THE NSW government is to start negotiations with EnergyAustralia and Origin Energy on the first tranche of its power generation assets to be sold as it seeks to raise more than $3 billion before the next state election to fund a new round of infrastucture spending.
The former Labor government last year raised $5.3 billion from the sale of government-owned power retailers, along with so-called "gentrader contracts", or the right to buy output from Eraring Energy and the two Delta Electricity power stations near Lithgow, to Origin and EnergyAustralia, respectively.
The government is to sell the power stations underlying those contracts, and all other government generators.
Origin and EnergyAustralia are the most likely buyers of the gentrader power stations, although others such as Ratch Australia are believed to be interested.
"Along with these bilateral negotiations, the government will also pursue a range of other options to ensure that any disposal of the gentrader assets maximises the financial returns for the state," the Treasurer, Mike Baird, said in a statement.
"There are a number of operators who are interested in these assets."
The most value resides in the other power stations to be sold, especially Macquarie Generation, which supplies an estimated 10 per cent of the national electricity market from its Bayswater and Liddell power stations in the Hunter Valley.
Also on the sale list are the remaining fully owned assets of Delta - the Colongra gas-fired peaker plant and Vales Point, on the central coast.
The government has confirmed taxpayers face as much as a $1.5 billion liability due to commitments made to develop the Cobbora coalmine, near Mudgee, to supply cheap coal to the generators.
"The Labor government's decision to invest in a coalmine created signficant risks and massive liabilities for the state," Mr Baird said. "Expert advisers put the potential loss to the state currently at about $1.5 billion."
Private companies have baulked at operating the mine without access to export markets, due to its poor prospects otherwise.
Macquarie Generation, Delta and Eraring have access to long-term coal supply contracts at low prices - believed to be less than half the present export price for Hunter Valley coal of about $US100 ($96) a tonne.
AGL has expressed interest in the sale, while smaller groups such as ERM and Australian Power and Gas are likely to team up with institutional investors to bid.
The government hopes to finalise the sale of the gentrader assets by the middle of next year, with Macquarie Generation to follow by year-end.
It hopes to sell Macquarie to a single buyer, depending on competition concerns.
While AGL has a presence in the electricity retail sector in NSW, it does not hold any generation assets in the state. Following its purchase of Loy Yang A power station in Victoria, the focus is on whether the Australian Competition and Consumer Commission, would prevent AGL from bidding for Macquarie Generation.
Frequently Asked Questions about this Article…
What power generation assets is the NSW government planning to sell and why?
The NSW government plans to sell a tranche of government-owned power generation assets — including the power stations underlying existing gentrader contracts — to raise more than $3 billion ahead of the next state election. The sales are intended to fund a new round of infrastructure spending and to maximise financial returns for the state.
Who are the most likely buyers of the gentrader power stations?
EnergyAustralia and Origin Energy are the most likely buyers for the gentrader power stations, since they already hold gentrader contracts. The article also notes interest from other companies such as Ratch Australia and that a number of other operators are believed to be interested.
Which NSW power stations are seen as the most valuable in the sale?
Macquarie Generation is highlighted as the most valuable, supplying an estimated 10% of the national electricity market via its Bayswater and Liddell power stations in the Hunter Valley. Other assets on the sale list include the remaining Delta assets, such as the Colongra gas-fired peaker plant and Vales Point on the Central Coast.
What are 'gentrader contracts' and how do they affect the sale?
Gentrader contracts are rights sold previously that gave buyers the ability to buy output from government generators (for example, Origin and EnergyAustralia bought gentrader contracts for Eraring and Delta stations). The government now intends to sell the actual power stations underlying those contracts as part of the asset disposal program.
Are there any taxpayer liabilities linked to the generators or coal supply commitments?
Yes. The government confirmed taxpayers could face as much as a $1.5 billion liability because of commitments made to develop the Cobbora coalmine to supply cheap coal to the generators. The article says private companies have been reluctant to operate that mine without access to export markets.
Which companies have shown interest or are expected to bid for the NSW generators?
AGL has expressed interest in the sale. Smaller groups such as ERM and Australian Power and Gas are expected to team up with institutional investors to bid. The article also mentions EnergyAustralia, Origin Energy and Ratch Australia as potential buyers or interested parties.
What is the expected timeline for completing the sales of the gentrader assets and Macquarie Generation?
The government hopes to finalise the sale of the gentrader assets by the middle of next year, with Macquarie Generation expected to follow by year-end. The plan is to pursue bilateral negotiations and other sale options to maximise returns.
Could competition rules affect who can buy Macquarie Generation?
Yes. The government says it hopes to sell Macquarie Generation to a single buyer, but that will depend on competition concerns. For example, although AGL has retail presence in NSW and has purchased Loy Yang A in Victoria, the Australian Competition and Consumer Commission (ACCC) may consider whether AGL should be prevented from bidding for Macquarie Generation.
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