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30 December 2012

 

Legal News & Analysis – Asia Pacific – Australia – Regulatory & Compliance

 

The New South Wales parliament passed legislation on 30 May 2012 enabling the sale to the private sector of the remaining government-owned generation assets, including sites with planning approval for future generation. The sale initiative is driven by a desire of the NSW Government to fund infrastructure projects, with proceeds of the sale committed to the ‘Restart NSW Fund’ dedicated to a to-do list of major infrastructure investments.

On 15 November, the NSW Treasurer formally announced that the NSW Government is proceeding with the sales process. This announcement follows the preparation of Scoping Studies by Goldman Sachs (generation assets) and Citigroup (Cobbora coal assets), who were appointed as financial advisors in early July for the purposes of the Scoping Studies, and includes a loose timetable for conducting the asset sales.

The announcement does not reveal any specific plans to bundle assets or restructure state-owned corporations, which the Treasurer has the power to do under enabling legislation. We expect these options will be explored in response to bidder interest as investors work through the lengthy menu set out below.

Timetable

Class Assets Process Timing
GenTrader Assets

– Eraring Energy’s Eraring and Shoalhaven power stations; and
– Delta Electricity’s Mount Piper and Wallerawang power stations.

The stations are subject to GenTrader contracts with Origin Energy and EnergyAustralia (formerly TRUenergy) respectively

Origin Energy and EnergyAustralia, the owners of the trading rights, are the logical bidders due to their ability, in the Government’s view, ‘to extract significant ongoing synergy benefits’.

The NSW Treasurer’s press release refers to unspecified alternative options which it will pursue, suggesting it would welcome offers by third parties to take on the encumbered assets or at least develop a ‘reserve price’ in its negotiations with Origin Energy and EnergyAustr

Negotiations with Origin Energy and EnergyAustralia to commence immediately.

Merchant Assets

 
– The two Macquarie Generation coal power stations – Bayswater (2640 MW) and Liddell (2000MW).

– Delta Electricity’s power stations located on the Central Coast – Vales Point (coal – 1320 MW) and Colongra (gas – 667 MW).

Competitive bid process to take place following the GenTrader asset transactions.

Still to be considered whether the Macquarie Assets will need to be separated due to competition concerns.

Macquarie Generation assets to be auctioned  before Delta Electricity assets.
Renewable Assets – Delta Electricity’s two hydro units at Mt Piper (total capacity of 58MW) and mini hydro project at Chichester Dam (120kW);

– Eraring Energy’s Crookwell wind farm (4MW) and Blayney wind farm (9MW);

– Macquarie Generation’s integrated solar thermal energy project at Liddell; and

– Macquarie Generation’s  biomass co-firing schemes at its Liddell and Bayswater power stations.

Renewable assets may be bundled with core gas and coal assets or divested separately.

The Delta Hydro and Eraring wind assets may provide an opportunity for smaller scale market entry.

Renewable assets to be considered separately but in parallel to the asset sales of their respective owner’s core coal and gas assets.
Development sites

Generation development sites with key project approvals in place at:

– Bayswater;

– Tomago; and

– Munmorah.

Development sites may be bundled with merchant assets or sold separately, depending on bidder interest. Development sites to be sold parallel to merchant asset sales.
Cobbora The Cobbora coal mine and infrastructure project is anticipated to produce at least 12mtpa, and is contracted to supply the 3 state owned generators at cost-recovery based prices.

The NSW Treasurer’s press release does not commit to either the sale or retention of the Cobbora assets, and states that it is progressing planning approvals.

The NSW Government is exploring whether alternative coal supply can be procured to meet Cobbora’s obligations to the 3 state owned generators.

While the NSW Government would be receptive to offers, it appears unlikely that Cobbora will be sold as part of the present round of asset sales as the status of its coal supply contracts is critical to the value of the generation assets.

 

 

 

 

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