NSW power sell-off a rare chance
THE NSW Government’s decision to sell electricity retailing businesses and lease power plants will probably result in ‘‘ fierce’’ bidding from potential buyers, says JPMorgan Chase & Co. The retail licenses of Energy Australia, Integral Energy and Country Energy, which comprise about 3.3 million customers, will be the ‘‘ last sizeable lot of retail assets to be privatised,’’ JPMorgan says.
The retail and generation assets may fetch as much as $16.4 billion, it says.
AGL Energy, Origin Energy, CLP Holdings’s TRUenergy and International Power have signalled they may bid for energy units sold by NSW.
Morris Iemma, premier of Australia’s most populous state, says the sales, possibly including an initial public offer of a combined retailer and generator, may occur in the second half of 2008.
‘‘ Given NSW is the biggest energy market in Australia, we expect that bidding will be fierce with a lot to gain for all players concerned,’’ JPMorgan analysts led by Sydney-based Grace Chan say in the report.
Babcock & Brown Power, Australia’s biggest publicly traded power producer, and Intergen, co-owned by an American International Group buyout fund and Ontario Teachers’ Pension Plan, may also bid, the analysts say.
Melbourne-based TRUenergy and Sydneybased Babcock & Brown Power may be under more pressure to buy assets from NSW than the other bidders because of the probable lack of other opportunities to expand their businesses, UBS AG says in a separate report.
‘‘ Outside of the Queensland generators NSW represents one of the last opportunities in the Australian market facing utility businesses,’’ UBS analysts led by Sydneybased David Leitch say in the report.
‘‘ Players who don’t get set in NSW will find the scale difficult to replicate elsewhere.’’
Investors will probably be cautious in investing in the larger potential bidders such as Origin, AGL and Babcock & Brown Power until details of the assets they may buy, and how much capital they may need to raise are decided, UBS say.
UBS valued the assets to be sold or leased at more than $15 billion including debt, while Credit Suisse Group in a separate report says proceeds may be at the lower end of a $13 billion to $17 billion range.
An increase in wholesale power prices and lower forecast growth in NSW than in Queensland state to the north may crimp the prices that bidders are prepared to pay for the retailing companies, Fitch Ratings says.
Energy demand in NSW is forecast to increase at 1.6 per cent a year over the next decade, compared with 3.6 per cent in Queensland, the National Electricity Market Management, operator of the wholesale power market, says.
While the increase in wholesale power prices would normally boost offer prices for the generation assets, uncertainty over the cost that will be placed on carbon through Australia’s planned emissions trading system may result in bidders applying a discount to the assets, Fitch says.
The three generators to be leased, Macquarie Generation, Delta Electricity and Eraring Energy, have about 11,860 megawatts of power production capacity, mostly fuelled by coal. Resources break This is the last Resources editorial page for 2007. It returns on January 12
Seller: NSW Premier Morris Iemma wants money for a raft of projects