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Legislative Assembly for the ACT: 2000 Week 7 Hansard (27 June) . . Page.. 2032 ..

MR QUINLAN (continuing):

organisation, on the application of due diligence in related matters, and on the future of staff of ACTEW.

Let me move to the state of play at present. There has been significant progress on a number of fronts in relation to this project. The committee has been concerned that the parties involved may not have the time they need to draw breath and to integrate the progress on various fronts, but that is a responsibility, at the end of the day, that falls to government, and in particular to the shareholders.

We have received from the probity auditor involved his clearance that in the main he is satisfied with the various dimensions that he is required to examine, with just a couple of little hiccups, if you like, along the way in relation to the association of parties involved with the merchant bankers involved. However, we believe that they have either been sorted out or will be sorted out. We certainly trust so.

The specific issues that I would like to bring to the attention of this Assembly are the key benefits of this process as promised. There is a reduction in the risk that was previously faced by ACTEW in energy trading. It is important at the same time to recognise that risk has not been eliminated entirely. The newly created organisation does face some exposure to risk, but it is under the umbrella of AGL, and the size of AGL itself should ameliorate considerably the risk the organisation faces.

The price of that is that the organisation becomes involved in related party transactions. We have an organisation that will virtually have sole source contractual arrangements for the supply of its primary products, bulk electricity and bulk gas. This arrangement brings with it its own risk in relation to transfer pricing and being the captive of a much larger and a much more powerful corporation. At this stage we are aware that much effort has gone into trying to negotiate around this particular situation, but, in the longer term, that is where we have placed our organisation.

In relation to employment, we are satisfied at this stage that, at least over the short to mid term, employment security for ACTEW employees has been secured. We are also reasonably happy that the public interest has been protected in terms of maintaining at least the ACTEW element under the TOC act.

Our primary concerns relate to the capital structure of the organisation and the future capital structure of the organisation. At establishment, the partnership venture will be virtually fully equity-funded compared to the conventional regulatory price path benchmarks suggested at a debt level of between 50 and 60 per cent. There is no doubt in the minds of the committee that there will be almost irresistible pressure, once the organisation is established, for there to be a capital restructure, with formation of an operating entity with a debt equity structure around about that of the average in the industry, with all those rationalisations that will go with that. Effectively, the organisation, or the owners of the organisation, will realise an estimated $400 million capital withdrawal from the organisation, or could, and repatriation to those shareholders.

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