APA Group · ASX:APA
APA — Australian Pipeline Trust — Australian Energy & Utility Summit 2003
38 slides from APA's conference presentation, Jul 10, 2003
Slide 1: Improving the Gas Access Regime and the National Gas Code
Improving the Gas Access Regime and the National Gas Code Australian Energy & Utility Summit J K McDonald Australian Pipeline Trust (APA) 10 July 2003
Slide 2: Legend
LEGEND Transmission Pipelines ee < ——$————> 2003 FUTUFE: seesencnesennnes O
Slide 3: Pipelines privatised during 1990s
Pipelines privatised during 1990s Pipeline Name Year Regulatory status & State sold MSP, C’wealth 1994 Covered – revocation application PASA, SA 1995 Covered – under appeal SGP, Qld 1997 Covered – tariff derogated DBNGP, WA 1998 Covered – Supreme Court action, draft decision reissued, decision to be
Slide 4: Major pipelines constructed during '90s
Major pipelines constructed during ‘90s Pipeline Name Built Regulatory status Basis of decision to & State construct ICP, NSW-VIC 1998 Covered – rolled into Marginal economics market EAPL and GasNet connector EGP, NSW-VIC 2000 Not covered – revoked on Negotiated contracts appeal CWP, NSW 1998 Covere
Slide 5: Major pipelines constructed during '90s
Major pipelines constructed during ‘90s Pipeline Name Built Regulatory status Basis of decision to & State construct CGP, Qld 1998 Covered – tariff Agreement with derogated Government. SWQP, QLD 1998 Covered – tariff Agreement with derogated Government. RBP LOOP, 2003 Covered – tariff Agreement with
Slide 6: Minor pipelines constructed during '90s
Minor pipelines constructed during ‘90s Pipeline Name Built Regulatory status Basis of decision to & State construct Cannington, Qld 1998 Not covered Contract with BHP Mine. Riverland, NSW 1999 Not covered Greenfields Gas Market Katnook, Vic- 1991 Not covered Katnook Gas Development SA SWP, Vic 1999
Slide 7: Transformation of gas transmission industry: 1990-2003
Transformation of gas transmission industry: 1990-2003 • Three pipelines built anticipating regulation: – Interconnect NSW - VIC – South Western pipeline, Vic – Central West pipeline, NSW • Expansion outcome of radical industry change: privatisation and private sector development • Expansion not fac
Slide 8: Pipelines in planning
Pipelines in planning Pipeline Name & State Basis of decision to construct Telfer, WA Contract with Telfer Mine CH4, Qld * Contract with Power Station Blacktip to Gove, NT Proceed only on basis of sufficient foundation revenues contracted Tamworth, NSW Proceed only on basis of sufficient foundation
Slide 9: Gas transmission industry 2003: impact of Code
Gas transmission industry 2003: impact of Code • Negative investment climate, litigation • Pipelines originally covered - 22 successful obtaining revocation, 2 seeking revocation • Overseas businesses exited Australia • Disputation and controversy on covered pipelines – NT Gas, DBNGP, MAP, GasNet, M
Slide 10: Gas transmission industry 2003: impact of Code
Gas transmission industry 2003: impact of Code • Amadeus/ NT Gas pipeline “..draft decision analysis suggests that if the access arrangements were approved... consumers and industry would face excessive energy charges…which could discourage investment and harm the NT’s economy” (final decision) “As
Slide 11: Gas transmission industry 2003: impact of Code
Gas transmission industry 2003: impact of Code • Dampier to Bunbury pipeline, WA – Epic purchased from State Govt. for $2.4B – tariff reductions, $125M capacity expansion – OffGar draft decision demands lower tariffs – Supreme Court admonishes OffGar: failure to consider circumstances of DBNGP purch
Slide 12: Gas transmission industry 2003: impact of Code
Gas transmission industry 2003: impact of Code • Moomba-Adelaide pipeline: appeal • GasNet, Vic: second determination, under appeal • Moomba-Sydney: coverage revocation application • Qld: NCC seeking to dismantle derogations, recognised in 1997 Access Agreement: “..reference tariffs..will be..taken
Slide 13: Gas transmission industry 2003: impact of Code
Gas transmission industry 2003: impact of Code • GGT, WA: owners’ defending their rights under state agreement • Only three pipelines carrying gas/ tariffs devised under Code –MAP –CWP: Insignificant –GasNet: VENCORP imposed costs resulted in total cost of haulage greater than 5 years ago 13
Slide 14: Regulation: achievements and shortfalls
Regulation: achievements and shortfalls • Most pipelines not regulated • Regime costly, inefficient, intrusive • No effective reduction in cost of gas transmission • Interpretation of Code has led to uncertainty and capital revolt • Growing body of legal precedent –EGP revocation –DBNGP, “Regulator
Slide 15: Regulation: achievements and shortfalls
Regulation: achievements and shortfalls • 3 largest pipeline owners public positions on new pipeline developments: – Duke Energy, no new pipeline investments – Epic Energy, will build, but only for foundation contracts with no additional capacity – APA, will build with additional capacity, but only
Slide 16: Regulation: is it necessary?
Regulation: is it necessary? • Present model assumed: – Australia same as UK, US, Europe – gas transmission same across all states – gas transmission same as natural gas distribution • Australia an immature market • Each pipeline is different • Paper recommended 15 yrs “regulatory holiday” for Green
Slide 17: Reviewing the Gas Code: outcomes for investment certainty
Reviewing the Gas Code: outcomes for investment certainty • Code may not need to change greatly • Reduce scope for inappropriate regulatory discretion • Need to understand impact of Code on investment • Assess costs and benefits of regulation • Test distribution vs transmission 17
Slide 18: Reviewing the Gas Code: outcomes for investment certainty
Reviewing the Gas Code: outcomes for investment certainty • Consider validity of public assertions of monopoly abuse, market power & benefits to industry of regulation • Assess relationships between regulators • Accountability of regulator(s) • Alternative policy approaches to transition issues 18
Slide 19: Reviewing the Gas Code: specific changes
Reviewing the Gas Code: specific changes • Clearly understood objects clause • Modified coverage test • Range of access pricing models • Effective merit appeals • Clearer incentives for efficiency and productivity • Eliminate inflammatory nonsense in media 19
Slide 20: Conclusion
Conclusion: • Benefits from competition reform in gas have not resulted from regulation of transmission pipelines • Regulation inhibits development of a sophisticated, innovative market based on a national grid accessing Australia’s vast supplies of natural gas • Regulation should provide incentives
Slide 21: www.pipelinetrust.com.au
www.pipelinetrust.com.au
Slide 22: J. K. McDonald, Managing Director, Australian Pipeline Trust
J. K. McDonald Managing Director Australian Pipeline Trust 1
Slide 23: Speaker notes: Improving the gas access regime and the National Gas Code
Australian Energy and Utility Summit – 10 July 2003 TOPIC: Improving the gas access regime and the National Gas Code • What regulatory changes are required to encourage development of the gas Pipeline network and encourage investors? • The need to balance short and long-term consumer interests • Wha
Slide 24: Speaker notes: Productivity Commission review
Access Code by the Productivity Commission, announced by the Federal Treasurer on 13 June. With 12 months to complete this review, the Australian Pipeline Industry Association will be actively involved throughout the various stages of deliberation. It’s our hope that the review will address our conc
Slide 25: Speaker notes: Governments banked $4.55B from pipeline sales
Governments banked a total of $4.55B through the sale of gas transmission pipeline assets – “accelerated taxation” is one way of thinking of it. You will notice that all those pipeline s are covered by the code – Every decision is in dispute: one has already been to the courts and two more could get
Slide 26: Speaker notes: Victorian gas transmission system
Victorian gas transmission system. In Victoria the old Gas and Fuel system was unbundled and driven to work as a Government Business Enterprise (GBE) before a deferred sale, and sold with regulation attached. The ACCC has argued on many occasions that pipeline companies have continued to invest in p
Slide 27: Speaker notes: Major pipelines constructed during '90s
Slide 4 Major pipelines constructed during ‘90s Pipeline Name Buil Regulatory status Basis of decision to & State t construct ICP, NSW- 1998 Covered – rolled into Marginal economics VIC EAPL and GasNet market connector EGP, 2000 Not covered – revoked Negotiated contracts NSW-VIC on appeal CWP, NSW 1
Slide 28: Speaker notes: Minor pipelines constructed during '90s
Slide 6 Minor pipelines constructed during ‘90s Pipeline Name Built Regulatory Basis of decision to & State status construct Cannington, Qld 1998 Not covered Contract with BHP Mine. Riverland, NSW 1999 Not covered Greenfields Gas Market Katnook, Vic- 1991 Not covered Katnook Gas Developme SA SWP, Vi
Slide 29: Speaker notes: Expansion of the transmission network
The expansion of Australia’s gas transmission network has been a very positive outcome of radical industry change: privatisation and private sector development. Expansion has not been facilitated or supported in any way by the regulatory regime imposed in 1997. Indeed, the ACCC published Greenfields
Slide 30: Speaker notes: Impact of the Code in 2003
Slide 9 The gas transmission industry in 2003: the impact of the Code Let’s now consider the features of the industry and pipeline development since the introduction of the Code in 1997. Five years on and what do we have? • A negative investment climate, capital withdrawn, suboptimal gas infrastruct
Slide 31: Speaker notes: Amadeus/NT Gas pipeline
Slide 10 (cont’d – Gas transmission industry 2003: impact of Code) • The Amadeus/ NT Gas pipeline, 1600km, 17PJ for the NT Government. It has taken nearly 3 years for a final decision on tariff to be reached. At the time of the release of the Draft Decision, back in May 2001, the ACCC attacked NT Ga
Slide 32: Speaker notes: Moomba Adelaide, GasNet and Queensland pipelines
Slide 12 (cont’d – Gas transmission industry 2003: impact of Code) • The Moomba Adelaide Pipeline, which has a final determination currently under appeal. • the GasNet system, Victoria, which is the only pipeline to have a second Determination and is under appeal. • and the Moomba Sydney pipeline sy
Slide 33: Speaker notes: Most pipelines are not regulated
So, five years since the code was introduced, only two major pipelines as of 30 June 2003 are carrying gas with tariffs devised from the Pipeline Access Code. The first is the Epic Moomba Adelaide pipeline. The second pipeline system is GasNet, Victoria. In Victoria the price of hauling gas has been
Slide 34: Speaker notes: Pipeline owners' positions on new development
Consequently, the three largest owners of pipelines have distinct and public positions on new pipeline developments. Duke Energy announced they won’t invest in any more pipelines under the present regime. Epic Energy’s last stated position is they will build new pipelines, but those pipelines are on
Slide 35: Speaker notes: Parer review and what needs to change
further supported by the Parer Energy Market Review which recommended a 15 year holiday for Greenfields projects. What needs to change? We won’t be able to change the glee of the bureaucrats charged with the sale of those assets in the past; governments have long since banked the cheques from those
Slide 36: Speaker notes: Reviewing the Gas Code
believe that sufficient differences exist between gas transmission and gas to warrant separate regulatory consideration. Most critical is the need to reduce the scope under the Code for inappropriate regulatory discretion which, as I’ve discussed, introduces unacceptable levels of risk for investors
Slide 37: Speaker notes: Elimination of inflammatory media positioning
• The elimination of inflammatory nonsense in the media positioning of Regulators. 16
Slide 38: Speaker notes: Conclusion
Slide 20 CONCLUSION: The benefits that have flowed from competition reform natural of the gas transmission industry have not been the result of regulation of gas transmission. Pipeline investors have contributed greatly to the transformation. This industry invested nearly $10 billion through the 90’
Australian Pipeline Trust — Australian Energy & Utility Summit 2003 on 6ix