27 July 1998 The Australian Competition and Consumer Commission will not intervene in the acquisition by Energex of Allgas, ACCC Chairman, Professor Allan Fels, said today in Brisbane.
Allgas is a gas utility based in south-east Queensland which services approximately 80,000 customers and currently holds the exclusive right to supply natural gas in various franchise areas including the southern part of Brisbane. Energex is an electricity utility based in south-east Queensland and services just under one million customers.
At present, the only other franchise electricity retailer in Queensland is Ergon Energy. After reforms being implemented by the Queensland government, the customer franchises held by the existing electricity retailers are being progressively removed to enable users to either purchase electricity directly from generators or from other retailers. The first round of customers with consumption of 40 GWh/year or more became contestable in March this year. A further group of customers with consumption of 4 GWh/year or more are expected to become contestable on 1 October this year.
The entire Queensland market is expected to become contestable by January 2001. The ACCC undertook extensive inquiries with market participants including end users and other gas and electricity utilities. Based on the information available at this stage, the ACCC found that there are at present separate gas and electricity markets in Queensland. Since Energex and Allgas do not compete in the same market, the merger is not likely to have the effect of substantially lessening competition.
The ACCC also found that the gas and electricity industries in eastern Australia are undergoing substantial regulatory reform, and notes a number of initiatives by Australian governments such as moving to establish a national electricity market, implementing a national gas code on access to gas pipelines, as well as the ongoing programs in various states to progressively remove franchises held by incumbent retailers.
The ACCC notes comments by a number of gas and electricity retailers that they intend to provide a combined gas and electricity service to their customers. Notwithstanding these prospective developments, the ACCC found on the evidence available at present that the gas and electricity markets in Queensland have not yet converged to such an extent as to lead the ACCC to a conclusion that Energex and Allgas compete in the same market.
The ACCC takes a case-by-case approach when evaluating proposed mergers or acquisitions and will assess any future mergers or acquisitions involving gas or electricity assets in light of the information available when the merger or acquisition is proposed. NB: 1. Allgas was previously the subject of a takeover bid by Boral which also supplies natural gas in south east Queensland, notably in the northern part of Brisbane. Boral decided not to proceed with its bid to take over Allgas, saying that Energex's bid had gone beyond an amount which Boral was prepared to bid.
After extensive market inquiries, the ACCC had found that the acquisition was likely to substantially lessen competition and sought an undertaking from Boral not to proceed with its proposal to acquire Allgas. 2. Section 50 of the Trade Practices Act 1974 prohibits mergers or acquisitions which have the effect or likely effect of substantially lessening competition in a substantial market. Section 4G of the Act states that the term 'substantially lessen competition' includes 'preventing or hindering competition'.