December 12, 2013

“Business as usual” is not an option for Ergon Energy, Energex and Powerlink, Queensland Treasurer Tim Nicholls said today.

Soon after announcing that the government would commission “scoping studies” into the future of Stanwell and CS Energy, it announced that it would investigate “private sector infrastructure funding” into the State-owned electricity transmission and distribution businesses.

“The Newman Government is continuing its measured and methodical plan to turn Queensland’s finances around,” Mr Nicholls said.

“Today, we action our commitment made in April this year to investigate alternative ways of funding the future expansion of infrastructure for Ergon, Energex and Powerlink.

“With private sector involvement we can secure the long-term electricity needs without burdening the Queensland taxpayer.”

He said the future capital needs of these businesses totalled about $15 billion, of which $5 billion would need to be debt-funded and $10 billion would be funded from retained earnings.

“Business as usual is not an option, and accordingly we have been engaged in a process to identify a potential structure which could see private sector investment offset the need for further debt to be incurred.

“Therefore the government will engage an investment bank to undertake a market sounding in relation to a hybrid security instrument called a non-share equity interest (NSEI).”

Some of the features of the NSEI include:

  • The State retaining 100 per cent ownership of the ordinary shares in the network businesses and assets.
  • The private sector contribution would equate to the net funding for the capital expenditure and therefore represent new capital injections.
  • The security is debt in its legal form but classified as equity for tax and accounting purposes, this gives it its hybrid characteristics.
  • The returns on the NSEI reflect the holder’s interest in dividends and tax equivalent payments paid by the network businesses.
  • Private sector debt would replace existing Queensland Treasury Corporation (QTC) funding on a “no recourse basis” to the State.

Mr Nicholls said market sounding was a way to ensure the government received the best advice on the potential for private sector investment as it considered options to prevent debt increasing further.

“Results of the market sounding will be used by the government to assess the viability of the private sector involvement as an option for reducing the future call on government to fund infrastructure expansions,” he said.

Meanwhile, the State Government’s plan for a holding company consisting of Ergon and Energex would be placed on hold pending the outcome of the market sounding and any future decisions taken by government.

“We have made it clear to both the Boards and management of the network and distribution businesses that they’re expected to operate in the most efficient and effective manner to maintain downward pressure on prices,” Mr Nicholls said.

Mr Nicholls said the State Government remained committed to not divesting government businesses and had made no decision to sell any government businesses.

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