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A chill in the air

A MILD winter is not the only threat to revenues at WA’s major energy utilities.

As Western Power and AlintaGas bemoan the warm winter weather, which has caused retail sales to soften, the pair is wary of the potential impact the other could have on their core businesses.

In the middle of a fight for its very existence as an energy monolith, Western Power is acutely aware that its ability to shape the future of energy use in WA is at risk due to a proposed deal between AlintaGas and mining giant Alcoa.

But just a couple of CBD blocks away, AlintaGas is also facing the fact that full retail contestability of the gas market by early 2003 could impact on its earnings.

The pair used to be one in the same until the previous State Government split them apart and recently privatised the gas side of the equation as AlintaGas.

But now they are in a no-holds-barred struggle for market share, with plenty of lobbying and behind-the-scenes muck raking.

Western Power’s executive, if not its whole board, believes WA’s energy security is best left in its hands, resisting efforts to break it up and remove the cross subsidies that have resulted in business, particularly small business, paying for energy in the bush.

Last week, Western Power offered a carrot to the business community by announcing a 10 per cent reduction in small business tariffs over three years, starting from July 1 next year, to bring prices in line with the east coast. Clearly it hopes this will reduce the pressure for a break up from one of its most critical constituencies.

Business might well be wondering, though, how 65,000 small business users who consume much more than the average household have actually being paying more per unit for their power – around 15 per cent more despite the obvious economies of scale.

No wonder they have been calling for Western Power to be broken up.

AlintaGas’s motivation is even less pure. Now a beast of the stock market, it is looking to find growth (as a utility it knows the double digit rise in profits forecast this year is unlikely to be maintained) where it can. It would dearly like to see full contestability of electricity at the same time gas is fully deregulated.

As a nimble player compared with Western Power, unshackled from government bureaucracy, it wants to strike while it believes its much bigger rival is unprepared. It wants to offer electricity to its vast gas taking customer base, at least doubling its market without adding significantly to administrative costs.

Emirates ready for take-off

THE arrival of Middle Eastern airline Emirates offers a fabulous example for a case study in government involvement in markets.

To entice the Dubai-based group to fly to WA has taken years of engagement, as the State fought off some natural barriers and competition from other regions, notably Queensland.

In the end it cost about $1.6 million in subsidies and a promise to establish a trade office in the United Arab Emirates … oh, and don’t forget Geoff Gallop was rolled out to the opening party, where he gave a heart-warming speech.

So what does WA get for its money? At first glance, not much. To most of us Dubai is not exactly a tourist mecca, even if the Brits are finding the beaches and duty-free shopping increasingly attractive.

But it doesn’t take much examination to reveal what the arrival of new operator to Perth can do.

Firstly, there can be no assumption that Emirates is going to make a profit from day one.

The airline is in many ways an instrument of UAE policy, and there is a lot of patient capital behind it.

The home base of the airline, I gather, doesn’t have the long-term oil reserves of its neighbours, so it is developing Dubai as a transport hub, trading post and tourism destination.

So, flying to Perth is part of a wider strategy than just trying to turn a dollar flying oil executives on visits to their Southern Hemisphere bases, though the value of these oil links should not be dismissed.

Among the obvious winners is the inbound tourism industry. Emirates offers a one-stop flight from several European capitals via Dubai that will add a bit of competition, particularly in the vital backpacker market.

It is known that Qantas is not particularly happy with State Government inducements being offered to the competition, particularly when the flying kangaroo reversed a decision to cut a direct Perth-Tokyo flights last year after intense lobbying.

As for the benefits of the new route, the opening up of a destination on the Indian Ocean rim makes a lot of sense for Perth. The Middle East is seen as a series of hot spots surrounded by a sea of desert when, in reality, it is an increasingly affluent market with a considerable population. It also provides access to the north of Africa – maybe not a major market now but perhaps part of WA’s future trading zone along with India, Southern Africa and the Middle East, with whom we share an ocean.

And what was the cost? When I interviewed Dr Gallop a few months back he admitted he had not done enough in the area of trade and wished he could do more to help WA business.

Trade offices, if staffed by appropriate people, can provide a vital link for business in an emerging market, particularly where cultural barriers exist and previous trade experience is limited.

Let’s hope this one does achieve that. Then we might be able to say this airline experiment has paid off.

In the family

JUST a gentle reminder that nominations for the Family Business Awards close next week. By all accounts a strong field has already entered, so entrants will be in good company if they are nominated or nominate themselves.

It also makes the awards all that more coveted.

In case you could not find it, the awards’ nomination form is at www.familybizawards.com.au

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