* Ruling is a blow to New South Wales asset sale program
* NSW says power firm won't go ahead in current form
* AGL shares slip as company and NSW assess decision
(Adds government and AGL reaction, share price, deal context)
By Byron Kaye and Lincoln Feast
SYDNEY, March 4 An Australian regulator blocked
a A$1.5 billion ($1.34 billion) deal by New South Wales to sell
a power company on competition concerns, dealing a blow to the
state's plans for a series of asset disposals this year to fund
new road and rail projects.
In a widely expected ruling, the Australian Competition and
Consumer Commission said on Tuesday the state government's plan
to sell Macquarie Generation to AGL Energy Ltd would
have stifled competition in the country's most populous state.
As shares in AGL fell on the news, the New South Wales
government said the sale "will not proceed in its current form".
"We are not involved in a desperate fire-sale," New South Wales
treasurer Mike Baird said in a statement, sticking to the
state's previous stance that the company will only be sold for
more than its book value.
The state government last month ruled out rival bids from
Brisbane-based ERM Power Ltd and Japan's Marubeni Corp
, saying only AGL offered to pay more than the asset's
retention value. AGL said it was reviewing the regulator's
reasoning before deciding on its response.
New South Wales has already earmarked smaller energy firm
Delta Electricity, which owns two power stations, and the Port
of Newcastle for sale this year to fund its plans to improve the
state's transport infrastructure. The state government has
identified a total of about A$85 billion in potential asset
sales over the next five years.
The regulator's decision on Macquarie Generation comes a
year after the New South Wales government netted A$5 billion
from the sale of Port Botany in Sydney and Port Kembla in
In its ruling on Tuesday, the regulator said allowing AGL to
buy Macquarie Generation, which supplies 27 percent of New South
Wales's electricity, would mean the state's three biggest energy
retailers would own up to 80 percent of its energy generators.
That would raise "barriers to entry and expansion for other
electricity retailers," the regulator said.
The decision comes as a blow to AGL. The company was
counting on the acquisition to step up its competition with
Sydney-based Origin Energy Ltd and Hong Kong-based CLP
Holdings Ltd's Energy Australia on selling power to
retail customers. AGL shares were down 2 percent in early
trading while the benchmark index was flat.
In a Feb. 26 interview with Reuters, AGL Chief Executive
Michael Fraser said he was confident the company cleared
regulatory hurdles and it was "premature" to say if he would
take the commission to court in relation to Macquarie
In 2003, the company successfully mounted a Federal Court
challenge of the regulator's ruling against its purchase of
one-third of a Victorian power station.
"If we need to defend it in court, we will," the regulator's
chairman Rod Sims told a local television station in an
interview on Tuesday morning.
($1 = 1.1194 Australian dollars)
(Reporting by Byron Kaye and Lincoln Feast; Editing by G Crosse
and Kenneth Maxwell)