New-look NGC set to lose freedom

Despite having transformed itself into a smaller and more profitable company NGC now faces the prospect of being swallowed by new shareholder Vector.

NGC reported its interim result yesterday with chief executive Phil James, in his last week at the helm of the gas pipelines company, saying the repositioning of the company was complete.

All its businesses - which include energy metering, gas wholesaling and transmission - now operated in attractive markets, held key market positions and earned their cost of capital.

Just a few years ago, NGC was losing millions through its electricity retailing. It has since sold all its power stations, concentrating on just a few links in the gas supply chain.

Discussing the fall in profits for the past six months, James said cash flows were now strong and the 11.9 per cent drop in net earnings was largely due to a change in capital structure - the comparable 2003 period included a debt-free period when no interest payments were made.

As an appointee of former two-thirds shareholder Australian Gas Light, James will be replaced at the end of this week by Vector's former general manager of sales and marketing, Bryan Crawford.

Auckland energy networks company Vector bought AGL's shares in October, but could convince only a few other shareholders to accept its below-market price offer.

Since the close of the offer this month, NGC's share price has climbed from $3.13 to $3.20, as shareholders take a punt on Vector making a more generous offer to mop up the 23 per cent of shares it needs to get control of the company.

Vector, owned by Auckland power users, is partially privatising this year, raising up to $500 million to pay for its NGC purchase.

It will give its half-year results tomorrow.

Prospects of Government regulation of the natural gas distribution business has alarmed NGC and Vector, although NGC escaped Commerce Commission accusations of abusing a monopoly position.

A "threshold regime" proposed by the commission was unnecessary, said James, and a way of "gaining price control by stealth".

On the subject of possibly importing gas, James said a "window" for discovery of new indigenous supplies of natural gas to be found would last for up to two years.

Beyond that, decisions on new fuel sources would have to be made.

James said results from NGC's LPG business had been "stunning". Prices had risen to where local gas was on an equivalent with imported supplies.

There was scope for some "industry consolidation" in the LPG business.

New Zealand's biggest LPG retailer is Rockgas, owned by Australian company Origin Energy, which also owns 51 per cent of electricity generator and retailer Contact.