Key Point

  • The Beattie Government has announced that it is keeping a firm grip on the physical assets and is looking to sell the riskier retail arms of ENERGEX and Ergon before the introduction of full retail contestability in July 2007.

On 26 April 2006, the Queensland Government announced that it would sell off the retail business arm of Energex and the contestable elements of Ergon Retail (customers using above 100MW per annum).

While the details are still to be worked out the intention seems to be to join the relevant retail functions of Energex and Ergon to form Sun Retail Pty Ltd and then sell that company by way of a private trade sale possibly in two stages. The Government is also selling the Allgas Distribution Network (which covers some 2,204 kms in South Brisbane, the Gold Coast and Toowoomba) in a separate sale.

Although the Queensland Energy Structure Review prepared by the Boston Consulting Group recommended a gradual sell down of the generation assets (which including the partially government owned generators make up approximately 65 percent of the State's current power generation capacity), the Government has indicated that at this stage it intends to retain those assets through its Government Owned Corporations to maintain security of supply for the State.

Energex's electricity retail business not only covers all Energex franchise customers (approximately 1.1 million households and growing) in South East Queensland but also contestable customer contracts throughout Queensland and to a lesser extent New South Wales and Victoria. As well as electricity retail, the business also retails natural gas and LPG to both households and businesses. It remains to be seen as to whether these business groups will be sold together with the electricity business or separately to different entities.

As for the poles and wires (that is the distribution network) these will remain with Energex Limited and Ergon Energy Corporation Limited. The Government also announced that Enertrade (which operates a mix of energy assets including the Barcaldine Power station and the North Queensland Gas Pipeline) will not be sold, but will renew its focus on gas.

The sale of the assets has been estimated to be in excess of $1 billion. With the likelihood of a fall in value of Ergon and Energex due to the introduction of full retail contestability in mid-2007, the Government will most likely attempt to have the sale completed by the end of this year.

The proceeds from the sale will go towards the Queensland Future Growth Fund which will be set up by new legislation and held separate from the Government budget. Further details in relation to this fund will be released when the sale of the retail business has been concluded. To date the Government has indicated that the fund will be used for:

  • Development of water infrastructure for the rapidly developing South East Queensland including the construction of two new dams;

  • Up to $300 million to the fund set up by Coal21 for the future development of cleaner coal technology; and

  • Development of other infrastructure such as rail and port developments.

With Queensland's rapidly growing population, the energy re-structure, and full retail contestability due to start in July 2007, the sale is likely to trigger substantial interest from both Australian and overseas power companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.