Bank slashes value of share in Hazelwood

Age
Wednesday 27/10/2010 Page: 7

DOUBTS have been cast over the value of one of Australia's "dirtiest" power stations after the Commonwealth Bank announced it had all but written off its share in the plant. Responding to a question at the bank's annual meeting in Sydney, Commonwealth Bank chairman David Turner said it had written down its 2% holding in the Hazelwood coalfired power plant in the Latrobe Valley to just $1 million. It is a fraction of what the bank paid for its stake in the plant understood to be about $25 million when the state government privatised the electricity industry in 1996.

The dramatic write-down comes as the Brumby government negotiates with the plant's majority owner, International Power, on a compensation package to close a quarter of its generation by 2014. A Commonwealth Bank spokesman told The Age that it had written down its investment based on a recent assessment of its market value, as per standard accounting requirements. The value of coal-fired plants has been written down around the world as steps are taken to lower greenhouse gas emissions.

Environment groups said the shift would increase pressure on International Power to also write down its 92% share in the plant. While it declines to comment publicly on the plant's value, the company is believed to put its book value at about $2 billion. Greenpeace climate campaigner John Hepburn said the Commonwealth Bank valuation suggested it believed the whole plant could be worth as little as $50 million.

Environment Victoria campaigns director Mark Wakeham said the write-down paved the way for the state and federal governments to close the entire Hazelwood plant sooner than planned. "The Commonwealth Bank can see the writing on the wall", Mr Wakeham Investment managers warned against a simple extrapolation of Hazelwood's value based on the Commonwealth Bank write-down.

Colonial First State, which indirectly holds a roughly 6% share of Hazelwood on behalf of a number of super funds, said there had been no change to the value of its holding in the plant. Mr Turner said the Hazelwood holding had not been one of the group's "best" investments and was not part of its core stakes. A state government spokeswoman said talks with International Power were under way, but would not comment on the plant's value.

"The Brumby Labor government is the only party committed to begin the phased closure of Hazelwood, and we'll do that by negotiating a fair price with International Power", spokeswoman Fiona Macrae said. International Power corporate affairs manager Jim Kouts said the Commonwealth Bank decision would have no effect on the overall value of Hazelwood. "In effect, we're talking about an internal accounting treatment of the bank's investment and in our view there is currently no trigger for this impairment decision", he said. He said the company bought Hazelwood for $2.35 billion and, with state and federal blessing, had invested significantly more to improve its efficiency.