Details of Govt underwrite for Huntly power station given

By CHRIS DANIELS

Details of a controversial Government underwrite for a new state-owned power station at Huntly have been disclosed for the first time.

Westpac is lending Genesis $675 million, with $520 million needed to build the new power station, alongside the existing coal-and-gas-fired station at Huntly.

Genesis, a state-owned enterprise, asked for the Government to help share the risk of the new power station, which would be left stranded if new natural gas fields were not discovered soon.

Known as "e3p" (energy efficiency enhancement project), the 385 megawatt station has been delayed because there has not been enough certainty about gas supplies.

The Government yesterday released information about its underwriting deal under the Official Information Act, but the actual amount of money it may be asked for has been kept secret.

A Treasury report, included in the release, says Westpac had put three conditions on its financing package, but the Government will not disclose what they are.

If there is not enough gas for the power station, then taxpayers will start paying cash to Genesis.

Government energy experts said that while other power generation projects would have happened if the Huntly plan was stopped, there were no others as certain, or as large. If built, it would mean a "substantial boost in the margin between generation supply and demand".

An August 12 Treasury report to Finance Minister Michael Cullen and Energy Minister Pete Hodgson said payments would be made directly to Genesis if there was any gas shortage.

Treasury officials did warn it was possible the deal could lead to other similar approaches to the Crown from those wanting it to share risks.

But Genesis gets the all clear from Treasury, which says the Government is only being put at the "lowest level of financial risk" by the deal.

Government support for one of its own energy SOEs, that is supposed to compete on a level playing field with private industry, is controversial.

Contact Energy chief executive Steve Barrett welcomed news of the new station in August, but said he would be concerned if "the taxpayer-backed guarantee were to blunt industry efforts to secure new gas sources".

"The rationale for the guarantee is difficult to assess because few details have been disclosed, and it has been developed without inviting alternative proposals."

The Government says any other company, not just a state-owned enterprise such as Genesis, could have asked for such an underwrite of a power station. It just happened that Genesis' plan was closest to completion and needed to start quickly.

"Because this is an exceptional situation, the Government has agreed to share a limited amount of risk with Genesis," Hodgson said.