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Infratil Monthly Operational Report
30 June 2009
The last month has seen a period of
considerable activity in a number of areas.
Infratil entered into an agreement with Archer Capital to support
Archer's intention of making a bid for Energy Developments, of which
Infratil owns 32%. Subsequently it was announced that Energy Developments
has received an unrelated bid for its European operations.
With Infratil's IFTWB Warrants expiring on 10 July several steps
were taken to improve the prospects of their exercise:
Infratil has agreed to pay brokerage as compensation to brokers
who assist their clients review the exercise.
Underwriting was arranged with First NZ Capital in respect of
the exercise of at least 68 million of the Warrants, and Infratil's
largest shareholders, Utilico and interests associated with Morrison
& Co confirmed they would exercise their approximately 30 million
Warrantholders approved a variation of the Warrant terms which
allows them to be paid up in two installments. Warrantholders now
have the choice of either paying $1.62 by 10 July or paying 55 cents
now and a further $1.12 before Friday 21 May 2010.
Ensuring that investors are well informed prior to having to decide
on the exercise of Warrants, Infratil's annual report has been mailed
out this week and many of the Company's share/warrant/bond investors
have been invited to attend regional presentations on Infratil.
As is usual for the time of year,
spot electricity prices have been relatively high and volatile especially
in the North Island where very high prices have occasionally resulted
in the Whirinaki power plant being operated.
The ownership of Whirinaki and its operation (at present its dispatch
price is set by the Electricity Commission) are matters under review
by the Ministerial Task Force which is expected to provide a recommendation
on industry changes in July.
TrustPower has participated in the recent public debate over "smart
meters". Some retailers have rushed into meters with greater capability
(an ability to register time of use and to transmit consumption
data rather than having to be physically read), but TrustPower has
preferred to wait on the next generation which will be able to communicate
with appliances meaning that, for instance, clothes dryers, heaters,
etc will be turned on when energy prices are lower. The current
smart meters are good for retailers but less so for customers.
Most of the residential load that
is able to be controlled (hot water and night store heating) already
is through "ripple control", and none of the retailers who have
installed "smart meters" have to date offered anything different.
Customers wanting to take advantage of lower night time rates can
do so already by wiring their washing machine to their controlled
meter, but most washing machines/dishwashers etc don't currently
have programmed start capability. "Smart appliances" communicating
with "smart meters" will overcome these problems. One brand of smart
meter installed by one retailer over the past 18 months is already
TrustPower has two fully consented wind farms (Mahinerangi in Otago
and Kaiwera Downs in Southland) where the next stages of the development
are dependent on suitable financial conditions (exchange rate, price
of turbines, etc.). Good progress is being made with the consenting
of the hydro schemes at Arnold and Wairau rivers.
Government has announced a series of public meetings on New Zealand's
2020 greenhouse gas emissions target starting with one on the 6th
of July to be held in Wellington. New Zealand's long term goal is
to have its 2050 emissions at 50% of the 1990 level and the objective
now is to set a 2020 target.
On 26 June the US House of Representatives passed legislation to
introduce a cap and trade system to the US to reduce greenhouse
gas emissions to 17% below 2005 levels by 2020 and 83% lower by
2050. The vote was the first time US legislators had approved a
bill meant to curb the heat-trapping gases linked to climate change.
It also means that the US will participate in future multinational
determination of global emission reduction targets.
Infratil Energy Australia
391,000 customers at the end of May
2009 represented a small increase over year end. The growth focus
continues to be on Victoria due to its open and competitive market
and lack of regulated price caps.
The Queensland Competition Authority announced a 15.7% increase
in its retail price cap reflecting the successful judicial action
pursued by Origin and AGL over the previous year's price increase.
This is good news for Queensland energy retailers, but coincidentally
Energex (the Government owned network provider) published new tariffs
which mean 12% to 18% increases in residential customer costs. What
is given with one hand is largely taken with the other.
Because it has already made some tariff adjustments Queensland Electricity
(Infratil's subsidiary in that market) does not need to pass through
the full 15.7% increase and is likely to be more competitive after
other retailers implement the full allowed increase.
Gas spot prices in Victoria have remained low during the early months
of winter (well under $2/gigajoule on several days). This demonstrates
the point Infratil has been making to regulators and market operators.
Risk, and the cost of its management, is having a greater influence
on Victorian retail gas prices, than does spot wholesale gas prices.
Low spot gas prices do not alleviate the risk that incidents such
as that of 22 November 2008 re-occur. On that occasion another retailer
reportedly lost $40 million. Infratil's approach is to fully prepare
for such events and this risk management is costly even when gas
The Federal Government's carbon pollution reduction scheme (the
"CPRS"), faces continuing uncertainty as the Opposition, the Greens
and independent Senators all argue about the details. Similarly
the Mandatory Renewal Energy Target scheme is bogged down as it
is tied to the CPRS legislation. While there seems little doubt
that a scheme will be implemented, the debate over timetables, targets
and compensation continues. In a practical sense, the delay has
been helpful for IEA as the energy hedging market has become more
liquid as it has become clear that the scheme will not commence
on 1 July 2010 as originally planned.
The West Australia 120MW Kwinana generation project is proceeding
Someone with a Snapper ticket now has
a choice of bus companies as the card is now accepted on both GO
Wellington and Valley Flyer services, the first step to full integration
of all the Wellington Region's public transport. Snapper is also
accepted on the Airport Flyer.
All those people standing in front of Kirkcaldies heading to Courtenay
Place can now use their Snapper to catch either companies' services
heading in that direction and soon the Mana buses will also be linked
For Snapper the development is important beyond Wellington as it
provides tangible evidence of its capability.
After gaining a great deal of experience with the GO Wellington
introduction, the Valley "turn on" went without hitch. Over the
weekend of 13/14 June all the old ticketing equipment was removed
from Valley Flyer's buses and Snapper was deployed. Over 10,000
existing smartcards were swapped for Snapper cards through booths
in shopping malls, at bus interchanges and at schools. Valley Flyer
lost no revenue and customers were not inconvenienced.
After this success Snapper is now deploying onto its next local
In addition to providing discount adult fares on two bus services
the Snapper offering is also increasing. On both companies Snapper
can be used to access discount adult and child fares and on Valley
services transfer fares are available which provide discounts on
Snapper's Hutt Valley presence has also been enhanced with the addition
of 40 retailers where users can either reload or make purchases.
The revamped Airport Flyer bus service
was launched on June 18 by Transport Minister Steven Joyce.
This is an entirely commercial service (ie it attracts no public
subsidies) and involves nine new buses which were purpose built
at a cost of $4 million in Tauranga and have leather coach-style
seating, air-conditioning, luggage storage, low floors and wider
doors for wheelchair and push-chair access and free Wi-Fi.
The Airport Flyer runs ever 15 minutes seven days a week between
the Hutt Valley and Wellington Airport starting at 5.30AM (Queensgate)
and 6.30AM (airport) with the last service of the day departing
the airport at 9.30PM.
Because the service operates to the city through a dedicated bus
tunnel it misses much of peak time road congestion and is a reliable
timely way to get into Wellington CBD (30 minutes) or on to the
Hutt. For NZ Bus the service is also an experiment to see if a higher
quality slightly more expensive ($8 cash fare or $6.40 Snapper fare
to CBD) public transport service will be attractive to users.
At the launch the Minister noted "I would like to dispel the horrible
malicious myth that this government is not committed to public transport".
He noted that public transport had the potential to contribute to
economic growth and that he had commissioned a review of the Public
Transport Management Act, passed last year by the Labour-led government,
with the aim of reducing the power of councils over transport operators.
Green MP Sue Kedgley said: "I think it is fantastic that NZ Bus
has made this investment. It is critical that we have public transport
to the airport."
More generally, patronage in both the northern and southern markets
was approximately the same as for the same period last year (adjusting
the period for the number of work days).
In the Auckland region flat patronage incorporated strong growth
on some services such as Crosstown and North Shore routes continue
to show strong growth (11% and 7% respectively) and moderate growth
while Western Bays and CBD were disappointing, with the City Circuit
GO Wellington services experienced a small decline in patronage
which was offset by growth on Valley Flyer services.
|Northern passenger trips
||12 months to 31 May
|Southern passenger trips
||12 months to 31 May
figures In May, 363,309 domestic passengers used Wellington Airport,
10.5% less than in May 2008. Weather disruption on two days caused
some of the reduction, but the numbers were broadly in line with forecasts.
Over April/May domestic passenger numbers were down 9.8% reflecting
the weak economy, reduction of services by Qantas (which in June was
replaced on the domestic market by Jetstar) and the very vigorous
activity of the prior period when demand was responding to Pacific
With current economic conditions travel demand will remain weak. Jetstar
is expected to produce some stimulus to trunk services and later in
the year Pacific Blue's entry to regional services with its 104 seat
Embraer 190 Jet is expected to stimulate those markets.
Wellington's international passengers declined by 1.6% to 45,469 compared
to May 2008. For the two months of the current year, international
passengers increased by 6.8% compared to the comparative prior period.
Sydney and Melbourne passenger numbers fell slightly while Brisbane
increased by 20% reflecting the increase of capacity on this route.
Pacific Blue announced it will start a 3 day a week service with Sydney
in November which is likely to stimulate that market.
At present the airlines' international weekly return services for
summer 2009/2010 out of Wellington are:
The Department of Statistics' most recent information on New Zealand
air travel costs represent a continuation of recent trends. The following
graph shows the domestic and international air travel indices since
March 1995. Over the 14 years the CPI has risen 37%, international
air travel costs have fallen 17% while domestic air travel costs have
Construction of the international terminal expansion is continuing
to schedule with "the Rocks" now taking shape.
Operational Figures A total of 162,495 passengers used
Glasgow Prestwick in May with scheduled passenger numbers down 20%
compared to the prior year.
Freight volumes continue to track at around half of the volumes
of last year, which reflects the loss of the Polar business last
July and the weak European air freight market.
Freight volumes of 2,260 tonnes in
May, were 68% ahead of May 2008. The previous period had been depressed
by the termination at that time of MK Airlines services because
high fuel costs had caused its failure. May tonnage was 13% higher
In May Flybe, Europe's largest regional airline, launched a weekly
Q400 service to the Channel Island of Jersey.
Passenger volumes for May were 28%
up on May 2008. Sales on the new Mallorca service continue to encourage
and forward bookings on the Alghero and Alicante routes are strong.
Lübeck continues to attract significant volumes of passengers
originating from the greater Hamburg catchment. The strong growth
of Lübeck against the trend of declining passengers in Germany
reflects both the new destinations and a shift in passenger demand
towards genuine low cost airline and airport options.
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