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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 warrants.

  • 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 considered obsolete.

    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 is cheap.

    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 to schedule.



    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 in.

    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 operator, Runcimans.

    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 multiple-leg journeys.

    Snapper's Hutt Valley presence has also been enhanced with the addition of 40 retailers where users can either reload or make purchases.


    NZ Bus

    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 down 21%.

    GO Wellington services experienced a small decline in patronage which was offset by growth on Valley Flyer services.

    Northern passenger trips May 12 months to 31 May
    2008 3,242,821 32,830,875
    2009 3,255,176 35,445,877
    Change 0.4% 7.96%
    Southern passenger trips May 12 months to 31 May
    2008 1,895,435 19,932,686
    2009 1,824,203 19,830,681
    Change -3.8% -0.5%

    Wellington Airport

    Operational 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 Blue's market-entry.

    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:

    Airline Sydney Brisbane Gold Coast Melbourne
    AirNZ 8 7 1 6
    Qantas 14   7
    Pacific Blue 3 7  

    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 risen 79%.

    Construction of the international terminal expansion is continuing to schedule with "the Rocks" now taking shape.

    Glasgow Prestwick

    Glasgow Prestwick 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.

    Kent International Airport

    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 than April's.

    In May Flybe, Europe's largest regional airline, launched a weekly Q400 service to the Channel Island of Jersey.

    Lübeck Airport

    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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