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All quiet on the Western Power purchase front

NEGOTIATIONS for the supply of long-term power to Esperance were officially due to be completed this month, but the expected announcement of a power purchase agreement by Western Power with a private provider may be a little while off.

There has been plenty to sort out, including not only price, but also Western Power’s intention to continue to supply some power into the system from wind farms, the need for a pipeline into Esperance and consideration of competition for some of the supply from 2006.

Preferred bidder to supply the power is Burns and Roe Worley, whose original proposal was to build a gas-fired plant on Esperance Port Authority land, with the gas to come from the NWS project and to be delivered via a proposed pipeline from Kalgoorlie or Kambalda to Esperance.

BRW’s bid necessarily included detail on who might construct, operate and own the pipeline, which would be connected to the either the Southern Cross Pipelines Australia-owned Kalgoorlie to Kambalda lateral or the Goldfields Gas Transmission pipeline from the Pilbara to Kalgoorlie.

A BRW spokesperson this week said negotiations were at an advanced stage on all the major issues, both commercially and technically.

Pipeline tenders are expected to be issued by Worley, on behalf of Burns and Roe Worley, by early in the new year, but a final tender list reportedly had yet to be finalised.

However, while the Office of Energy said negotiations regarding the pipeline had not been difficult, pipeline regulation in WA, a small and isolated but growing market, is a contentious issue.

This year the Office of Gas Regulation has delivered two unfavourable decisions to different pipeline owners. In March it knocked back proposed tariffs by Goldfields Gas Transmission for the Pilbara to Kalgoorlie line and in June presented Epic Energy with a draft decision requiring a 25 per cent reduction in tariffs put up for the Dampier to Bunbury natural gas pipeline.

Each of these decisions, affecting the State’s two largest natural gas pipelines, has prompted a legal challenge. Epic is awaiting a Supreme Court decision on its challenge to the interpretation of the National Third Party Access Code, while GGT has just this month lodged writs contending the gas access regulator has ignored a 1994 State Agreement protecting GGT from ‘material adverse effect’ brought about by regulation.

GGT says that, with not only the future of the Goldfields gas pipeline at stake, but also the ‘robustness and integrity of the State Agreement process’, it has tried to negotiate the dispute, but to no avail.

Hence it is difficult to imagine there would be too many companies lining up to either construct or purchase a comparatively small volume line into Esperance, to feed into a 16-megawatt plant.

A recent Australian Tax Office announcement to defer for a further six months a ruling on effective life depreciation for gas industry assets will not help present commercial decisions, even though further consideration by the ATO of the Council of Australian Governments’ Review of Energy Policy is welcomed by the industry.

Reserve bidder for the Esperance plant is a joint venture between Woodside (through subsidiary Metasource) and Energy Equity Corporation, whose shareholders approved a name change at the recent AGM to Energy World Corporation. The proposal put by the joint venture involved trucking the gas to the power station, something Energy Equity has been doing with its Alice Springs plant for five years.

However, the joint venture partners this month have been discussing whether or not to renew their preferred bidder status.

One company is reported to prefer dropping reserve bidder status, while the other would like to retain this.

The consortium lost a contract earlier this year to supply power to the Kimberley region from four gas-fired power stations, after the costs involved escalated to an extent that the boards of both companies would not approve funding to meet a deadline that would have advanced the contract.

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