Clinton Dines … new hurdles will ensure proper due diligence.

CHINESE authorities are cracking down on foreign investment after a string of troubled projects that have run up tens of billions of dollars in losses, including two big resources deals in Australia.

In a decision that will have implications for Australia’s booming resources sector, China’s State Assets Supervision and Administration Commission has published new rules that will hold state-owned enterprises and their executives accountable for bad overseas investment decisions.

The commission’s move follows two disastrous investments in Australia’s resources sector.

The largest Chinese investment project in Australia, the $7 billion CITIC Pacific Sino Iron project, conceived by the magnate Clive Palmer, has been dogged by huge cost blowouts and delay. The budget for the project has almost tripled from the initial $2.5 billion estimate.

A second big investment project, the $2 billion Sinosteel Midwest project, was shelved last year after a string of difficulties. The head of Sinosteel, Huang Tianwen, reportedly lost his job because of investments that had gone awry in Western Australia.

The commission has demanded more due diligence and risk management on all overseas investment deals by state-owned companies. No penalties have been announced but executives will be held ”accountable” for foreign investments that result in significant losses for the state.

Since the start of China’s ”going out” initiative in 2003, which encouraged Chinese companies to invest overseas, Australia has been a favourite hunting ground for them.

The Labor government is believed to have approved more than $70 billion worth of investments from Chinese companies since it was elected in 2007.

That growing investment in Australia will be affected by the commission’s new regulations.

”Failed Chinese investors are likely to point their fingers at Australia and there is the potential for the ill-judged investments to become part of the tone of the bilateral relationship,” the former president of BHP Billiton China, Clinton Dines, said.

But he said there should be a long-term benefit. ”That the Chinese government is putting some filters and hurdles in place to ensure that more proper due diligence is done is a good thing.

”A lot of prospective Chinese investors don’t know much about owning, operating and investing in the resources industry. If there were to be too many bad Chinese investments in Australia, these difficulties would inevitably bleed across into the government sphere and that cannot be good for the bilateral relationship.”

Mr Dines, who is now the executive chairman (Asia) of the private equity firm Caledonia, said the introduction of the new rules was ”consistent with the evolution of policy thinking in Beijing” as the government reassessed resources security.

”The Chinese government has learnt two important lessons since the advent of the ‘going out’ initiative,” he said. ”Firstly, that Chinese companies are not always equipped to be successful buyers, owners and operators of overseas projects.

”Secondly, Chinese government thinking is gradually evolving towards the conclusion that security of supply does not necessarily require ownership of these assets.”

While a number of projects in Australia have cost the Chinese government billions, one is held up as a model of how to invest abroad successfully.

That company is Minerals and Metals Group, a wholly owned subsidiary of China Minmetals that emerged from the purchase of key assets from OZ Minerals in 2009.

MMG’s chief executive, Andrew Michelmore, said all his dealings with the state-owned parent company had been positive.

”All my experience with Minmetals has been about the return on investments, profitability and shareholder values,” he said.

Not so clean … fugitive emissions could make coal seam gas as dirty a fuel as black coal, report says. Photo: Glenn Hunt

COAL seam gas, widely touted as a greener fuel than coal, could have just as deep a carbon footprint unless world-class standards are used when extracting the gas from the ground, an expert report has found.

A study into the life-cycle greenhouse emissions of Australia’s energy sources by consultancy WorleyParsons found conventional gas from large offshore wells typically produced 38 per cent less greenhouse emissions than black coal, largely because it burnt more cleanly.

But the equation could shift dramatically for the fledgling coal seam gas industry – the subject of a fierce political battle in NSW and Queensland – if meticulous standards were not followed when the gas was extracted from the ground.

So-called ”fugitive emissions”, particularly of methane, which is a much more powerful greenhouse gas than carbon dioxide, can tip the balance and make coal seam gas as dirty a fuel source as black coal burnt in ageing power plants, the report says.

”If methane leakage approaches the elevated levels recently reported in some US gas fields … the [greenhouse gas] intensity of CSG … generation is on a par with sub-critical coal-fired generation,” the report states.

The lead author, Paul Hardisty, said in a statement: ”The implications for regulators and the emerging Australian CSG industry are that best practice applied to design, construction and operation of projects can significantly reduce emissions, lower financial liabilities under the carbon tax, and help make CSG a less GHG-intensive fuel option.”

The report comes ahead of the introduction of the carbon tax on July 1, amid a battle between green groups and the energy sector over how to shift Australia to a cleaner energy mix. Many environmentalists argue that gas is little cleaner than coal and urge governments to encourage a quicker switch to renewables such as solar and wind energy.

But many in the energy sector argue a swift transition to renewables is unrealistic and gas – including coal seam gas – is needed as a stepping stone.

Alan Randall, professor of agricultural and resource economics at the University of Sydney, said the report showed Australia needed to tread carefully in the expansion of the gas industry.

”It seems like the more complete the research is, the more we tend to move away from the idea that the gas from CSG has big advantages over coal and may have a negative rather than a positive impact when all these things are considered,” Professor Randall said. ”That’s the big picture.”

The Australian Petroleum Production and Exploration Association, the chief lobby group for CSG, said the looming price on carbon would ultimately prove whether CSG was green-friendly.

”In the end, whatever their relative greenhouse intensities, all energy sources will be required to pay for their emissions under the carbon pricing legislation,” a spokesman said.

”Over time, the pricing mechanism will naturally favour lower emissions technologies. That is its purpose.”

The new paper, which was published yesterday in the journal Energies, stated that high losses of CSG through leaks and venting were ”considered unlikely”.

But it said there were no Australian guidelines in place for estimating the natural gas fugitives.

It urged the industry to ”improve monitoring of methane releases and to adopt best practice technology and systems to reduce leaks and venting emissions”.

The Australian Coal Association chief executive, Nikki Williams, said the research highlighted the importance of carbon capture and storage to cut emissions.