre-optic cable. It plans to lay a further 29km of cable through Canberra to serve key government organisations.
While the bidding process remains confidential, expressions of interest in the purchase have closed and there are believed to be at least two China-based companies in the mix. Indicative bids are due on August 27.
China’s State Grid Corporation, which has already bought part of Melbourne’s electricity network, the NSW gas distribution grid and the main gas pipeline from Bass Strait to Sydney, is believed to be among the interested parties. It is working in partnership with Macquarie Group’s infrastructure arm, MIRA.
A specialist familiar with FIRB decisions said the board placed little weight on precedents, which meant success in Victoria did not mean State Grid, or any other foreign bidder, could expect to automatically buy the NSW network.
The need to defend against possible assaults on critical infrastructure by foreign powers or even terrorist groups using computers to launch cyber attacks has been raised in the two most recent defence white papers. US researchers found cyber systems could be used to open and close pumps in power stations, while the Stuxnet attack on Iranian nuclear facilities destroyed 1000 centrifuges.
Peter Jennings, a former senior Defence official who now heads the Australian Strategic Police Institute think tank, said FIRB should look very carefully at the potential security issues involved.
“There is no effective separation between the behaviour of a Chinese firm and the Chinese government, and that means the Communist Party,” Mr Jennings said.
“That means potentially they’d have the capability to mount a cyber attack and even the PLA (People’s Liberation Army) could be given access to the electricity generation network. I think that’s a concern.”
Defence bases in NSW drew power from the electricity network and there was a direct security implication there, Mr Jennings said.
In the US, hackers have already inserted into software an ability to interfere with a power station remotely or in the future.
“I’d be concerned if that meant there was now a vulnerability to cyber attack on the energy infrastructure of NSW,” Mr Jennings said.
“The ability to close down energy supplies to defence facilities or whatever else a cyber attack might do to generation and distribution is something to be conscious of if we found ourselves in a difficult relationship with China over some issue.
“That might give you the capacity to turn it off at the wrong moment or to surge it and overload systems or to otherwise cause damage. With state-owned enterprises, or even Chinese companies that are notionally independent of their government, there really is no separation of authority between these entities and the Communist Party. You have to acknowledge that in effect you are really giving the Chinese Communist Party access to that level of state capability if there is ever any reason for them to make use of it.”
The FIRB would have to decide if those security issues could be adequately mitigated if the power-distribution capacity were to be sold off to a Chinese government-controlled enterprise, Mr Jennings said.
In 2013, in the same year that he approved the State Grid purchases, Joe Hockey said he would not overturn the previous government’s ban on the involvement of Chinese communications giant Huawei in building the NBN. That ban is believed to have been imposed on ASIO’s advice because of fears Huawei’s involvement could compromise the nation’s communications.
A federal government spokesman said that while the Attorney-General’s Department did not comment on specific applications, it provided advice to Treasury on foreign investment applications relating to critical infrastructure under the foreign investment regime.
NSW Treasurer Gladys Berejiklian said the state government had been engaging with FIRB in relation to the electricity network lease transactions.
“As is the case with all government asset transactions, all bidders will have to seek the appropriate approvals from bodies such as the Australian Competition & Consumer Commission and, where relevant, the FIRB,” Ms Berejiklian said.
“Following the transactions, the NSW government will retain significant influence over the assets as lessor, as licensor, as safety and reliability regulator, through the planning system, through the National Electricity Market rules and through network price regulation.”
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