The next boom on listed markets is tipped to be driven by alternative energy sources, whether it’s the commercialisation of renewables or a big ramp-up in demand for less carbon-intensive options like coal-seam gas or gassified coal. But on the unlisted side, institutional investors are already positioning themselves and, as MICHAEL BAILEY discovers, in some cases enjoying boom-like returns.
Tim Hughes needs no convincing about the potential for coal-seam gas. The chief investment officer of Victoria’s Catholic Super fund was an early investor in ANZ Infrastructure Services’ Energy Infrastructure Trust (EIT), which in turn was a prescient early backer of the Queensland Gas Company (QGC), a provider of the emerging energy source known as coal seam gas. “We see coal seam gas as a major transitional technology in a carbon-constrained world,” Hughes says. “It’s got about half the carbon emissions of black coal and one-third the emissions of brown coal.”
QGC’s share price has soared off the back of proposals like its Queensland to Hunter Gas Pipeline. In the words of Lachlan Douglas from ANZ Infrastructure’s placement agent, Principle Advisory, this pipeline will “recast the power market on Australia’s Eastern seaboard.” The project definitely has something of the visionary about it. “To get gas from Queensland to Sydney at the moment, it has to go out via Moombah in [South Australia’s] Cooper Basin, a very round-about route. The direct pipeline through the Hunter Valley will halve the price of gas,” Douglas says.
In addition to its 5.6 per cent stake in QGC, the coal seam gas company has granted ANZ IS’s EIT the first and last rights of refusal to develop and own two gas-fired power stations in Queensland based on its coal seam methane reserves. “ANZ IS identified coal seam gas as an attractive energy source in early 2005, and our strategic alliance with QGC has not only been rewarding at a QGC share level, but we have also co-developed projects with QGC that have been valuable for both parties,” says ANZ IS managing director, John Clarke.
Just how “rewarding” is evidenced by the EIT’s internal rate of return (IRR), which is probably enough to bring tears to the eyes of investment committees who’ve missed out. “Since inception [February 2003] to 30 June 2008, EIT has earned a pre-tax IRR, post management fees, past performance fees and all operating costs, of 32.4 per cent. On a post 15 per cent tax basis, the IRR is 27.4 per cent,” Clarke says. “ANZ IS seeks superior risk adjusted rates of return by seeking proprietary deals, rather than competitive auctions, as well as investing in carefully de-risked development projects…