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AlintaGas speculation smoulders

SPECULATION on the make-up of AlintaGas continues ahead of next week’s release of 45 per cent shareholder WA Gas Holdings from its standstill agreement.

‘Release’ has been considered an appropriate term, as one of the 50-50 partners in WA Gas Holdings, financially-troubled Aquila Inc, has sought over the past year to improve its finances through the sale of retail energy interests.

Aquila has made a decision to concentrate on the construction, maintenance and management of electricity markets.

Last year United Energy formed its own construction and maintenance joint venture, a 50-50 arrangement with AlintaGas, National Power Services (WA).

It, too, decided on the sale of a retail asset, Victorian electricity and gas retailer Pulse Energy, in which it had a 25 per cent stake.

Hence Aquila’s current non-retail focus is of significance to its WA Gas Holdings partner, United Energy, and to AlintaGas, on two counts.

If Aquila remains keen on the WA power market, one in which AlintaGas is continuing to position itself with strength, but wants to divorce itself of a retail asset, the logical assumption is that it would consider a construction, maintenance and network management link with Alinta and/or United Energy.

Whatever the developments, those rumoured to be taking a particular interest in Aquila’s holding include Wesfarmers, unsuccessful bidder for the cornerstone stake two years ago, and national energy market players TXU, Australian Gas Light and Origin Energy.

AlintaGas reports “no more than normal” interest from TXU, AGL and Origin, and says the type and level of inquiries from other quarters has not changed.

In a quiet market, with investors cool on many fronts, brokers believe there will be little change in interest from other investors until a major announcement is made.

Hartleys investment adviser John Featherby said any short-term outcome could only be seen as positive for AlintaGas.

The stock had held up well in the lead-up to the end of the WA Gas Holdings restriction period and there had been minimum selling, Mr Featherby said.

Considered to be at premium levels for the current market, the stock was rewarding its loyal shareholder base, he said.

In terms of the issue price and yield, WA investors had done particularly well out of AlintaGas.

Cost reductions, together with a reasonably strong market presence, had provided a good return, Mr Featherby said, and AlintaGas was considered a very solid long-term portfolio stock.

DJ Carmichael industrial analyst Justin Stewart believed the market was purely focused on earnings, and there would be no reaction prior to Aquila declaring its position. Bell Potter Securities State manager Andrew Coppin said the market had known for some time that a major shareholder may get out, and the speculation would likely continue.

Meanwhile, the essence of AlintaGas chief executive officer Bob Browning’s public addresses this year have been clear.

The company was aggressively protecting its market capacity, while transforming its business and pursuing network expansion and increased customer sales.

Initial savings to company operations had been achieved through labour cost reductions, and now the company was optimising its business through contract reviews, process improvements and licensing fees, Mr Browning has said.

AlintaGas was also pursuing electricity sales within the industrial customer segment, with a plan to develop up to 10 cogeneration plants.

AlintaGas last month finalised an agreement with the State Government to keep Western Power out of the residential gas market until at least 2007.

Ahead of the October 17 end to the agreement restricting WA Gas Holdings from selling its interest, AlintaGas has also renegotiated an operating services agreement between the two companies.

From December 16, AlintaGas will pay WA Gas Holdings on a fee-for-service basis and Mr Browning, who was seconded to AlintaGas from Aquila, will become employed by AlintaGas.

WA Gas Holdings had given strategic direction to AlintaGas, particularly through its first year as a listed company from October 2000, but now the company would direct its own strategy, calling in advisers as needed, Mr Browning has said.

AlintaGas has also been proactive in taking the opportunity to participate in moulding market rules and the regulatory environment.

Competition resulting from full retail contestability in WA’s gas market from October 2003 would push prices down, and caps would be phased out, Mr Browning has claimed, but for networks, economic efficiency should not cap returns.

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