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Infratil Monthly Operational Report
24 September 2009
Infratil's principal businesses continue
to perform well in the face of difficult economic conditions and
ongoing regulatory challenges.
Work is on time and budget at the group's two largest new investments,
the Kwinana power station and Wellington's new international departure
Over the year to date Infratil has delivered a 21% after tax gain
to shareholders, consistent with the New Zealand sharemarket as
The attenuated process around Energy Developments continues with
a second prospective bidder undertaking due diligence.
An extensive interview with Infratil CEO Marko Bogoievski was carried
Independent and a report on Infratil's head of property Peter
Coman featured in The
New Zealand Herald.
The United North Piha Lifeguard Service was supreme winner at the
2009 Infratil-Waitakere City Council Community Awards.
Infratil's Update for September will be available on the website
from 25 September 2009. This edition looks at factors behind investment
in new generation facilities and airport capacity. It also covers
the need for Infratil's businesses to set high standards and deliver
against the expectation of customers in the context of ever-ready
regulators. The Update also reviews the Tasman air passenger market
Government announced an outline of
the intended changes to the Emissions Trading Scheme which is currently
slated for introduction 1 January 2010. For TrustPower the salient
details are that from 1 July 2010 to 1 January 2013 electricity
generators that emit CO2 will be required to have emission rights
for 50% of their output at a fixed cost of $25/tonne. Thereafter
full emission rights will be required and their price will be determined
by the market. Over the interim period it is estimated that this
will add about 1 cent/kWh to average electricity prices, or perhaps
$2 per week for an average household.
TrustPower's generation is entirely renewable so the company incurs
no emission related costs.
The Genesis Energy announcement that the Huntly thermal station
(about 5% of New Zealand's capacity) is to be changed from base-load
generation to system back-up is no doubt a reflection of the impact
of the increased cost of coal or gas fired generation.
The net cost to New Zealand of being a member of the Kyoto Accord
over the 2008-2012 period remains problematic. The most recent forecasts
of the Ministry of the Environment indicate that the country may
squeak in under its cap, but the sector impacts are confusing. Some
sectors (agriculture) are being excluded initially, some are being
included on the basis of needing to cover 50% of their emissions
at a fixed price of $25/tonne, while others (forestry) can presumably
sell 100% of their emission-reduction
credits at the international rate.
The following table shows the Ministry of the Environment's most
recent forecast of million tonnes of CO2 equivalent emissions for
the 2008-2012 period against the 1990 benchmarks.
|Million Tonnes of CO2 Equivalent
In South Australia, the State Government denied TrustPower a planning
permit change for the proposed Myponga wind farm. The request would
have allowed a smaller number of slightly taller turbines to improve
efficiency and financial viability. Rather than undertake the entire
planning process again, TrustPower has withdrawn from the project
to concentrate on other opportunities and the expansion of its existing
wind farm at Snowtown.
In New Zealand, agreement was reached with the Department of Conservation
which will result in DOC supporting TrustPower's Wairau hydro project
in the Environment Court. The agreement involves the development
of a comprehensive management plans so the hydro power station's
operation does not adversely affect the habitat of the black fronted
tern. TrustPower has consents for two South Island wind farms and
is in the final consenting stages for the Wairau and Arnold hydro
Infratil Energy Australia
Customer numbers reached 401,000 at
end August, up from 387,000 in March.
Recent low electricity prices has meant
that marketing to residential users has recommenced in Queensland
and IEA is also expanding sales to commercial and industrial energy
consumers, which currently form only a small part of its business.
The weak economic environment, and
Australia's robust consumer protection regulation is resulting in
record numbers of households defaulting on credit obligations. The
onus is on retailers to closely manage late payments to avoid developing
significant exposure to bad debt. IEA has been improving its systems
to avoid taking on customers with a higher likelihood of default
while also diligently pursuing customers with overdue accounts.
Preparations are being made to enter
the NSW market, but there is still doubt about its sustainable profitability
because of its regulatory and ownership regime. The NSW State Government
has announced a privatisation process entailing:
is no certainty that the sale will proceed. NSW electricity privatisation
schemes have stalled before and there is doubt about the viability
of the gentrader model. To add to those problems, the NSW Government
has very low public confidence, rumours of a leadership challenge
and a series of controversies surrounding individual ministers. The
latest diversion is a slowly emerging media story of links between
State politicians and property developers, one of whom was recently
assassinated. These problems reduces the likelihood of good decision
making on a controversial issue.
- Sale of each of the three government
- Sale of rights to trade in the
despatch of government owned generators (“gentrader” rights) in
- Maintenance of retail price caps
until at least 2013;
- An aim to have a new player enter
the NSW market;
- The possibility of an IPO of one
of the retailers and the gentrader rights.
For IEA, entrance to the NSW energy market will be dictated by whether
retail prices are allowed some flexibility under regulatory caps and
whether the market structure will support a liquid and competitive
wholesale market. At present the State Government proposals would
not prevent the privatisation resulting in a vertically integrated
oligopoly, which would not foster new entrant competition.
In Victoria the wholesale spot gas
price remains very low (generally below $2/gigajoule) which has
resulted in IEA incurring a cost due to its risk averse hedge position.
IEA contracts to buy slightly more gas than it retails to provide
cover on days when there are field outages and spot prices rocket.
The low market spot prices are a result of several retailers having
excess gas courtesy of take or pay contracts with the mild winter
and spring resulting in less consumer demand for heating. These
costs are a normal part of prudent risk management in what is a
physical and illiquid market with excessively high maximum price
caps. Over time as all retailers struggle with the problem the cost
will be more fully factored into the retail prices offered to consumers
whose demand is seasonal, peaky and uninterruptable.
In Western Australia construction of the 120MW Kwinana dual fuel
power station is on schedule and on budget.
Concrete pour at Kwinana, September 2009
Northern Region patronage was in line
with patronage in August 2008, but Southern Region patronage was
0.6% lower than the year prior.
Senior and tertiary patronage continues
to increase due to changes in fare types and pricing, but this has
been balanced by lower adult patronage. The recession is impacting
patronage growth, which has fallen away from what was occurring
earlier in the year.
Regional transport authority belt-tightening
has also meant the reduction of some services. For example, Valley
Flyer’s 120 route which ran from Stokes Valley to Petone has been
shortened to terminate at Queensgate resulting in a 20% decline
To help address this constraint, NZ Bus is working to develop new
routes which will not require subsidies and to terminate the subsidies
currently paid on some existing routes. This will mean that regional
transport authorities free up funds and it suits NZ Bus’s priority
of making the person catching the bus the customer, rather than
a council official. In Wellington and Auckland a number of routes
have recently been registered as “purely commercial”, ie not requiring
tax or rate payer subsidies, and these include the Petone-Stokes
As Valley Flyer has shown with the Airport Flyer service, a clear
focus on growing a service can generate significant patronage growth
and a satisfactory return on the capital employed.
|Northern passenger trips
||5 months to 31 August
||12 months to 31 August
|Southern passenger trips
||5 months to 31 August
||12 months to 31 August
Despite a wage offer of 10.4% over
three years, NZ Bus is struggling to reach agreement for a new Collective
Employment Agreement for its Auckland bus drivers and cleaners with
the four unions representing staff. Discussions have been underway
since May including mediation. NZ Bus has filed an application with
the Authority for facilitation assistance.
More positively, the last of the 60 electric trolley buses was delivered
and entered service in Wellington. It will be some time before the
buses are fully functional as their bespoke construction means some
inevitable "in service" work is required.
The arrival of this fleet is testament to a very constructive engagement
by NZ Bus, Greater Wellington Regional Council, Wellington City
Council and NZTA. Thanks are also due to Annette King from when
she was the Minister of Transport, and to Sue Kedgley, the Wellington
Green Party MP, who has been a long term supporter of electric public
On the political front work is underway
to review the previous government's Public Transport Management
Act which allowed regional transport authorities to ban commercial
(ie unsubsidised) services. Minister Steven Joyce has indicated
a preference for a public transport model which encourages the commercial
provision of bus services.
The Snapper system now processes
more than 1.3 million transactions per month with extremely high
accuracy and reliability levels. By way of comparison, Wellington
region public transport boardings amount to about 3 million per
month while in Seoul, Korea Smart Card processes 26 million transactions
87,000 cards are now on issue (Wellington and Hutt population is
330,000) and from August they could be used on Runcimans' 120 routes
in addition to all the GO Wellington and Valley Flyer services.
Also from August, Snapper cards were enabled to carry passes. This
means that someone can pay a fixed sum and have the pass they have
purchased electronically loaded on their Snapper card. In addition
to providing all the benefits of a cardboard pass, a registered
Snapper card which is lost can be cancelled with any value and loaded
passes transferred to a new card.
G.H. Park the new CEO of KSCC, Snapper's Korean technology partner,
visited Snapper in August and noted the analogies between the transport
and ticketing requirements of the 2002 Football World Cup in Korea
and the 2011 Rugby World Cup in New Zealand. This was endorsed by
Mayor David Ogden of Hutt City who visited KSCC when he was recently
Snapper is also working with its local partners to develop services
especially for large sporting and cultural events. During the weekend
of Wellington's Bledisloe Cup game Snapper, GO Wellington and Valley
Flyer trialled a promotion "use Snapper and travel at 50% off
the cash fare" which was both a success at attracting patronage
and very useful as a learning experience. Snapper use in Wellington
was up 22% on what would be normal, indicating a high degree of
While the initiative has not attracted much media comment, it represents
a fundamental change in how operators and regional transport agencies
can approach public transport pricing. Until this weekend, over
the last 10 years Wellington's bus fares have only changed twice.
Now Snapper has given operators and agencies the ability to be totally
flexible in their thinking.
At the World Junior Diving Championships which are being hosted
in Wellington in December it is hoped that a further trial will
enable Snapper holders to use their cards to gain entry to the Aquatic
Centre and officials and competitors will have special ID Snappers
which grant them free public transport for the duration of the competition.
By the time of the Rugby World Cup in 2011, a wide range of initiatives
will have been trialled and perfected.
Snapper's popularity with users was shown by a recent survey where
85% of customers said they would recommend Snapper to friends and
In August 415,031 passengers used
Wellington Airport, a decline of 3.2% compared to August 2008. International
passengers were up 1.5% while domestic numbers were down 3.7% which
is a marked improvement to recent trends, with the year to date
being down 6.6%. For August, airline capacity (measured by seat
numbers) was down 8.6% on a year prior.
5 months to 31 August
The Melbourne and Brisbane routes experienced
an increase in passengers of 8.4% and 7.8% respectively relative
to August 2008 while Sydney was down 1.9% on a 5% drop in seat capacity.
Pacific Blue commenced a three times a week service with Sydney
in September which will add competition and generate passenger growth
on this route.
Consequent on the process initiated
by the Labour Government's passage of the Commerce Amendment Act,
Wellington Airport, along with Christchurch and Auckland, participated
in the Commerce Commission's one day conference on the airports'
information disclosures. The submissions of interested parties and
transcripts of the discussions from the conference are available
on the Commission's website. The Commission's summary of this regulatory
"The new framework focuses on information
disclosure… The Commission is currently working on a determination
which will set out what information the airports will need to disclose
as part of the new regime. The Commission's determination may require
the airports to disclose certain specified information relevant
to their performance (such as financial statements, prices and quality
performance measures), including forward looking information (such
as forecasts and asset management plans). The purpose of the regulation
is to ensure that sufficient information is readily available to
be able to assess whether the purpose of Part 4 of the Commerce
Act is being met. Part 4 focuses on ensuring that the long-term
benefit of consumers in markets where little or no competition is
maintained by promoting outcomes that are consistent with outcomes
produced in competitive markets. Under the amendment the Commission
must make its determination about how the information disclosure
regulation will apply to each airport company no later than 1 July
2010. Until the Commission makes this determination, the information
disclosure requirements made under the Airport Authorities Act 1966
continue to apply. Under the new framework, the Commission is also
required to report to the Ministers of Commerce and Transport on
the effectiveness of the new information disclosure regime. This
reporting will take place as soon as practicable after 2012."
Wellington Airport supports the purpose
of the legislation, i.e. to ultimately secure "outcomes that are
consistent with outcomes produced in competitive markets."
used Glasgow Prestwick Airport in August, 29% less than a year prior,
a small improvement on trend. The result reflected Ryanair capacity
reductions and the continuing weak European aviation market.
for the recently announced Ryanair "sun routes" are strong, in particular
with the under 35 age group that make up 65% of passenger who use
for August were up on recent months at 1,232 tonnes which is only
5% less than a year prior.
||August Freight Tonnes
5 months to 31 August
5 months to 31 August
August was another strong month for
Kent with 3,136 tonnes handled, up 190% on the year prior. The last
five months were 82% ahead of the same period in 2008.
Kent hosted the Royal Air Force fast jet display team the 'Red Arrows'
in August, providing a base for their participation in two air shows
in the South East of England. The airport was also the base for
the Dutch and Belgian Air Force display aircraft participating in
the UK summer air shows.
Scheduled passenger numbers at Lübeck
Airport in August were 78,860, 28% ahead of 2008. The new routes
of Palma, Alicante and Alghero continue to sell well and draw from
all over the airport's 120 minute drive catchment.
The City of Lübeck continues to seek a new investor ahead of
Infratil's option to sell its shares in the airport back to the
City in late October.
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