AGL powers to top of NZ energy tree

By LIBBY MIDDLEBROOK

Australian Gas Light (AGL) is closer to becoming New Zealand's largest energy retailer after the Commerce Commission yesterday approved its proposed acquisition of TransAlta NZ.

AGL, through its 71 per cent-owned subsidiary Natural Gas Corporation, has been negotiating to buy Canada-based TransAlta Corporation's 75.8 per cent shareholding in the local arm for $824 million.

The acquisition, which required commission approval because of market competition issues, has been okayed on the condition that AGL divests its gas distribution system in the Hutt Valley and Porirua area by October 1, 2001. AGL bought the 920km system from TransAlta for $112 million last March.

The other option is for TransAlta to sell its residential gas business or at least 50 per cent of its 28,000 residential gas customers, which would also address the commission's dominance concerns.

However, one market analyst said AGL was more likely to divest its gas distribution system than sell the TransAlta retail gas business.

"That's where Natural Gas sees the value and where it wants to grow its business. I don't see it [the distribution business sale] as a problem - they're bound to get a pretty good return on it."

TransAlta NZ managing director Murray Nelson, who declined to comment on the commission ruling, told the Herald its residential gas business had not yet been valued.

To shareholders as at March 31, Natural Gas will offer a four-for-five rights issue at 116c a share to raise $366 million to help fund the acquisition. AGL will take up its pro rata share and broker J.B. Were is underwriting the balance.

The purchase price includes $83 million for TransAlta capital notes (102c a note) and $217 million worth of debt the Canadians have in the Taranaki combined-cycle power station near Stratford.

That plant and a 47 per cent stake in the Southdown power station, also gas-fired, are TransAlta's only big generating assets. As a result, it has to buy under hedge contracts and on the spot market more than half the electricity it sells to its 500,000-plus retail customers.

Meanwhile, Natural Gas chief executive Richard Bentley said the company had already gained Overseas Investment Commission approval and the deal was now subject to shareholders' clearance at a meeting on Tuesday.

The purchase could be concluded by the end of the month.

Frustration that none of the state-owned generators will be sold, at least for three years, is thought to have been one of the reasons the Canadians thought it time to take their profits and quit New Zealand.