Power buy questioned

Northpower's Perth company will continue to make losses for at least another two years, despite millions of dollars being invested.

Northpower - which is owned by Whangarei and Kaipara power users -bought West Coast Energy Pty in June 2007 for $1.96 million.

It paid $3.78m to holding company Northpower Western Australia Pty in March 2008 for investment into West Coast Energy.

But West Coast Energy made a loss of $2.28m in the year ending March 2008 and $3m in the year ending March 2009.

Whangarei resident Les Turner, a former power board worker, questions the wisdom of the Australian venture.

"I think they've gone in over their head myself."

He questions why Northpower paid $1.96m for West Coast Energy when the price is 25 times the value of its net assets at $79,000.

"At 25 times the price of assets it must be a pretty good business. Shouldn't it be making money by now?"

Northpower chief executive officer Mark Gatland says West Coast Energy is expected to make a profit by 2011 but it has been hit hard by the global financial crisis.

Since Northpower took over, the business has grown hugely from eight employees to about 100, including many ex-pat Kiwis.

Training the workers and getting them accredited to work on the Western Australian network is "quite expensive", he says.

Mr Gatland says the aim is to build West Coast Energy so it can be a contractor to network company Western Power.

Traditionally, Western Power has increased its budget "quite dramatically" to cater for growth and the ageing power network, he says.

But in 2008, because of the financial crisis, its budget was cut.

The network is now seeking a $400m increase to next year's budget, says Mr Gatland.

That could see West Coast Energy's turnover rise up to $50m.

Mr Gatland says while breaking into Australia was always going to be tough, Northpower decided to do it because it has almost saturated the New Zealand distribution market.

Already Australia is showing signs of picking up from the recession a lot faster than New Zealand, he says.

"The original reasons for doing it are still valid.

"It's just a matter of managing our way through this point."

While Northpower has laid off about 90 staff in Auckland, Waikato and the Bay of Plenty, there have not been any redundancies in Australia or Whangarei.

But Mr Gatland says it is still uncertain in Australia and West Coast Energy is busy looking for sub-contracting work in other states.

Mr Gatland says the valuation of the business is not just based on its assets but also its potential returns and business prospects.

He says Northpower's overall market value is more than $300m, so the exposure in Australia is at a prudent level.

- © Fairfax NZ News