Commerce Commission eyes proposed Contact sale

1.00pm

The proposed sale of Edison Mission International's 51 per cent stack in Contact Energy is being eyed by the Commerce Commission, it was reported today.

Final bids to buy the stake from the United States power generator Edison were thought to be due tomorrow, the Dominion Post reported.

However, Reuters reported an industry source yesterday saying there would be a delay of up to two weeks.

So far no potential bidders have sought clearance from the competition regulator, the source said.

A commission spokeswoman said the watchdog unit was "well aware of the situation and are monitoring it."

She said it could hypothetically raise issues under the Commerce Act.

Competition law experts believe a purchase by Australian Gas Light Company (AGL), thought to be the front-runner for the Contact stake, would need to be formally considered by the regulator.

Lawyers said there were likely to be two key areas of concern, based on previous commission decisions related to the electricity and gas industries.

The first would be the reduction in the number of parties controlling Maui gas, condensing the current split between buyers Contact, NGC and Methanex.

AGL owns a 66 per cent stake in NGC Holdings, which controls the pipelines through which gas is transported in New Zealand.

"The acquisition would mean that one of those players was removed, meaning that AGL's control of the supply of Maui gas would be strengthened," one lawyer said.

The second issue would be increased integration between companies carrying out different functions within the gas and electricity industries.

"This creates the potential for AGL/NGC/Contact to facilitate coordination efforts, foreclose entry into one of the vertical levels affected, or increase entry barriers," the lawyer said.

Crucially, experts believed the competition issues would not necessarily be resolved by the sale of AGL's 66 per cent stake in NGC Holdings, expected to be part of any deal as AGL seeks to fund a Contact buy-in.

NGC was believed to be in merger talks with Auckland electricity distributor Vector.

If such a deal took place, AGL would own a smaller portion of the merged entity, but under the Electricity Industry Reform Act companies cannot own both electricity distribution and generation assets.

Unless the deal also involved the sale of AGL's stake in the combined company it would raise more problems than it would solve because no one from AGL would be able to sit on the board of NGC or Contact if it remained an owner of both.

One independent industry analyst said supporting a merger between NGC and Vector and selling the resulting stake was "the most practical way" AGL could complete a deal without losing value in the process.

"Then it has something to sell which might be far more marketable to institutions or around the world," he said.

Institutions could not invest directly in the unlisted Vector currently.

Australian Pipeline Trust has also been touted as a potential buyer of NGC -- but AGL also owns 30 per cent of APT.

If APT did buy the stake it would also have to offer to buy out the remaining NGC shareholders under New Zealand's takeover rules, strengthening AGL's indirect stake in NGC.

- NZPA