Incitec Pivot calls for energy shake-up as annual profit sinks 27pc

Explosives and fertiliser maker Incitec Pivot’s call for more to be done to free up gas for east coast.

Workers at Incitec Pivot's Gibson Island plant. Picture: Lyndon Mechielsen

Incitec Pivot has called for changes to Australia’s gas export trigger to free up more gas for the east coast market amid high prices and tight supplies.

The explosives and fertiliser maker – which blamed elevated gas tariffs for contributing to a fall in annual profit on Tuesday – said the federal government needed to take a tougher stance and broaden the mechanism to include a price mechanism.

“The Australian Domestic Gas Security Mechanism was put in place to make sure when the LNG export facilities were built it wouldn’t impact domestic markets,” Incitec Pivot chief executive Jeanne Johns told The Australian.

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“Our view is it is absolutely clear that it has impacted the domestic market and the price is an indication of shortage of supply. We believe that at least in the short term as a transition – in order to get the supply in the local market - it should be triggered on pricing.”

The ADGSM can direct Queensland LNG exporters to divert supplies to the local market if a shortfall is forecast for the following year.

It has been overseen by Resources Minister Matt Canavan as a response to tight domestic supplies on the east coast but has not yet been triggered since it was introduced in July 2017.

Critics including big industrial users argue the mechanism has done little to ease high local gas prices but major LNG producers like Origin — which owns a 37.5 per cent stake in the $25 billion Australia Pacific project in Queensland — say gas is flowing to local manufacturers and government intervention only serves to heighten policy uncertainty.

Incitec in June secured a three year gas deal with Origin to prolong the life of its Gibson Island ammonia plant in Brisbane until 2022 but said it still harbours concerns over the east coast market, flagging the need for a regulatory reset including domestic gas reservation measures.

The Bill Shorten-led Labor had proposed a price trigger to be introduced to the ADGSM and Mr Canavan is weighing the issue as part of deliberations over a review of the policy measure currently underway.

Ms Johns said a price clause could be a valuable way of resetting the market.

“The fact is supply and demand always balances out – it’s economics 101 - and they balance out based on price. So when supply is short the price goes up and it kills demand. Killing demand is stopping value add. That’s what killing demand looks like.”

Incitec Pivot on Tuesday recorded a 27 per cent drop in its annual profit after the chemicals and explosives supplier was hit by rail problems, significant manufacturing outages and elevated natural gas prices in Australia.

Net profit fell to $152.4 million in the 12 months through September from $207.9m the year before, though revenue increased by 1.6 per cent to $3.92bn from $3.86bn.

Earnings before interest and tax declined to $303.7m in the year from $556.7m, after being squeezed by $197m in one-time items as well as persistent drought conditions in east Australia that have affected its fertilisers operations.

The company, which supplies explosives to the mining industry, industrial chemicals and is one of the biggest fertiliser producers in Australia, said it would pay a dividend of 3.4c per share for the second half of the year. That takes the full-year payout to 4.7c, a

sharp drop on the 10.7c a share paid the previous year.

In September, Incitec Pivot said it was launching a strategic review of its Asia fertiliser business and would consider selling or spinning off the assets, which manufacture, import and distribute fertilisers including urea and ammonia in Australia.

On Tuesday, the company said it expected to make a decision on the future of the business in the 2020 financial year.

Incitec shares fell 1.7 per cent to $3.53.

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