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Trevor St Baker tears into foreign bidding for Loy Yang B power plant

Trevor St Baker tears into foreign bidding for Loy Yang B power plant

Power industry maverick Trevor St Baker has gone on the offensive in the race to buy the $1 billion-plus Loy Yang B coal generator in Victoria, pointing out that the foreign ownership conditions imposed on bidding should rule out either of his two 100 per cent Chinese-owned rivals.

Mr St Baker, whose Delta Electricity is one of three bidders vying for the Engie-controlled power station, revealed that the Foreign Investment Review Board conditions on Delta's bid stipulated that Australian ownership must not fall below 56 per cent.

He also suggested that Alinta Energy, one of the two Chinese-owned rivals, could not be regarded as an appropriate owner for Loy Yang B given its track record of closing and demolishing the last base-load coal-fired generation in South Australia, the Northern plant, which kicked off the surge in wholesale electricity prices across the national market.

But as reported in Street Talk, Alinta, now owned by private Chinese player Chow Tai Fook Enterprises, is said to have secured FIRB approval to buy Loy Yang B, moving it ahead of Chinese state-owned rival China Resources.

Both the bids from China Resources and Alinta are understood to be higher than the offer from Delta, which is bidding in a consortium with private equity giant Apollo Global Management. The auction process is being run by Rothschild Australia on behalf of France's Engie and Loy Yang B co-owner Mitsui & Co.

Broader definition

China Resources is understood to have tabled the highest offer, of about $1.3 billion, but has so far been unable to secure FIRB approval.

Foreign investment approval to buy the plant, which supplies close to 20 per cent of Victoria's energy needs, was complicated by a widening in the definition of the critical energy infrastructure in the wake of the energy crisis gripping the national market. Draft legislation released in October revealed that power plants are now included as critical energy assets, not just networks.

At the time, the development was seen as posing problems for the ambitions of China Resources, as a foreign state-owned entity. But Mr St Baker's revelation about the minimum Australian ownership condition indicates that Alinta would also face problems even if its owner is a private entity.

Delta, which is one-third foreign owned, has revealed that a condition of its FIRB approval is that it cannot dilute its Australian ownership and control to less than 56 per cent, consistent with announced policies of the government.

The speculation that Alinta has secured FIRB approval to buy Loy Yang would point to the approval having been granted on less restrictive foreign ownership conditions than Delta.

Mitigating issues

Mr St Baker said he was concerned that there seemed to be a campaign to legitimise different foreign-ownership conditions on foreign-owned companies involving a critical electricity generation asset compared with Australian entities.

He said he understood that in some cases for foreign ownership applications the appointment of Australian-resident directors could mitigate foreign-ownership issues by ensuring control by a majority of local directors of the foreign-owned company.

He said that while this might be appropriate in a case where there was no competing Australian investors, it seemed totally inappropriate in the case of critical national infrastructure assets, or where there was active local investors meeting the strict letter of foreign investment conditions.

Delta is already in the spotlight because of its cut-price $1 million acquisition of the Vales Point coal generator in late 2015 from the NSW government, an asset that has reportedly since been revalued at $730 million. The more than 700-fold increase in the valuation of the plant has resulted in the deal being referred to the NSW Auditor-General.

Financial Review

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