Energy windfall in the offing

Prospects for a Meridian Energy windfall for taxpayers are growing as the deadline looms for final bids on its potentially $1.5 billion Australian subsidiary.

Meridian's 10-station Southern Hydro system in Victoria can generate 500MW of power, or 6 per cent of the state's capacity.

Meridian bought the stations in 2003 from US energy giant Alliant for $630 million and has since built Australia's largest windfarm, with well-advanced plans for more windfarms and hydro dams.

It put Southern Hydro on the market after it saw what kind of interest there was in another, similar Australian energy company named Pacific Hydro.

The usual cast of big Australian energy investors are rumoured to be making bids for Southern Hydro, with a sale possible within a month. They are:

* Babcock & Brown (owner of New Zealand's second-biggest energy network company, Powerco).

* AGL (former majority owner of gas transmitter and wholesaler NGC).

* Origin Energy (51 per cent owner of power generator and retailer Contact Energy).

State-owned enterprises are required to act as if they are just any other company, with private shareholders. This means keeping their balance sheet efficient, which can also mean paying back proceeds of a big sale to shareholders if it is not needed for other projects.

Meridian paid a $100 million special dividend to the Government in 2002, in order to lift its debt-to-assets ratio from 21 to 27 per cent.

Caretaker Minister of State-owned Enterprises Paul Swain is stepping down from the Cabinet in the new Government, so any decision about a special dividend from Meridian will need to be made by a new minister.

Different methods of doing business by the energy SOEs were highlighted this year in University of Auckland research.

Commissioned by US energy investor Alliant Energy and TrustPower, the research found SOEs were putting a much lower book value on their assets than their competitors in the private sector.

This undervaluation kept power bills down, but it meant that taxpayer funds were more likely to be called on when new power stations were needed.

Book values of the generation assets at June 30 last year were found to be undervalued about 50 per cent.