THE DISTILLERY: AGL energised
Jotters give AGL's power plant purchase a tick despite the carbon tax, while one discovers mining is distorting productivity data.
Firstly, The Australian’s John Durie says it’s been a long wait for AGL Energy to secure the Loy Yang A Power Station in Victoria, having originally bid for full control over a decade ago.
"The ACCC had blocked the deal because it was worried Australia's then biggest energy retailer, by controlling 30 per of Victorian coal, would set the scene for mass consolidation. Barriers to entry created by the vertical integration were, of course, not as the ACCC first imagined, as the Federal Court told the ACCC in 2003 and the market has shown ever since. The market is now dominated by three integrated suppliers – AGL, Origin and TRUenergy – with a plethora of smaller retail firms and generators headed by Tasmanian Hydro and Snowy Hydro. While final ACCC clearance was a walk in the park, Fraser has timed his run well, because the next consolidation will be looked at more seriously. This is saying something, when you realise this deal was the result of some five months of negotiation.
Business Spectator’s Stephen Bartholomeusz writes that it’s not irreconcilable for AGL to be committed to a lower emission economy and purchase the coal mine in full.
"There are a number of reasons why a big lay into brown coal generation makes sense for AGL even though the carbon tax is coming, apart from the fact that it says the deal will be earnings per share accretive and generate a lot of incremental cash flow. It gets a major position in Victorian power generation, with about 30 per cent of the industry. It increases its own baseload capacity by almost a third. It will own one of the lowest-cost baseload generators in the country, even taking into account the carbon tax. Most importantly, it will have a better balance between the generating capacity it controls and its retail commitments, significantly reducing the risk of a mismatch. Despite the far higher carbon intensity of brown coal relative to the black coal, which is the major source of baseload power in NSW and Queensland, Loy Yang A is so low on the cost curve that even with the carbon tax it will be among the country’s lowest-cost generators.”
The Australian Financial Review’s Chanticleer columnist Tony Boyd links AGL’s announcement with that of another energy major.
"Australia’s sleepy capital markets were shaken awake yesterday when AGL Energy launched a $900 million rights issue to buy a coal-fired power station, and Origin Energy signed up 17 banks to fund $US8.5 billion in liquefied natural gas facilities. Each transaction is significant in its own right. Taken together they represent a ringing endorsement by domestic and international players of Australia’s fossil fuel sector. The deals provide strong validation of the robustness of the integrated energy company business models that dominant the market.”
Elsewhere, The Sydney Morning Herald’s Jessica Irvine has come across some research that seriously challenges the accepted wisdom that Australian productivity is in decline.
"A new paper – Australia's Productivity Growth Slump: Signs of Crisis, Adjustment or Both? – by Dean Parham, a productivity specialist and former assistant commissioner at the Productivity Commission, busts through some of the fog of despondency around Australia's productivity performance. Parham says the idea that the nation's productivity has slammed into reverse is so suspicious as to warrant further investigation to look for quirks in the numbers or one-off shifts taking place that could impact the relationship between the economy's level of inputs and outputs. Dissecting the numbers, Parham finds that between half and three-quarters of the slump in productivity growth over the past decade has been largely due to the increase in mining investments that are yet to pay dividends.”
In other economics news, The Age’s Malcolm Maiden despairs at the latest ‘efforts’ from European leaders to keep Greece in the eurozone, while the same newspaper’s economics editor Tim Colebatch runs the ruler over the New Zealand budget.
In company news, The Age’s Michael Evans looks at the bizarre claims from Fortescue Metals chairman Andrew Forrest that the European debt crisis is a media beat up. The Sydney Morning Herald’s Michael Pascoe says no one should be surprised that Myer is still struggling, while colleague Elizabeth Knight explains why investment bankers dreaming about taking over David Jones have some more thinking to do.
The Australian’s Bryan Firth probes deeper into the ‘rival’ bid for Hastings Diversified Utilities Fund, while Fairfax’s Insider columnist Ian McIlwraith looks at consumer finance electronics specialist ThinkSmart.
And finally, The Australian’s economics correspondent Adam Creighton says Australia should ignore calls from union boss Paul Howes – we’d love to leave that sentence right there – for consideration of the Swiss strategy of printing money to keep the currency down