A two line regulation change in the Overseas Investment Regulations has created a significant barrier for overseas investors looking to acquire a 25% or more interest in New Zealand strategic infrastructure.

The new regulation requires the Ministers of Finance and Land Information to take into account "Whether the overseas investment will, or is likely to, assist New Zealand to maintain New Zealand control of strategically important infrastructure on sensitive land".

"The Government needs to back up this regulation with some guidelines that give overseas investors guidance and comfort in their ability to invest in our infrastructure assets." said Simpson Grierson Senior Associate Craig Nelson.

Investment in infrastructure in New Zealand is a focus of the current Labour-led government.  In a recent speech (7 February) regarding new infrastructure investment  Dr Cullen said "the Labour-led government is serious about maintaining our investment in major infrastructure projects"  and today stated that the Government would provide any necessary consent to public private partnership infrastructure investments. The regulation change is difficult to reconcile with Dr Cullen's statements and is likely to scare foreign investors .

"Based on a plain reading of the words, it is difficult to conceive how an overseas investment like the proposed Canadian Pension Board investment in AIAL would assist New Zealand to maintain New Zealand control. The  overseas investor has to limit its investment in some way to preserve New Zealand control," said Nelson.

"Only time will tell whether the steps already taken by the Canadian Pension Board meet the requirement of the new regulation and therein lies the problem," he added.