Brookfield strengthens offering to ACCC to win support for $18.7bn Origin bid

The private equity giant has promised to ringfence assets after the ACCC hinted at concerns over some elements of its takeover offer.

31/10/2017: Eraring Power Station, New South Wales' largest coal-fired power station, is taking on extra coal and lifting output 10 per cent ahead of summer peaks. Hollie Adams/The Australian

Brookfield has promised to split its infrastructure business from the unit that develops renewable energy projects and separate its transmission operations from Origin Energy in a bid to allay concerns flagged by Australia’s Consumer and Competition Commission and win favour for its $18.7bn deal for the country’s largest electricity and gas retailer.

The ACCC in July revealed it was considering several elements of Brookfield’s joint bid with MidOcean for Origin, specifically highlighting the private equity giant’s infrastructure assets such as AusNet and its potential to adversely affect competition in Australia’s energy market markets.

The update was widely interpreted as the ACCC having scepticism towards the acquisition. In a move to allay those concerns, Brookfield has strengthened its undertakings - promising to split its renewable energy business from the infrastructure holding company and heightening the separation between Origin and AusNet.

Those commitments are designed to allay concern within the regulator that Brookfield could have unfair access to transmission line connections for existing and new renewable energy projects.

AusNet is Victoria’s principal electricity transmission network, and it is one of just five electricity distribution networks in Victoria and it is one of three gas distribution networks in the state.

Such concerns have been widely anticipated by the market, and Brookfield had already promised to ringfence AusNet but the new undertakings mark an attempt by the Canadian private equity giant to sway any concern within the regulator.

Brookfield and MidOcean earlier this month agreed to a short extension, allowing an extra month for the regulator to make a final decision.

The ACCC must now rule by the end of September. If the regulator rules against Brookfield and MidOcean, the consortium could appeal, which would prolong the saga through the courts.

The decision of the Australian Consumer and Competition Commission is a watershed moment for Australia’s energy transition plans.

Should the competition regulator approve the deal, Australia is likely to accelerate its transition away from fossil fuels.

Keen to satisfy the public interest test of the regulator, Brookfield and MidOcean said investment in new clean energy would now total between $20bn and $30bn to develop 14GW of new, large-scale generation and storage capacity in Australia, a warchest that Origin is unlikely to be able to match.

The spending commitment is likely to be alluring to many in Australia as the country struggles to meet its lofty ambitions.

Australia has set an ambitious goal of having renewable energy generate 82 per cent of the country’s electricity by 2030. But Australia is struggling to keep pace with the retirement of coal.

Such is the poor pace of developing renewable energy generation, Australia’s Energy Market Operator this week warned the country needed urgent investment or face a decade where reliable supplies of electricity to households and businesses could be guaranteed.

Brookfield and MidOcean have sought to leverage the pressing timetable, highlighting in addition its desire to expedite the deal, citing finance deals and the need to invest in renewable energy generation projects. But the regulator has shown no appetite to rush-through the acquisition, especially amid concerns about the impact on utility bills.

Should it clear the ACCC, the consortium will also need clearance from the Foreign Investment Review Board, but investors believe the competition test is the highest hurdle for the deal.