SYDNEY 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 Wollongong.
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 February 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 Generation.
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)