NSW electricity privatisation enters final stages

The sale of the New South Wales government-owned Macquarie Generation is getting nearer to completion with ERM Power (ASX: EPW) advising the market that it had been shortlisted by the NSW government for the final round of the sale process. Currently ERM Power — which is Australia’s fourth largest buyer and seller of electricity — supplies around 30% of the energy requirements for NSW via two baseload power stations.

In commenting on the potential acquisition, the Managing Director of ERM, Mr St Baker noted that, “At the right price, generation can increase financial returns and deliver significantly vertical integration benefits. These include improved hedging efficiency through greater use of physical hedges, accelerated sales growth, greater contracting flexibility and a significant reduction in prudential and working capital.”

Given the strategic nature of the Macquarie Generation asset, ERM is expected to be up against some still competition including from AGL Energy (ASX: AGK), which according to reports has also been shortlisted. Fellow electricity provider Origin Energy (ASX: ORG) is not believed to be bidding as in August it completed the acquisition of Eraring Energy, another NSW government-owned power generation asset.

According to figures released by the NSW Audit Office, the combined profits from NSW’s electricity assets rose around 50% to $1.54 billion in the year to 30 June 2013, which highlighted why these types of assets are so coveted. With NSW’s electricity retailing operations now privatised and the power generating assets nearly all privatised, the NSW government is expected to in the not-to-distant future to also put the remaining power distribution assets up for sale.

Foolish takeaway

While the price paid of course matters, the opportunity to purchase strategic assets being sold by the government can be very appealing and only happens once. The benefits that could accrue to shareholders from the current round of asset privatisations have the potential to boost incremental shareholder returns for years to come.

Power up your portfolio!

Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

Motley Fool contributor Tim McArthur owns shares in Origin Energy.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.