Gas merger talks gathers steam

By CHRIS DANIELS, energy writer

The big three of the New Zealand gas transport business - NGC, Powerco and Vector - have come clean about merger talks.

Prompted by reports of the NGC-Powerco discussion in yesterday's Business Herald, the two companies told the stock exchange that they were talking, but would add little more.

These NZX disclosures flushed Auckland lines company Vector out of the woods, as NGC said it, too, was part of three-way discussions.

NGC chief executive Phil James said the company had "consistently advised the market over the past year that it is actively seeking growth opportunities, particularly in energy infrastructure".

He said NGC was "in informal discussions with Powerco and Vector on potential opportunities". They were "in their infancy and there is no certainty as to outcome".

Powerco would say little more than confirm it was talking to NGC.

"These discussions have focused on a number of potential opportunities," said chief executive Steve Boulton. "The discussions are simply a part of Powerco looking at our strategic options."

New Plymouth District Council, which owns 38 per cent of Powerco, said it would hold an extraordinary meeting of the full council on Monday.

"Today's news is an exciting development and triggers a number of options for the council as a significant Powerco shareholder," said chief executive Rodger Kerr-Newell.

Vector, which is publicly owned by the Auckland Energy Consumer Trust, refused to comment.

It is unlikely NGC would want to become involved in the now-regulated business of running a monopoly electricity lines company.

As well as owning and operating the high pressure natural gas pipeline network connecting Taranaki with the main centres of the North Island (similar to the high voltage national electricity grid), NGC also owns a series of local gas networks in Kapiti, Gisborne, Bay of Plenty, Waikato, Whangaparaoa and Whangarei.

In these centres, NGC owns the pipes that run down neighbourhood streets, connecting to individual homes and businesses. This is the business Powerco and Vector already specialise in, so NGC may be looking for opportunities to sell, or merge, these local gas networks. Its talks with NGC are thought to have centred on merger possibilities, not merely asset sales.

Expanding gas networks provides growth opportunities for those lines networks wanting to grow more rapidly than is possible in their mature and regulated electricity lines business.

The long-term goal of Australian Gas Light, 66 per cent owner of NGC, is likely key to talks with Powerco and Vector. It may wish to get out of its NGC investment, possibly to focus on a bid for the 51 per cent stake in Contact Energy, which is being sold by US energy giant Edison Mission.

One option could be a fully merged gas network, combining NGC's high pressure network with Powerco's assets. Such an entity, which would be interested in Vector's Auckland gas network, could be spun off and floated, providing an exit for AGL.