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Infratil Monthly Operational Report

27 May 2009



Infratil announced its annual results for the year to 31 March 2009 on 18 May. Guidance was also given that over the year to 31 March 2010 operating earnings are expected to rise while interest costs and capital spending are expected to fall. The nature of infrastructure businesses means generally that their operations and earnings remain robust and predictable, even during a period of great economic uncertainty.


TrustPower announced record annual earnings of $260 million reflecting commissioning of new plant in Australia and New Zealand. Dividends of 17 cents per ordinary share and 10 cents special dividend are to be paid in June, bringing the annual total to 47 cents per share.

TrustPower has now concluded a period of substantial investment in new generation. While further capital spending plans are limited in the immediate future, work is progressing on consents for 420 MW of wind and 118 MW of hydro power in New Zealand and 273 MW of wind capacity in South Australia. It is expected that these projects will be undertaken when their economics warrant the capital outlay.

In May the Commerce Commission released a report undertaken on the structure of the New Zealand wholesale market by a US academic. This report postulated that between 2001 to 2007 the three energy SOEs and Contact Energy over-earned by $4.3 billion. Given that this sum represents 90% of the entire generation industry's profits for the period the report has generated some confusion. The Minister of Energy has passed it to the Task Force he had previously established to review the industry structure. The plausibility of the claims can be tested by looking at whether New Zealand has witnessed over construction of power stations during that period. If generators were over-earning they would have over-invested in new plant to reap the high prices. In fact over the period new capacity has roughly kept pace with increasing load.

Of greater importance, the Chief Executive of TrustPower, Keith Tempest, announced that after 23 years with the Company he plans to retire in December 2009. Chairman of TrustPower, Bruce Harker said "after working with Keith for the last ten years, I both regret his decision and congratulate him. He has done a great job and has been a real pleasure to work with. Our shareholders have also enjoyed the experience."

Lloyd Morrison said from hospital "Keith is a great guy, it's been our luck and privilege to have him on the team. We are fortunate that Keith has built such an excellent team around him. He will be missed. We are very pleased that Keith has agreed to stay on the board of NZ Bus so the Infratil Group can continue to benefit from both his company and expertise."


Infratil Energy Australia

A slight increase in customer numbers (388,000 accounts) over the month continues to reflect growth in Victoria and contraction in Queensland. The more deregulated Victorian market remains the focus for now, but recent regulatory developments in Queensland and NSW have also been positive. In Queensland, Origin and AGL won their court appeal against the 2008 price cap, while the NSW Government has reconfirmed its intention to privatise its energy retailing businesses this year. Whether privatisation will also entail deregulation is not certain, but it seems unlikely the State would sell quasi-monopolies.

The NSW Independent Pricing and Regulatory Tribunal (IPART) also recently approved material increases in the retail price caps and commented "that wholesale purchase costs have increased substantially and that the allowance for electricity purchase costs should increase to reflect this. If the electricity cost allowance is insufficient, some retailers may be unwilling to supply customers, and incentives to invest in new generation capacity when it is needed may be inadequate."

On a different front, TRU Energy lost its court action to overturn the outcome of a period of exceptionally high Melbourne gas prices in November 2008 which resulted in that company incurring a A$40 million incremental cost. The failure of their appeal means all the parties who incurred costs associated with the $800 per Gj period (usually prices are about $5) will not gain redress. This includes IEA which had a small exposure to these prices which has been fully accounted in last year's results.

While IEA will not now receive a small windfall, the decision demonstrates the sound logic of IEA's extremely low risk approach to risk management, even when avoiding risk is expensive. Practically this means IEA has to have several contracted sources of gas to avoid the costs associated with field or transmission failures (which is what caused TRU's A$40 million cost blow out). It is expected that this lesson will be reflected in the future behaviour of other market participants. A trend towards better recognition and pricing of risk will be of benefit to all energy retailers.

The Australian Federal Government announced a deferral of emission trading (CPRS) for one year to 2011 and a fixed carbon price of A$10/tonne for the first year it is in operation. The potential for delay had resulted in IEA delaying fully hedging its forward electricity price exposure in the relevant years so the hedge book will now be extended to a normal term.

In Western Australia the Kwinana power station project is on schedule for completion in mid 2010.



The 3,800 students at Wellington College, Scots College, Queen Margaret College, Wellington Girls College, Wellington East College, Wellington High School and Rongotai College who have Snapper school IDs can now use their cards to get child fares on GO Wellington buses.

This is the second public transport product loaded on the Snappers after the standard discount on cash fares that have been available so far.

Over the next three months Snapper will gradually provide all the other fare products (passes and other age enabled tickets) currently accepted on GO Wellington and Valley Flyer buses. Wellingtonians are almost at the end of the era where a bus pass which accidentally goes through the wash spells disaster.

Snapper has also introduced "Hot Listing" for cards so that someone who loses their Snapper can have it cancelled and the balance transferred to a new card. Customers are making good use of this service, with over 80 cards hotlisted in the last month.


NZ Bus

4,413,612 trips were provided in April. In absolute terms almost 600,000 less than in April 2008, but the previous year included a contribution of over 360,000 from Fullers which was sold in early April and when the two comparison months are adjusted for working days (23 last year, 20 this year) patronage actually rose about 2.5%.

Good growth continues to be achieved in Auckland and the Hutt, while Wellington remains flat, and is the focus of management.

As is the norm for public transport, the regulatory regime remains under development with the Minister of Transport announcing a review of the Public Transport Management Act and ongoing reviews of procurement regimes in both Auckland and Wellington.

An optimal public transport regulatory regime would incentivise operators to efficiently deliver popular services while ensuring that regional transport agencies can direct services to meet network and transport efficiency objectives at the least cost to rate and tax payers. The current regime is not "win:win" and building a genuine partnership model has proven to be difficult.

The new Government has made it clear that only initiatives jointly promoted by transport agencies and operators which can achieve an economic benefit cost efficiently will garner support.

Northern passenger trips April 12 months to 30 April
2008 2,938,252 32,806,454
2009 2,821,735 35,433,522
Change -4.0% 8.0%
Southern passenger trips April 12 months to 30 April
2008 1,699,793 19,996,095
2009 1,591,877 19,880,808
Change -6.3%

Wellington Airport (Operational Figures)

In April, 386,000 domestic passengers used Wellington Airport, 9% less than in April 2008. However April 2009 was still 11% higher than the numbers recorded in April 2007. Over the January-March quarter 10% fewer domestic passengers used Wellington than the same period in 2008. This period of soft activity reflects the uncertain economy, the run-off of Pacific Blue's market-entry stimulation which boosted the earlier period, and reduction of Qantas services.

June's commencement of domestic services by Jetstar is expected to generate some additional activity as will the introduction by Pacific Blue of the 104 seat Embraer 190 E-Jet to regional service.

International passengers increased to 55,770, 14.8% higher than April 2008. Capacity has been substantially increased to Brisbane (up 36.8% relative to April 2008) and Melbourne (+17.5%) while Sydney services also experienced an increase in passengers notwithstanding no material change in capacity.

Wellington Airport released its 2030 draft Master Plan setting out the Airport's development vision for the period and indicated the works that will be required to accommodate 10.5 million passengers a year, which is the level forecast for 2030. The cost of the infrastructure build is approximately $450 million which implies a similar rate spend to the last decade. Most of this expansion relates to more people travelling within the region, but some long haul is also anticipated.

The draft 2030 Master Plan is available on the airport website and feedback will be accepted until 30 August 2009.

Infratil Airports Europe

Glasgow Prestwick (Operational Figures) handled 160,419 passengers in April down 19% on April 2008 following on from the January-March quarter which was 12% down on the same period in 2008. On a rolling twelve months basis Glasgow Prestwick hosted 2,274,442 passengers down 6% on the previous 12 month total. Glasgow Prestwick handled 1,216 tonnes of freight during April, 58% below April 2008.

Kent International Airport freight volumes in April were 2,006 tonnes, 34% less than a prior year.

Lübeck Airport had an excellent start to the financial year with passengers 55% up on April 2008 due mainly to a new daily Palma service which has drawn travellers from the main Hamburg core catchment. Loads on other routes were also up on the prior year perhaps suggesting a regional trend towards low cost services.

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