The Australian: Pipeline giant cooking with gas on electricity diversification [March 31, 2006]

AUSTRALIA's biggest pipeline operator, Australian Pipeline Trust, has embarked on its first major diversification, paying $153 million for the under-performing Murraylink electricity interconnector between Victoria and South Australia.

APT chief executive Mick McCormack announced yesterday the company was the successful tenderer for the Murraylink system that includes the world's longest underground direct current high voltage interconnector running 180km between Berri and Red Cliffs near Mildura.

Murraylink was built in 2002 by the world's biggest electricity supply company, Hydro Quebec, on a business model predicated on carrying merchant supplies of electricity through an unregulated transmission link to meet shortages in South Australia, most notably during periods of hot weather.

It has a rated capacity of 220 megawatts.

The model did not work, partly because APT's 30 per cent owner, AGL, installed a gas-fired peaking plant at Hallett, 200km north of Adelaide, to help meet summer shortages, reducing the need to import electricity into South









Australia from other states. Murraylink's owners subsequently applied for the interconnector to be regulated by the Australian Energy Regulator.

Mr McCormack said yesterday that Murraylink was covered by an approved revenue cap until 2013 which provided a fixed annual revenue stream of around $13 million, while the established regulated asset base underpinned the certainty of revenues beyond 2013. He was particularly enthused that APT had acquired the assets well below their $180 million construction cost.

"Murraylink marks APT's first significant acquisition of a non-gas transmission asset and is a logical progression from natural gas pipelines into complementary energy transmission assets," Mr McCormack said.

"It is a low-risk operation and is an ideal asset to leverage off our skills and asset management experience."

It would reduce the proportion APT's revenue provided from the Moomba-Sydney gas pipeline from around 30 per cent to 28.

AGL has included its stake in APT as part of the suite of assets that would be incorporated in the energy business if it succeeds with its takeover for Alinta.

Yesterday, it was not clear whether AGL subsidiary Agility, which manages the APT assets, would extend its management contract to cover Murraylink.

Mr McCormack said the purchase was 100 per cent debt funded, which would take APT's gearing to 68 per cent "still comfortably within APT's current lending covenants of 72.5 per cent".

APT shares closed down 6c at $4.58, having traded as low as $4.49 after the announcement.