An arbitrator has been called in to settle a dispute between Alinta and its gas supplier, the Woodside-operated North West Shelf venture, that could involve third parties by way of subpoenas.
An arbitrator has been called in to settle a dispute between Alinta and its gas supplier, the Woodside-operated North West Shelf venture, that could involve third parties by way of subpoenas.
The dispute follows the estimated tripling of gas prices over the past few years, though the price paid by major gas users is usually confidential, making it difficult to establish a clear market price.
Alinta Sales Pty Ltd owner Babcock & Brown Power Ltd announced today that a subpoena process has started in the arbitration over a "term of contract".
Alinta purchases gas from a number of suppliers with one being the Woodside operated North West Shelf.
A spokesperson from Woodside confirmed that NWS Gas is in arbitration with Alinta, however due to "commercial and confidentiality requirements, the North West Shelf venture is not able to publicly comment further on the matter".
Comment from Alinta was being sought at time of publishing.
BBP explained in its announcement that the contract, entered into in 1998, provides a mechanism for the market value of gas sold to be periodically reviewed by the parties or an arbitrator, if required, following a change in circumstances in the gas market.
BBP added that the arbitration is being heard by his Honour, Michael McHugh, who has set a timeline to help him determine the "market value and the price-related terms, of the gas sold under the contract".
Both Alinta and NWS will be contacting other market participants to collect information to assist the arbitrator in arriving at his decision, BBP said.
"It may be necessary in some instances to issue subpoenas to some parties," BBP said.
Its understood that an arbitrator has not been required in previous reviews.
The arbitration follows BBP's announcement yesterday where it flagged a recapitalisation plan that could result in the sale of its assets including the Alinta retail business.
The announcement follows a strategic review undertaken by UBS which were appointed some two months ago.
BBP said yesterday that it would seek a takeover suitor or buyers to snap up strategic packages of its assets.
"The BBP Board recognizes that a broad strategic transaction is necessary to unlock securityholder value," BBP said.
"This may involve dealing with BBP in whole or in part."
Yesterday's BBP announcement is below:
As announced at the FY08 result, UBS was appointed to conduct a strategic review of BBP.
The objectives of the review were to strengthen the capital structure and identify opportunities to unlock securityholder value.
The key UBS findings are:
BBP has a valuable portfolio of electricity assets which are projected to grow in free cash flow and earnings over time;
in the current environment BBP is too highly geared and accordingly will benefit from a substantial equity injection in order to achieve an optimal capital structure for the current portfolio of assets; and
given current uncertainty in capital markets and BBP's debt levels and maturity profile, until the business is recapitalised, the payment of distributions should be suspended with the cash being applied to debt reduction.
Len Gill, BBP's Independent Chairman said, "The Board adopts the recommendation to suspend distributions until BBP is recapitalised and endorses the preliminary findings of the UBS strategic review which provides a framework to proceed with the next phase."
UBS has received numerous unsolicited Expressions of Interest for the whole and individual assets of BBP. The next phase of the review will involve assessment of evolving capital market conditions and the appetite of various parties to proceed with potential transactions including:
purchase by a third party of 100% of the securities in BBP;
further asset sales in strategic packages; or
other structured transactions that would address BBP's gearing and corporate structure.
The BBP Board recognises that a broad strategic transaction is necessary to unlock securityholder value. This may involve dealing with BBP in whole or in part. The Independent Directors are confident, following discussions with Babcock & Brown (ASX:BNB), that B&B will support the transaction where it is in the best interests of BBP securityholders and respects the rights of B&B.
Accordingly, the BBP Board has today instructed UBS to canvas the market on the full range of transaction alternatives and to call for Expressions of Interest from the market as soon as practical. The Board will provide a progress update at the AGM on 7 November 2008.
