Legislative Assembly for the ACT: 2000 Week 8 Hansard (29 August) . . Page.. 2496..
MS CARNELL (continuing):
In February 1999 the Assembly did not support the motion for the sale of ACTEW. The government then pursued the alternative option of establishing a joint venture which did not require the sale of ACTEW's assets. In October 1999 the ACTEW board confirmed its support for the AGL proposal. On 9 March 2000 the Assembly enacted the ACTEW/AGL Partnership Facilitation Act 2000 to facilitate any future agreement between ACTEW and AGL to form a joint venture by way of partnerships for the provision of electricity and gas, and for the undertaking of certain water and sewerage operations and maintenance activities.
In his letter of 11 August 2000 recommending the joint venture to the voting shareholders, the Chairman of the ACTEW board has listed the following benefits: the increased scale of operations of the joint venture will strengthen the viability of the electricity business; the potential for losses will be reduced by transferring parts of the electricity trading risk; and the capacity of the joint venture to offer gas as well as electricity is considered to enhance competitiveness.
As ACTEW is contributing more assets to the joint venture than AGL, the parties have negotiated an equalisation payment. AGL will provide this payment as part of the transaction. The outcome negotiated is a minimum equalisation payment of $119 million. This is based on valuing the ACTEW contribution at $525.1 million and the AGL contribution at $287.1 million.
The value of the equalisation payment is expected to increase to $128.8 million, taking into account that half of ACTEW's $12 million employee leave liability will be met by AGL in the joint venture-in effect, a $6 million value transfer from AGL-and an estimated $3.8 million reduction in shared water and sewerage IT system service charges payable by the ACTEW residual company. In addition, the equalisation payment may increase as a result of a determination by the Independent Competition and Regulatory Commission, the ICRC, on the valuation of the initial capital base of the AGL network business. ACTEW and AGL have agreed that half of any difference between their agreed valuation of the AGL initial capital base and the final value determined by the Independent Competition and Regulatory Commission will be paid to ACTEW.
ACTEW and AGL, for commercial reasons, have agreed that AGL's initial capital base be valued at $251 million, while the draft ICRC determination values it at $170 million. If the final ICRC determination is at the same level, an additional equalisation of $40.5 million will be payable by AGL-that is, half of the $81 million difference between an ICRC determination of $170 million and the ACTEW/AGL agreed figure of $251 million. If the final ICRC determination is set at $251 million then no additional equalisation payment would be required. This final determination is expected in October this year.
The asset valuation methodology adopted by ACTEW's advisers has been independently reviewed by KPMG. They have verified that the methodology is appropriate and has been applied correctly. A copy of the KPMG report is included in the documents that I will seek to table at the end of this speech. KPMG undertook a desk top analysis. They were not tasked to undertake a full valuation.