Energy Australia: four years, $30 billion, zero tax

by Michael West | Dec 31, 2018 | Energy & Environment, Finance & Tax

Energy Australia is owned by a company in the infamous tax haven of the British Virgin Islands. For the fourth year on the trot, the gas and electricity behemoth paid zero income tax; that’s according to the corporate transparency data released by the Tax Office earlier this month. Michael West reports.

What makes the sly tax antics of Energy Australia even more galling is that its foreign parents, its Caribbean and Hong Kong shareholders that is, make mighty profits from the misery of their Australian energy customers.

Despite its customers being slugged with high electricity prices; despite its own sales revenue spiralling higher once again; despite another large hike in executive salaries last year, this company is nonchalantly telling the Tax Office it owes Australia not one red cent in income tax.

We will get to how they pull off this tax heist in due course.

First, to the privatisation aspect. Before electricity prices doubled over the past decade, Energy Australia used to be owned by Australians. It was the property of the governments of NSW and Victoria, state assets. Chasing a short-term buck, and urged on by investment bankers and assorted fee-hunters, politicians sold them off.

Now the profits, privatised, are washed through a tax haven in the Caribbean before ending up with the CLP Group in Hong Kong, an industrial empire controlled by the billionaire Kadoorie family, which is also known as China Light & Power Company.

And these profits are super-charged because, successive governments and regulators took their eyes off the ball and allowed the rise of three dominant “gentailers”. Energy Australia is the upshot of an acquisitions rampage, a vertically-integrated corporate monster which both generates energy (from coal mines, power plants, etc), distributes energy (poles and wires) and retails energy (bills customers).

The other two gentailers are Origin Energy and AGL. Together, these three dominate the energy market and exert an inordinate influence over prices. Unlike AGL and Origin though, which are both reasonably transparent, which trade on the ASX, are largely owned by Australian shareholders and make their accounts available, Energy Australia is secretive.

Last year, when we asked to see a set of their financial statements – being an $8 billion enterprise, a key part of the Australian economy and all that – they popped through a copy of their Hong Kong financials which barely mentioned Australia. Er, wrong accounts, thanks.

EnergyAustralia: nailing energy customers and taxpayers to boot

To the numbers then which have been furnished to the Tax Office. Last year Energy Australia disclosed $6.3 billion in total income but managed to entirely wipe out that income in costs, conveniently leaving zero taxable income. It therefore paid no tax.

Over the four years of available ATO data, the company has recorded a gargantuan $30 billion in total income and paid zero tax. Even on the skimpy $52 million it did declare in taxable income during those four years, it still paid zero tax. Tax rate not 30 per cent; tax rate zero.

Bear in mind that multinational tax avoiders such as CLP and the other Australian energy empire controlled by an Asian billionaire, Li Ka-Shing’s Cheung Kong Infrastructure, registered in Bermuda,  do most of their dodging before the taxable income line. That is, they avoid tax, not by paying a low tax rate on their profits but by wiping out their profits altogether, funnelling them offshore.

As power bills swell, so do the fortunes of power companies and billionaires

This brings us to the financial statements. This supposed “public information” is available from the corporate regulator, Australian Securities & Investments Commission, at a cost of $40 for just one set of accounts.

The 2017 financial statements for EnergyAustralia Holdings Limited shows revenue of $7.6 billion, rising sharply from $6.3 billion the year before. Expenses, conveniently jumped in equal measure from $5.8 billion to $7 billion. Profit was $459 million and the cash-flow statement shows tax paid of $23.4 million, up from zero previously.

It appears the company is using whatever costs it can book in Australia to wipe out taxable income although there is no detail on costs in the report. Some $70.6 million went out the door in interest charges to a related party, presumably to a low tax jurisdiction offshore.

As in the previous year, the executives and directors helped themselves to higher pay with key personnel sharing $19.5 million, well up on the $17 million in the prior year.

Auditor PwC, which also provided “other” services (perhaps tax advice) was paid $2.2 million up from $1.8 million.

Interestingly, the financial report admits the company has captured higher prices despite lower generation. It also says finance costs jumped from $37 million to $98 million with the commencement of related party loans with a parent company.

On refinancing: “Phase 1 occurred in December 2017 and involved the establishment of a new related party loan of $1,450.0m and a debt for equity swap of $1,051.8m with the issue of additional ordinary shares by EnergyAustralia Holdings Limited. The new $1,450.0m related party loan has an interest rate of the 6 month BBSY plus a margin, with
interest being charged from 1 January 2017. Total interest charged on this loan for the year is $74.2m.”

On prices: “Higher revenue for the year has been achieved principally due to efficient portfolio management to capture higher market prices. This result was achieved despite lower generation, impacted by additional scheduled
maintenance at Yallourn and uncertain coal supply at Mount Piper in the first half of the year.”

Energy Australia ranked #3 on the Top 40 Tax Dodgers chart last year. Where will it rank this year?

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Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

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