12 October 2015
by Michael Smith

'Messy' policy makes Australia risky: CLP's Richard Lancaster

Hong Kong-based power generation giant CLP Group says Australia is a riskier country to invest in than China or India because of its constantly-changing energy policy which has been held hostage to bipartisan politics and a revolving-door prime ministership.

In a blunt assessment of Australia's sovereign risk record, CLP's Australian-born chief executive Richard Lancaster said China and India were more attractive places to invest for the long-term because of their stable and transparent energy policies.

"If we invest in China and India we know where the policy is heading and we know with some degree of certainty that the policy will stay there. Effort is made to make it clear and transparent," Mr Lancaster told The Australian Financial Review in an interview.

"In Australia the policy changes too frequently, with every change of government or change of prime minister there is a change in policy.

"As an Australian and having started my career in the energy industry in Australia and having moved around the world, it is quite sad in a way to be reflecting on investment in Australia in that light."

CLP owns EnergyAustralia, the country's third-biggest electricity and gas retailer, but is switching its investment focus to China and India, where it owns coal, gas and renewable assets.

Mr Lancaster's comment highlights growing concern in the energy sector around the lack of clear policies around carbon emissions and the Renewable Energy Target. Ironically, China and India are usually regarded as riskier countries to invest than Australia.

Weak prices
CLP is seeking to restore value in EnergyAustralia, where earnings were declining due to weak prices, tough competition, and industrial relations problems at its biggest generator, the Yallourn coal-fired station in the Latrobe Valley.

EnergyAustralia chief Catherine Tanna who joined the company in July last year has been selling some assets and reshaping the portfolio in an effort to restore value in the company.

CLP ditched a plan in 2012 to raise about $3 billion through a partial initial public offering of the Melbourne-based company, formerly TRUenergy.

Mr Lancaster did not rule out revisiting an IPO but ruled out splitting up the Australian business.

"I wouldn't say it [IPO] is out of the question but our focus on the near term is getting the business performing well and running smoothly. If and when the market conditions are right it does present an opportunity to us," he said.

CLP is Hong Kong's main electricity provider and owns power stations in southern China. Mr Lancaster, who has been based in Hong Kong for 23 years, said he saw enormous opportunities in China, where it is investing in clean coal and renewable energy with a 25 to 30-year timeframe on expected returns.

Short election cycles
"That clarity and certainty is important. In many developed economies around the world the energy industry is going through a transition.

"It can be done in an orderly way as it is in China and even in India or it can be done in a very confused and messy way, which is what we are seeing in Europe and Australia."

He did not comment on the impact of last month's Coalition leadership spill but said Australia's problem was its short election cycles and lack of bipartisan support for energy policies.

"What is more important for policy in Australia is to see bipartisan support so at least if there are changes in government there is a stronger chance the policy will stay there," Mr Lancaster, who still visits Australia about once a month, said.

He also said Australia's over-supply of generation and falling electricity demand meant there was no case for investment in renewable energy.

In 2007, CLP set a target to reduce its carbon intensity by 75 per cent by 2050. It is shifting to more efficient coal and matching that investment in renewables such as solar and wind.

Mr Lancaster also said there were potential opportunities to build on CLP's relationship with China's state-owned enterprises, which are going through a privatisation process, and team up with them to invest in other countries. Australia was not on the radar though.

He said he was not worried about the slowing Chinese economy and said there was still a shortage of electricity supply in some of the country's manufacturing centres. CLP is relatively small compared to some of China's state-owned power giants such as State Grid and China Southern.

He said there was some way to go with the refocus of the EnergyAustralia business onto its retail operations but it was making progress.

"We have the scale now to get the efficiencies to be providing the service the customer wants in a cost effective way. So with that refocus of our business we've still got a long way to go but we are making good progress."