3.1
This chapter discusses the types of critical infrastructure assets that the Bill captures.
3.2
Section 9 of the Bill defines critical infrastructure assets as:
a critical electricity asset,
an asset that the minister declares privately under section 51 of the Bill, and
an asset that the rules prescribe.
3.3
The Bill contains definitions of a critical water asset, critical electricity asset, critical port and critical gas asset. In each of these definitions, except for a critical port, the Bill provides thresholds for criticality. For example, subsection 10(1)(a) of the Bill states that ‘a network, system, or interconnector, for the transmission or distribution of electricity to ultimately service at least 100,000 customers’ is a critical electricity asset. The Bill lists specific assets as critical ports in section 11.
3.4
Subsection 9(2) of the Bill allows the rules to prescribe that a critical electricity asset, critical water asset, critical port or critical gas asset is not a critical infrastructure asset.
3.5
The Explanatory Memorandum states that the definition of critical infrastructure asset ‘minimises the regulatory burden by ensuring the legislation and its obligations only apply to Australia’s highest-risk critical infrastructure assets’. The Explanatory Memorandum identifies the telecommunications, electricity, gas, water and ports sectors as the highest‑risk sectors and notes that TSSR is managing risks in the telecommunications sector.
3.6
The South Australian Government argued that using the term, ‘critical infrastructure asset’, in the Bill may create potential confusion:
The concept ‘critical infrastructure’ would not be appropriate for this Bill, given the Bill is only intended to apply to a subset of critical infrastructure and address specific concerns associated with foreign ownership and control.
3.7
Additionally, the South Australian Government had concerns about the definition of each category of critical infrastructure assets. In particular, its concern is that the definitions attach to the physical infrastructure, and not, for example, the water utility that operates the physical infrastructure:
[T]he EM only serves to confound the issue by indicating (contrary to the express definitions in the Bill) that a utility or other entity may itself be, or form part of, a critical infrastructure asset.
Gas sector
3.8
Section 12 of the Bill defines a ‘critical gas asset’ as:
a gas processing facility that has a capacity of at least 300 terajoules per day or any other capacity prescribed by the rules,
a gas storage facility that has a maximum daily quantity of 75 terajoules per day or any other quantity prescribed by the rules,
a network or system for the distribution of gas to ultimately service at least 100 000 customers or any other number of customers prescribed by the rules, or
a gas transmission pipeline that is critical to ensuring the security and reliability of a gas market, in accordance with rules.
3.9
The Explanatory Memorandum states that the reason that the gas sector is included in the Bill is that
Gas in Australia is an important energy source, an export commodity and an input for a wide range of industrial, commercial and residential uses. Gas is particularly important for gas powered electricity generators which account for approximately 20 per cent of Australia’s electricity, and manufacturing which relies on gas for approximately 40 per cent of net energy requirements.
3.10
The Explanatory Memorandum states that the Bill will capture four key components involved in ensuring the security and availability of gas for the domestic and export markets—gas processing, storage, distribution and transmission. The Explanatory Memorandum describes the types of gas transmission assets that the Bill intends to capture:
Transmission assets that are critical for transporting gas from processing plants to major demand centres for distribution networks or large gas users such as electricity generators and industrial users, and to certain facilities and hubs for export purposes.
3.11
The Explanatory Memorandum also states the intended thresholds for gas transmission assets:
Subclause 12(2) prescribes that the rules will specify the basis for determining critical transmission assets captured by the Act once in force. This is to be based on a set terajoule capacity per day for the particular market the transmission asset services. The intended thresholds for each market are:
Eastern market – 200 terajoules per day
Northern market – 80 terajoules per day
Western market – 150 terajoules per day
3.12
The APGA argues that gas transmission infrastructure should not be captured by the Bill, or at the least, the Bill should be amended to adopt a less intrusive means of achieving the Bill’s intent, as
these entities [direct customers of gas infrastructure (in particular gas transmission infrastructure)] place reliability and security of supply and the confidentiality of information at the forefront of their requirements when negotiating energy supply arrangements.
3.13
The APGA ‘acknowledges that some positive changes were made to the proposed thresholds in response to feedback received from gas industry stakeholders in November’. However, APGA suggests that the thresholds for captured gas transmission assets should extend beyond capacity:
the characteristics that are relevant to a determination that a gas transmission pipeline is critical infrastructure for the purposes of the draft bill are:
Water sector
3.14
Section 5 of the Bill defines a ‘critical water asset’ as a water or sewerage system or network that is used to ultimately deliver services to at least 100 000 water connections or 100 000 sewerage connections under the management of a water utility.
3.15
The Explanatory Memorandum states that the reason that the water sector is included in the Bill is that
[a] clean and reliable supply of water is essential to all Australians, including other critical infrastructure sectors. A disruption to Australia’s water supply or water treatment facilities could have major consequences for the health of citizens and impact the diverse range of businesses that rely on water—from the cooling towers used at power stations to food processing. Water providers also hold large data sets about customers and their water usage.
3.16
The Explanatory Memorandum states that the thresholds for critical water asset, as set out in section 5, were determined by considering the following factors:
The Bureau of Meteorology currently uses 100,000 connections as its highest data point to capture the water utilities servicing the major population hubs in Australia.
Total residential population serviced – the assets captured by this definition individually service at least 275,000 people. As a collective, these utilities service 80% of Australia’s population.
Economic interests: Gross value added – the assets captured contribute approximately 75% of Australia’s gross value added.
Critical infrastructure interdependencies – as the utilities captured service the major population hubs in Australia, their interdependencies include:
data centres—including holders of bulk data and Government data;
hospitals and other health services; electricity generation assets, and;
telecommunications – the supply of water is important for some telecommunications infrastructure for heating ventilation and air conditioning purposes.
3.17
The WSAA suggested that a threshold of 100 000 connections may be too narrow and does not capture water utilities that have limited connections, but important reliance, such as electricity generation. In particular, the WSAA argued that
The current approach to classifying critical water infrastructure based on numbers of property connections highlights a fundamental lack of understanding of the way water infrastructure works and links to other critical infrastructure.
3.18
The WSAA suggested that it would like to understand the specific water assets that the Bill will cover, but was not necessarily seeking legislative clarification. The WSAA acknowledged the ability to prescribe other entities in rules, but argued that greater upfront certainty would allow utilities to ‘provide budgets and to avoid unnecessary costs on customers’.
3.19
The Department of Home Affairs argued that the current legislative thresholds capture interdependencies, to the extent that the Department currently understands. However, the Department of Home Affairs also noted that it could only understand a detailed systems picture in deep consultation with industry, during the risk assessment process. The Department of Home Affairs stated an intention to engage on specific cases and through the Trust Information Sharing Network to understand those points of criticality and interdependency.
Other industries
3.20
Some submissions questioned whether other industries may be worth including as critical infrastructure assets. For example, Doctors Against Forced Organ Harvesting suggested that the Bill should also cover healthcare:
We highly recommend this area be incorporated into the framework, as investment into Australia's healthcare by foreign companies presents a significant threat of large-scale medical records theft and cyber attacks and opens doors for potential abuse.
3.21
The Department of Home Affairs argued that other industries, which the Bill does not apply to, have lower risk profiles:
While other critical infrastructure sectors, including banking and finance, health and aviation are at risk from espionage, sabotage and coercion, the level of existing regulation in place lowers their risk profile.
3.22
The Northern Territory Government argued that the fuel sector should be included as a critical infrastructure asset in the near future:
The largely foreign owned fuel market and supply chain in Australia would be subject to the same national security risks of sabotage, espionage and coercion, as outlined in the Bill.
3.23
At the public hearing, the Committee raised concerns about whether the Bill should apply to fuel infrastructure, such as refineries, and the Committee questioned the capacity of states and territories to use other nodes of distribution during a disruption to fuel supply. The Committee referred to inquiries by other Parliamentary Committees in recent years and reports that had been considered in the context of those inquiries. A 2013 report, Australia’s liquid fuel security, by John Blackburn AO, argued that Australia’s ‘liquid fuels supply resilience in the face of a potential range of supply shocks is fragile’ due to
[t]he very small consumption stockholdings in this country, combined with what appears to be narrow assessment of our liquid fuels supply chain vulnerabilities.
3.24
The report further suggested that refineries can be subject to similar liquid fuel supply risks as ports:
There is little to no surplus tankage for crude oil at refineries so a delay in arrival of oil shipments could interrupt fuel production. As with ports, refineries can be subject to disruption by a range of incidents including accidents, catastrophic equipment failures, industrial action, natural disasters and terrorist attacks.
3.25
The House of Representatives Standing Committee on Economics, Report on Australia’s oil refinery industry, published in January 2013, refers to closures of refineries that resulted in a reduction in Australia’s refining capacity, leading to a lack of fuel supply in the Australian market. However, the report states that the lack of supply was not due to the lack of international supply of crude or refined fuel. The report also concludes that:
Our liquid fuel energy security remains largely unchanged from 2009 and is assessed as high trending to moderate in the long term. High energy security is when the economic and social needs of Australia are being met.
3.26
The Department of Home Affairs indicated that the fuel sector did not meet the same risk threshold as gas, electricity, water and ports due to the diversity and disaggregated supply of liquid fuels in the Australia.
3.27
The Department of the Environment and Energy suggested that a disruption to a fuel refinery would have regional impacts, but the geographical dispersion of the fuel market and ability to divert resources would reduce the impact on the overall sector. Further, the Department of the Environment and Energy noted that the intent of the Bill was not to address vulnerabilities associated with domestic liquid fuel requirements.
Committee comment
3.28
The Committee supports the need to manage national security risks arising from malicious foreign involvement in critical infrastructure. The Committee supports the intent of the Bill in attempting to strike an appropriate regulatory balance while providing the necessary powers and functions to manage national security risks. The Committee notes that state and territory governments, industry and organisations support the general intent of the Bill. However, witnesses have expressed concerns about some aspects of the Bill.
3.29
As indicated in Chapters 1 and 2, the Bill was subject to consultation during its development. The Committee appreciates some industry concerns expressed about this consultation process. The Committee has sought to strengthen the Bill incorporating feedback from these industry members. The Committee is satisfied that the Department of Home Affairs will take additional steps to engage more deeply with industry bodies. The Committee notes that aside from industry bodies from the gas transmission and water sectors, the Committee did not receive evidence of concerns from representatives in other industries captured by the Bill.
3.30
The Committee notes the establishment of the CIC, which would lead implementation of the provisions proposed in the Bill. In particular, the Committee supports the CIC’s collaborative approach to working with industry.
3.31
The Committee considered concerns raised regarding thresholds and definitions of critical infrastructure assets in the Bill. However, the Committee is satisfied that the proposed approach will provide the clarity and security required to manage national security risks.
3.32
The Committee also considered industry concerns that the Bill may exclude assets that have limited capacity, connections or customers and do not meet the thresholds, but are important because they provide a service to other dependent critical infrastructure assets. The Committee notes that the Bill allows the Minister, in certain circumstances, to add assets or industries. The Committee concludes that this power will provide sufficient flexibility for circumstances where the risk profile of industries may increase over time or where assets with significant interdependencies are identified.
3.33
While the Committee is satisfied that other critical infrastructure industries should not be included in the Bill at this time, the Committee notes the national importance of ensuring a continuous supply of fuel. There are identified supply chain vulnerabilities in the fuel sector in Australia and the Committee is concerned that these risks are actively managed in the most appropriate manner. In particular, the Committee considers there is a serious requirement to assess these vulnerabilities, and test the effectiveness of any existing or potential risk mitigations, particularly in scenarios of heightened geo political tensions.
3.34
The Committee notes the need to examine Australia’s security of fuel supply and dependence upon fuel from a national perspective, involving collaborative efforts between governments and industry. The Committee notes that other countries, such as Sweden, may have undertaken work to date in this field, which may provide valuable models for the development of an appropriate Australian response.
3.35
The Committee recommends that the Department of Home Affairs undertake a national security review of the fuel industry. The Department of Home Affairs should develop measures to ensure Australia has a continuous supply of fuel to meet its national security priorities. To ensure that these measures are appropriate, the Committee considers that the Department of Home Affairs should brief the Committee on the outcomes of the review following its conclusion.
3.36
The Committee recommends that the Department of Home Affairs, in consultation with the Department of Defence and the Department of the Environment and Energy, review and develop measures to ensure that Australia has a continuous supply of fuel to meet its national security priorities. As part of developed measures, the Department should consider whether critical fuel assets should be subject to the Security of Critical Infrastructure Bill 2017.
The Committee considers that the Department should conclude this review within 6 months. The Department should brief the Committee on the outcomes of the review following its conclusion.