Contact set to offload hydro scheme

By Mark Reynolds

Contact Energy has confirmed its intention to sell its investment in the loss-making Southern Hydro power scheme in Victoria, Australia..

Contact will at least break even on the sale, with its 40 per cent shareholder Edison Mission of the United States agreeing to underwrite any potential loss.

Edison has agreed to this because its purchase of a 40 per cent cornerstone holding in Contact earlier this year has forced the sale.

Edison already owned and operated a 1000 megawatt coal-fired plant in Victoria before buying into Contact, and having control of the Southern Hydro scheme in the same state would have given it a dominant position.

Contact managing director Paul Anthony said yesterday that there had been keen interest in his company's 27.7 per cent interest in the scheme.

Southern Hydro operates 10 hydro plants in the Victorian mountains and is a peak producer, meaning it produces only when demand is high and power is at its peak price. Over recent years the company has been making losses, although it has moved toward breakeven in recent months.

Contact manages and maintains the plants in the Southern Hydro scheme. It is unclear if Contact's partners in the scheme, Australian superannuation company Unisuper and Infratil Australia, will buy out Contact, although Infratil has expressed a desire to continue some ownership.

The three partners paid $A391 million for the assets in November 1997. That included taking on $A267 million of external debt.

The price was considered ritzy at the time, but the partners argued that they had secured a 30 year prepayment of some leases as part of the deal.