Fran O'Sullivan: Spot the real strategic asset

Tag: LPG Generator

BG Groups's $15.8 billion takeover bid for the parent of Contact Energy throws open the question of whether the Labour-led Government will try to bring New Zealand's only listed power generator back under state ownership.

As the country hunkers down to face another cold winter made more difficult by the prospect of electricity blackouts, it's a fair bet the Beehive's occupants will again be wondering whether this is the opportune time to get Contact Energy firmly back under state control by buying it from BG Group in a post-takeover mop-up.

There are two basic arguments that would make this move attractive to the Government (although its ability to do much with an election pending might weigh against this prospect).

It would enable the Government to restore New Zealand's integrated electricity system and better co-ordinate moves to offset greenhouse gas emissions without delivering bumper windfall gains to Contact's shareholders at the expense of electricity consumers.

Most analysts believe BG Group's bid for Australia's Origin Energy, which owns 51 per cent of Contact, is a resource play to get control of Origin's major coal seam, gas and LPG assets within Australia.

Under New Zealand takeover laws the giant British group (previously British Gas) must make an offer to Contact's other shareholders if it succeeds in grabbing control of Origin. But many analysts believe BG won't stick around and is more likely to flick its major stake in Contact on somehow. Already there are suggestions that potential buyers could include Macquarie Bank or Hong-Kong based Chinese company CLP Holdings.

But there are a few hoops to pass through yet.

BG will need to gain approval from Australia's foreign investment review board, not just from shareholders, for the acquisition to take place - and the Rudd Government is expected to put its oar in along the way.

There are also obvious foreign ownership sensitivities in New Zealand. Finance Minister Cullen introduced new foreign ownership criteria earlier this year to block the sale of Auckland International Airport. These now require the Overseas Investment Commission to assess whether any foreign ownership application involving important strategic infrastructure assets on sensitive land assists New Zealand control.

The Government will not want to tempt shareholder wrath again by thwarting any potential takeover in the same way - particularly as the electricity-generating asset has already been through two sets of foreign majority owners, the very argument Cullen used to avoid intervention in the sale of Vector's Wellington power network.