ELEANOR HALL:
The owners of Hazelwood Power Station in Victoria today hit back at claims that the business is no longer worth the billions of dollars they paid for it.
International Power is in negotiations with the Victorian Government over the staged closure of the power station, which is one of the country's biggest greenhouse gas producers.
The compensation bill had previously been estimated at hundreds of millions of dollars.
But that estimate is now suspect because the Commonwealth Bank, which is a shareholder in Hazelwood, has substantially written down its investment in the power station.
In Melbourne, Rachel Carbonell reports.
RACHEL CARBONELL:
Hazelwood Power Station provides up to a quarter of Victoria's electricity.
But at almost 50 years old it is one of the country's oldest power stations, and it's one of the biggest greenhouse gas emitters, accounting for 13 per cent of Victoria's greenhouse gases and three per cent of the nation's.
The Victorian Government wants to close it down, and hopes to negotiate a compensation deal with the power station's owner, International Power.
Neither party has nominated a figure, but previous estimates have been put at hundreds of millions of dollars.
Environment groups say that figure need not be so high, after the Commonwealth Bank wrote down its investment in Hazelwood to just $1 million.
The write down was revealed after Greenpeace climate campaigner, John Hepburn, asked the bank about the value of its investment in the power station at the bank's annual general meeting this week.
John Hepburn says the write down is substantial.
JOHN HEPBURN:
Their share holding which is two per cent is now worth only $1 million, which is a massive write down. It's effectively worth nothing to them anymore.
RACHEL CARBONELL:
What had they previously valued it at?
JOHN HEPBURN:
I think when they bought it their initial valuation would have been somewhere between $30 million and $50 million, somewhere around there.
RACHEL CARBONELL:
Greenpeace and other environment groups like Environment Victoria say the write down means that the Commonwealth Bank doesn't anticipate significant revenue from Hazelwood Power Station anymore, from either its ongoing operations, or compensation from the State Government when the power station is shut down.
JOHN HEPBURN:
The Commonwealth Bank are not some fly-by-night small town operator, they are very cautious in their financial statements and they do it with good reason because I think they can see the writing on the wall.
Hazelwood Power Station does not have a future and International Power I think need to take responsibility for their poor investment as the Commonwealth Bank have done.
RACHEL CARBONELL:
The owner of Hazelwood, International Power, disagrees with this analysis.
Group manager for corporate affairs at International Power Australia, Jim Kouts, says CBA's write down has no effect whatsoever on the overall value of Hazelwood.
He says it's simply an accounting treatment that the bank has chosen to adopt in relation to its 2.1 per cent investment in Hazelwood.
JIM KOUTS:
It's their accounting treatment and their decision, it's a very small equity stake in the business. Certainly in our view there is absolutely no trigger from our perspective, and that's an issue for the Commonwealth Bank of Australia.
RACHEL CARBONELL:
Do you think that the Commonwealth Bank's write down has any implications for the value of the business and the asset?
JIM KOUTS:
Not at all. The simple fact is, we've acquired Hazelwood Power Station in 1996 from government with a 40-year life and we paid $2.35 billion, several hundred millions of dollars have been spent on this plant, improving its efficiency by more than 10 per cent.
So that's our simple starting point as to the valuation of this business.
RACHEL CARBONELL:
But Bruce Mountain from Carbon Market Economics, which advises companies and governments on energy and carbon policy, says the CBA's write down does have wider implications.
BRUCE MOUNTAIN:
What the current valuation is showing is that the expected future profits for the power station are likely to be low. Those expected future profits will be from the continued operation of the power station as well as any compensation payments that the power station might receive from the Government.
It's clear that by indication of that, they're not expecting sizeable payments from the Government for the closure of the plant.
RACHEL CARBONELL:
Given that neither Hazelwood's owner, International Power, or the State Government have given any indication of what a compensation package would be, how is it that the Commonwealth Bank is able to have this kind of insight in its own accounting?
BRUCE MOUNTAIN:
I think that the Commonwealth Bank, like other shareholders, need to forecast uncertain future outcomes and it's obviously their own particular forecast that they think this is the likely outcome of the future for the plant.
It certainly is a bold statement that they've made.
ELEANOR HALL:
That's Bruce Mountain from Carbon Market Economics ending that report by Rachel Carbonell.
And the Victorian Government says it is committed to beginning the staged closure of Hazelwood and it will do that by negotiating a fair price with International Power.