APA's Hong Kong bidder may be open to re-regulation of gas network
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APA's Hong Kong bidder may be open to re-regulation of gas network

The Hong Kong-based company bidding for Australia largest pipeline network may ease concerns about domestic gas shortages by being open to more regulation of the critical energy infrastructure if its $13 billion offer wins approval.

On Wednesday, CKI made an $11-a-share offer for APA, which allowed it to conduct due diligence over the company. As part of its bid, CKI has already started working with the Australian Competition and Consumer Commission and the Foreign Investment Review Board.

CKI is being cautious in its bid for APA and has stated its willingness for greater regulation in the gas market.

CKI is being cautious in its bid for APA and has stated its willingness for greater regulation in the gas market.Credit:James Davies

The ACCC has called Australia’s gas markets broken, saying short supply caused in part by pipeline monopolies has led to high prices. It says the market needs greater regulation and price transparency in order to drive down prices.

APA owns 13 out of Australia’s 30 major gas pipelines that control the flow of the nation’s gas supply used for electricity and manufacturing. The rest are split mostly between Jemena and Australian Gas Networks. Only three of APA’s pipelines are regulated, while two are "lightly" regulated. The rest operate without regulated pricing or access conditions.

A source familiar with CKI said the company could be open to re-regulation of pipeline infrastructure to balance the market.

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CKI said it “has also been engaged with federal regulatory agencies with regard to the proposal and supports increased regulatory oversight and transparency in the gas transmission sector".

An unnamed source close to APA said while the language was nuanced, it is clear the group was open to re-regulation.

“CKI is being super cautious, they said they are happy owning regulated assets and the fact that APA currently owns unregulated assets show CKI is open to further levels of regulatory oversight than what was previously there,” he said.

The ACCC has been ramping up its efforts to regulate the gas market. In 2017, the Treasurer directed the ACCC to carry out a three-year inquiry into the gas market’s supply chain

APA's gas pipeline network.

APA's gas pipeline network.

“As part of this inquiry, the ACCC will continue to examine and report on the operation of gas markets, including gas transportation on pipelines,” the ACCC said.

It will also ensure pipeline owners cannot stop others from accessing gas pipelines.

As part of its bid, CKI is considering divesting West Australian assets, understood to be valued at more than $1 billion, which is aimed at ensuring supply competition remains in the state. WA pipeline infrastructure is split between APA and Duet – which is owned by CKI.

Citi analysts labelled regulatory risk as CKI’s major hurdle and showed little surprise the company would be open to greater regulation.

CKI said it would divest APA's West Australian pipeline assets if the takeover were successful, in order to maintain competition in the state.

CKI said it would divest APA's West Australian pipeline assets if the takeover were successful, in order to maintain competition in the state.Credit:James Davies

“We consider the large grid-like assets of APA on the east coast to be significant infrastructure for domestic gas supply, which is a politically sensitive topic, and therefore consider the risks to deal completion from regulators and politicians to be particularly acute,” Citi analysts said in an investor note.

“This is in spite of CKI clearly approaching this transaction with the intent to appease national security concerns, such as through its slated divestments and willingness for increased regulatory oversight and transparency.

“Through the CKI Duet transaction we learned that FIRB would take time to deliver its important verdict (around five months), but this time around could be more difficult for CKI, considering changes to the political landscape in the last 12 months.”

After the initial spike in shares following Wednesday's announcement, APA’s share price slipped 3.8 per cent to $9.62.