Cogeneration fuels merger growth - Business - Business - theage.com.au

Alinta and Australian Gas Light may jointly develop cogeneration projects following the completion of the reorganisation of the two companies.

Both companies have strong growth strategies, with Alinta chief Bob Browning saying Alinta could "conceivably be twice our size again in five years". AGL managing director Paul Anthony estimates "a 40 per cent growth in our asset base in the next four years".

The comments were made in separate interviews with The Age.

Cogeneration — using waste heat from industrial processes to generate electricity — has been an important growth area for Alinta. The company is building its second ($160 million) plant in Western Australia as part of a deal with Alcoa. Under the Alinta-AGL deal this week, the energy offtake from those plants will pass to AGL, but Mr Browning wants to develop more projects.

"We're shortlisted on cogen projects around the country" Mr Browning said. "I'm excited that we … have a new-found relationship with AGL … and they might be able to use the offtake." Alinta is shortlisted on three cogeneration projects.

AGL said cogeneration would be an important growth area, especially in helping derive extra value from its planned pipeline project in Papua New Guinea.

Alinta also has ambitions further afield. "We've already been to the UK a few times, sniffing around at gas and water assets," Mr Browning said, adding that investigations will continue.

Alinta would be able to act quickly on expansion opportunities when the companies' restructure is complete.

"Once this deal is done, we'll have a $6 billion-plus market capitalisation," he said. "We've raised $2.6 billion, we're only 50 per cent geared and will be in really strong shape from day one to do our next deal."

Mr Anthony said AGL's expansion plans revolved around energy sales. As a consequence, the company would not be a long-term holder of the $3.5 billion PNG gas pipeline that is scheduled to be built by 2009.

"Gas has to find a route to market and the PNG pipeline will do that," he said, adding that once the pipeline was in place and the market developed "we can on-sell the asset".

Queensland would be an important market for AGL because of both the PNG pipeline and the impending privatisation of the retail energy sector.

To date, the retail gas sector is underdeveloped, with only around 150,000 people being connected to gas networks.

However, the PNG pipeline will bring supply close to large populations down the coast, leaving the opportunity for further growth.

As well as retail gas supplies, the pipeline would bring new openings for cogeneration, heavy industrial projects and gas-fired power generation, he said.

A final deal on investment in the PNG pipeline would be made in the second half of this year. AGL would also consider increasing its stake in the gas fields that will supply the pipeline, but it would balance any extra gas exposure with sales contracts. "We'll never be wildcat drillers of prospective gas or oil wells," he said.

Buying a Queensland electricity player was also attractive. "Electricity is our main play and we will have 3.5 million customers (when the Alinta deal is completed)."

Mr Anthony said he did not see any competition issues in adding a Queensland business to its existing retail operations, because the markets were sufficiently discrete and there was adequate competition in each of the state markets in which AGL operated.

AGL shares fell 5¢, or 0.3 per cent, to $19.40 in Friday's trading, while Alinta shares shed 24¢, or 2.1 per cent, to $11.40.