Origin bid on hold as gas industry mulls price cap and is accused of being “bunch of bullies”

The $18.4 billion bid for Australian utility Origin Energy has been delayed again as the proposed buyers seek more time to digest the newly imposed gas price cap, and as the competition regulator sends off a warning amid accusations of “bullying” behaviour by the gas industry.

The proposed takeover of Origin, arguably the country’s biggest utility on some metrics, promises to fast-track Australia’s already accelerating shift to renewables with Canada’s Brookfield Asset Management pledging $20 billion on new wind, solar and storage projects by 2030.

That commitment by Brookfield, along with the big plans by the likes of iron ore billionaire Andrew Forrest, and the increasing pressure on AGL and EnergyAustralia, will help meet the new 80 per cent renewables target adopted by the federal Labor government.

Brookfield is looking to buy just the utility and retailing business of Origin, and the deal depends heavily on another US company, MidOcean Energy, taking over the LNG business.

But the assumed returns on that part of the transaction could be impacted by the new $12/gj price cap imposed by the federal government for 12 months.

That price cap is imposed on domestic rather than international sales, and is designed as a circuit breaker to the soaring gas prices affecting Australian consumers as they mirror international contracts.

The gas industry has long stood accused of cartel like behaviour in many of its aspects, and big energy users have again accused it of acting like bullies.

“The gas industry is still behaving like a bunch of bullies and effectively looking like they’re withholding supply,” said Andrew Richards, CEO of the Energy Users Association of Australia (EUAA) told the Guardian. “You would only withhold supply if you had market power.”

Richards cited one large gas customer had gone to the market five times recently and failed to receive an offer. He noted that at $12 a gigajoule, suppliers would still enjoy a markup of 100 per cent, just not the five times windfall if they charged the price on export spot markets.

The Australian Competition and Consumer Commission on Tuesday issued a statement warning of $50 million fines, or even more, to ensure that the gas industry complied with the price cap.

“Our guidelines are intended to support the gas industry with their obligations to comply with the new laws, so the country experiences the intended benefits from these emergency measures,” ACCC chair Gina Cass-Gottlieb said in a statement.

“While our primary objective is to achieve compliance with these laws, we are ready to exercise our enforcement powers in response to any alleged contraventions, particularly if we become aware of conduct that may be intended to circumvent the price cap.”

Origin granted “exclusivity” to MidOcean and Brookfield as they crunched the numbers and conducted due diligence. That period was due to expire in December, and was extended to January 16 to accommodate the gas price cap announcement. It has now been extended to January 24.

The ending of the exclusivity agreement means that other parties will be allowed to look at the books if interested. Origin has set a condition that adds 3c a share to the $9 a share bid each month that the implementation of the offer goes beyond May 23.