Wednesday, 22 August 2012

Electricity.... a perspective

Restructuring electricity companies

The discussion about power prices and the restructure of the State’s electricity sector often neglects the crucial role of the sector as a fiscal contributor to the overall State sector.

The affairs of the parent company, aka the General Government (GG), are usually discussed separately to the affairs of its subsidiaries, the wholly owned GBEs and State Owned Companies (SOCs) which together comprise the Total State sector.

The survival of any entity is inextricably linked to its net operating cash flow, in other words the cash revenue less the cash operating cash outlays.

The GG’s net operating cash flow for this year 2012/13 is expected to be $154 million. If one disregards capital grants the net operating cash flow for GG is only $45 million.

Included in GG’s operating cash is $233 million of dividends and income tax equivalents from the GBE/SOCs and also $34 million in guarantee fees, also paid as a consequence of the competitive neutrality requirements of national competition policy. Almost all these payments are from the three electricity companies for they are the only profitable ones (apart from MAIB) and their borrowings comprise 89% of all GBE/SOC borrowings upon which guarantee fees are based.

Without these payments from GBE/SOCs the GG’s net operating cash flow would be a negative $222 million. This is after payments for unfunded super liabilities but before capital and infrastructure payments, the latter this year budgeted to be $524 million, of which some, but certainly not all, will come from capital grants of $109 million, asset sales of $40 million and unspent capital grants from prior years.

GBE/SOC contributions are pretty important for GG.

Thursday, 9 August 2012

The second coming is more likely

Is Gunns likely to be a takeover target?

Highly unlikely. A takeover implies assuming all the contingent liabilities as well, the ATO debts, class actions liabilities etc. A buyer would need to be extremely desperate or badly advised to venture into that spider’s web.
If desperate buying assets and leaving the liabilities behind may be preferable.