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Infratil mostly positive about NSW power privatisation

Thursday 23rd December 2010

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New Zealand infrastructure investor Infratil is mostly positive about a $A5.3 billion ($NZ7.1 billion) privatisation of energy assets in New South Wales and says its Australian unit may participate in a second round of asset sales in the state.

Origin Energy, which owns part of Contact Energy in New Zealand, and TRUenergy, a subsidiary of Hong Kong's CLP Holdings, were the main acquirers of the retailing and generation operations sold by the state. The privatisations has been controversial, with critics saying competition has reduced.

Infratil Energy Australia believed the transactions improved the long-term outlook for a liquid wholesale market and the availability of independent generation. They avoided an industry structure which was overly vertically integrated.

Infratil Energy Australia buys most of its energy price hedges in the wholesale market, and vertical integration can reduce liquidity and create price distortions.

"For Infratil Energy Australia the state's announced transactions with Origin and TRUenergy are important and positive. It is always better to be in competition with companies which are economically rational and are required to make a good return on capital," Infratil said in an operational update on its businesses.

On the negative side, such changes could be disruptive in the retail market and could result in uncertainty and increased churn.

"There is also a great deal of political interest in the NSW electricity sector and that can have unpredictable consequences," Infratil said.

AAP reported that critics had vowed to push ahead with a parliamentary inquiry into the asset sales despite government attempts to kill it off by shutting down parliament.

Infratil said the prices paid for retailing activities implied something like the 8% retail margin, which was consistent with the target of Infratil Energy Australia's energy retailing subsidiary Lumo Energy.

Lumo has been operating in competitive market conditions, which continued in November.

"Eventually the market will stabilise as retail tariffs move to reflect the lower wholesale prices. In the meantime churn will remain high," Infratil said.

Infratil Energy Australia has expressed an interest in acquiring a power station development site in a second round of sales for most of the state's residual electricity assets, likely in early 2011.

The site would allow for a fast tracked construction project if the economics of new-build generation warrant the allocation of capital.

 

NZPA



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