Pricing decision right for APT

Australia’s largest owner of gas pipelines, Australian Pipeline Trust, has signed an agreement to purchase CMS Energy Corporation’s Parmelia and Goldfields pipeline assets for $206 million.

For APT the deal is significant as it provides gas processing and storage facilities and a small gas retail business.

Under the terms of the deal, which coincides with a draft decision on the Goldfields Gas Pipeline by the WA Economic Regulation Authority, APT will acquire 100 per cent of the Parmelia business including the 420 kilometre Parmelia pipeline which supplies gas from the Perth basin.

APT will also acquire CMS Corporation’s 45 per cent interest in SCP No 1 Pty Ltd, which is already 55 per cent owned by APT.

SCP owns 88.2 per cent of the 1,380 kilometre Goldfields Gas Transmission pipeline in north-western Australia and will provide APT with operating control of the GGT.

In a statement announcing the sale, APT managing director Jim McDonald said the acquisition of these assets was “right on strategy” for the company.

“We believe we got them at a fair price,” he said.

“These pipelines will strengthen our core business and the acquisition of Parmelia will allow us to move into gas storage and processing businesses, which is what we have said we intended to do.

“Parmelia delivers gas to industrial areas of Perth and has storage facilities to allow peak supply to the Perth region.

“The Goldfields Gas Transmission pipeline serves a world-class mineral province and is fully utilised in the short-term. There are plans to add capacity via compressors.

“The draft regulatory decision for Goldfields Gas Transmission pipeline released on July 29 is in line with APT’s expectations of the regulator’s position at this stage in the process.”

The APT agreement coincides with the ERA refusing to approve the proposed access arrangement for the Goldfields Gas Pipeline, which was lodged by (GGT) in December 1999.

Australian Pipeline Industry Association executive director Allen Beasley said the APT agreement represented the exit of the last major US player in the gas pipeline industry in Australia.

Earlier this year, CMS sold its 50 per cent interest in Victoria’s Loy Yang A power station to a consortium led by energy retailer Australia Gas Light Co Ltd.

However, Dr Beasley said the major issue for WA remained the Dampier to Bunbury Natural Gas Pipeline, with the amended draft decision continuing “the saga of regulation in WA”.

 “The bottom line is that the [ERA’s] amended draft decision represents a decrease in tariffs of 18 per cent and of course what we’ve seen on the east coast with the Moomba to Sydney pipeline is that clearly the regulator got it wrong,” he said.

Dr Beasley suggested the regulators had previously been substantially wrong.

“There is a growing case history where determinations by regulators have been artificially low,” he said.

“Therefore, by implication, the tariffs that they have determined have been artificially low.”

Independent energy consultant Rob Booth largely agreed with the ERA’s Goldfields Gas Pipeline decision which he said showed the new WA regulator was holding the line on methodology used by regulatory authorities around the country when it came to gas pipeline tariff levels.

In that regard, Dr Booth said, there was an implication for the DBNGP in that if that pipeline’s tariffs were referred back to the ERA it was unlikely any substantial change would occur.

The ERA has given interested parties until September 10 to respond to the amended draft decision issued last week.

In a summary of the draft decision, ERA chairman Lyndon Rowe said the revised tariff would represent a reduction of about 18 per cent for the typical user at Kalgoorlie on the level of the reference tariff originally proposed by GGT on behalf of the owners in December 1999.

As part of its decision, the authority also proposes to determine the initial capital base value of the pipeline should be $480 million as at December 1999. This compares to GGT’s original $452.6 million proposal submitted in 1999, which it later submitted should be increased to $553.4 million as at June 30, 2002.