Epic saga heads to finish line

The long-running saga over ownership of the Dampier to Bunbury Natural Gas Pipeline is heading towards a climax, with two bidders at the forefront, as Mark Beyer reports.

A DECISIVE move was made last week with the announcement that Alinta and Wesfarmers are considering a joint bid for the Dampier to Bunbury Natural Gas Pipeline, with the endorsement of Alcoa World Alumina Australia, the pipeline’s major customer.

That was followed by confirmation that Australian Pipeline Trust is interested in bidding for the Dampier pipeline.

The current owner of the Dampier pipeline, Epic Energy, is officially keeping all options open.

It said it was continuing discuss-ions “with its major shippers to achieve a tariff arrangements that will allow it to remain commercially viable”.

The major shippers comprise Alcoa, Alinta and Wesfarmers, which together take up to 70 per cent of the current pipeline capacity.

Epic’s core problem is that the tariffs set by the State Government’s Office of Gas Access Regulation are lower than it had expected.

The consortium of banks that are owed $1.85 billion on the Dampier pipeline could determine its fate.

Epic is continuing its discussions with the banks to achieve an extension of the debt repayment due on September 16.

“These discussions include the consideration of the commencement of a formal sales process for the DBNGP,” it said.

From the banks’ perspective, a quick sale of the pipeline must be a tempting option compared with the prospect of protracted commercial and regulatory uncertainty under the current ownership.

The Alinta Wesfarmers consortium and APT are considered frontrunners to buy the Dampier pipeline because of their strategic, as well as financial, objectives.

APT has publicly stated its desire to diversify its revenue base away from reliance on the Moomba to Sydney gas pipeline.

Managing director Jim McDonald said “acquisition of all or part of Epic’s assets … would address [our] growth strategies”.

He also wants to lift APT’s 48 per cent stake in WA’s second major gas pipeline, the Goldfields Gas Transmission pipeline.

Alinta, Wesfarmers and Alcoa already have closely intermeshed business interests linked to the Dampier pipeline.

Paterson Ord Minnett analyst Rob Brierley believes there is “an element of self protection” in their decision to work together.

“They need to secure their future,” he said. “By vertically integrating, they are aligning all of their interests.”

The companies themselves said in a statement that they want to “ensure the continued quality of gas transmission services for the BDNGP and the expansion of the DBNGP in a timely manner to ensure that development in WA is not compromised”.

Those developments include plans by Alinta and Alcoa to build up to 10 gas-fired co-generation power stations.

For this plan to be fully realised, the capacity of the DBNGP would have to be substantially expanded.

Similarly, Alcoa will need extra gas supplies to support the planned upgrade of its Pinjarra refinery.

Alinta and Wesfarmers also have an alignment of interests via their profit sharing agreement in relation to Wesfarmers’ LPG plant in Kwinana. If the two companies decide to bid for the Dampier pipe-line, it would bring together the balance sheet strength of Wesfarmers and the operating experience of Alinta.

This would be similar to the recent Aquila transaction, in which Alinta partnered with AMP Henderson to acquire $4 billion of energy assets and, importantly, became operator of the assets.

For Wesfarmers, the picture is complicated by its involvement in the coal industry. It has lodged a proposal with Western Power to build the State’s next base load power station at Collie, where it has coal-mining interests.

“We are confident that a modern, clean coal-fired power station in Collie is the best solution,” Wesfarmers Energy managing director David Robb said.

In contrast, Alinta managing director Bob Browning has said that Western Power should defer its decision on the next base load power station, in part because the planned co-generation plants could provide a better solution.