New Plymouth-headquartered Powerco signed a memorandum of understanding with the Tasmanian government on Monday, providing for a three-month period to finalise plans for a backbone network to service large industrial and commercial connections. The MOU also requires a parallel negotiation for a development agreement for residential gas network connections.
"This is good news for Powerco shareholders, and for the on-going growth and commercial performance of this New Zealand-owned company," said Powerco chief executive Steve Boulton.
"The exclusive negotiation of development agreements provides Powerco with the opportunity to develop a project that meets Powerco's stringent investment criteria.
"Growth opportunities in New Zealand remain limited and we have been considering this type of incremental greenfield opportunity for the past few years."
Boulton said any future large-scale acquisitions in Australia were not being considered "because they are simply out of our reach". The Tasmanian opportunity was on a different scale, however, with Tasmania being "very similar to New Zealand in customer base, geography and energy consumption."
Boulton said the staged approach and negotiations for the Tasmanian project fitted well with its current integration project for the recently purchased United Networks Ltd assets, which remained on time and on budget for completion next month.
"Investment from Powerco will be incremental and the negotiations, if successful, will require a gas network rollout over five to seven years. Annual capital investment will be able to be met without the need to raise additional equity."
Duke Energy International had already installed the gas transmission pipeline from Victoria across the Bass Strait, which also ran through or close to all of the major population centres in Tasmania. The Powerco network investment would simply tee-off from the transmission pipeline.
While the network would be rolled out past approximately 100,000 homes, the medium to long-term target would be 50,000 customer connections. This was equivalent to around half of Powerco's current gas connection base.
Powerco would not become a gas retailer but would provide open access arrangements and actively encourage multiple retailers on the proposed network - similar to the current New Zealand practice, Boulton added.
The Tasmanian Government would introduce legislative changes to facilitate the project - to ensure the long-term commercial viability of these types of investments.
"All of these factors make this project a very sound business opportunity for Powerco," Boulton said. "If an agreement can be achieved this will further enhance Powerco's non-regulated revenue providing increased diversification of earnings."
Boulton also said this Tasmanian type of network roll-out fitted comfortably with Powerco's existing Australian network services business in Queensland. "We will utilise both our Australian and New Zealand skills and expertise, while maintaining our fundamental investment base - and major shareholding - in New Zealand."
"We welcome the Tasmanian Government's confidence in Powerco as the preferred party for this negotiation phase, which should result in gas becoming a reality for businesses and homes throughout Tasmania's urban and provincial areas," Boulton concluded.
Powerco is New Zealand's largest gas distributor and second largest electricity distributor in terms of total consumer connections. It listed on the New Zealand Stock Exchange in December 2000 and was included in the NZSE Top 40 index earlier this month, on December 2.
