They’re not shivering in Honkers: Australians’ electricity pain is two billionaires’ gain

by Callum Foote | Jun 22, 2022 | Energy & Environment, Latest Posts

As Australians pay the price for decades of poor energy planning, the two single greatest beneficiaries of high electricity prices are Hong Kong billionaires Michael Kadoorie and Li Ka-Shing. Callum Foote reports on two of the big winners from Australia’s electricity crisis.

It’s another big week in the energy crisis. It’s clear who are the losers: Australians. We have been let down by a decade of policy paralysis on the transition to clean energy. The winners are becoming clear too. Not only have energy companies been “gaming” the market operator AEMO by withholding supply to force the operator to pay them more but they also stand to win enormous compensation payments because AEMO has shut down the market.

The latest development in the drama is the Australian Competition and Consumer Commission has moved to investigate predatory behaviour in the energy market. Decisive action by the competition regulator is long overdue. Clare Savage, head of the Australian Energy Regulator called out generators last week for forcing the Australian Energy Market Operator (AEMO) to shut the market in the expectation of winning greater compensation than would exist under a market cap.

In other words, they win if they game the regulators, and they win if the regulators shut the market are have to pay them penalties.

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It remains to be quantified, who are the big winners from gaming of the regulator that is and how much they won; however, we can already point to a few of the main suspects.

The gas cartel of Santos, Origin, Exxon/BHP and Shell have been able to make a killing selling Australian gas to Australians at international prices. But the big 3 ‘Gentailers’ EnergyAustralia, AGL and Origin also stand to gain (they are called gentailers because they are vertically integrated conglomerates which both generate, distribute and retail electricity and gas). They will receive “compensation” from AEMO for shutting the market.

Energy Australia: the billionaire and the ‘black hole’

EnergyAustralia is one of the country’s largest energy retailers with around 1.7 million electricity and gas customers across eastern Australia. The company was formed from the purchase of public energy infrastructure sold off in a privatisation sweep during the 1990s.

With the help of auditors and tax advisers PwW, the company then structured itself and its associates to be owned in the tax haven of the British Virgin Islands, although the ultimate owner is a Hong Kong energy juggernaut CLP Holdings.

This once state-owned enterprise now is controlled by its ultimate holding company, Hong Kong juggernaut CLP Holdings, which in turn is controlled by billionaire Michael Kadoorie whose family owns an 18% share. 

After having been exposed in these pages for siphoning out profits from its Australian operations through a British Virgin Island parent company in 2019 – and avoiding a lot of tax in this country – EnergyAustralia restructured, taking out the BVI connection. Now the primary Energy Australia company, EnergyAustralia Investments is owned by another CLP subsidiary, EnergyAustralia Holdings.

EnergyAustralia a tax dodger too

EnergyAustralia hadn’t paid any tax on $30 billion in revenue in the five years leading up to 2019 when it was hit with a massive $241 million tax bill and a subsequent $83 million paid in 2020, according to the Australian Tax Office’s Corporate Tax Transparency dataset.

However, this is where the weirdness comes in, both of these CLP subsidiaries are each other’s parent company. In other words, they appear to own each other outright with no visible links to their Hong Kong-based ultimate holding company CLP.

As a result, it is not possible to follow Energy Australia’s company structure beyond these shores. Yet CLP’s BVI connections remain.

According to the Group’s latest financial accounts filed with the Hong Kong Securities Exchange, there are at least four BVI-based companies under the CLP umbrella.

Li Ka-Shing cashing in

A second Hong Kong billionaire, Li ka-Shing, also owns a considerable amount of Australia’s energy infrastructure.

VicPower is majority-owned by CK Infrastructure and Power Assets Holdings, which are in turn controlled by Hong Kong billionaire Richard Li (son of Li Ka-Shing) via the CK Group.

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The ASX-listed company Spark Infrastructure controls the remaining 49% of the CitiPower and Powercor electricity networks. Ka-Shing also owns a majority share in South Australia’s ETSA Utilities and the APA Group sold its 33% interest in Australian Gas Networks Limited which operates natural gas transmission pipelines and distribution networks in South Australia, Victoria, Queensland, New South Wales, and the Northern Territory to Li Ka-Shing’s companies.

Now, with prices through the roof for generators, two Hong Kong billionaires are two of the biggest winners from Australia’s electricity customers.

EnergyAustralia back to no tax

With a poor performance in 2021 as prices for electricity plateaued, EnergyAustralia has now lapsed back into paying zero tax.

The group recorded a loss before income tax of $52.9 million – down from profit before income tax of $451.7 million in 2020 – although there were large windfall gains to the bottom line made in derivatives.

The Gentailer predicts that it will actually earn a tax benefit of $9 million from the taxpayer despite its poor performance this year. This stems from a half-billion-dollar drop in receipts from customers.

Overall revenue dropped from $4.975 billion to $4.45 billion last year while net cash inflow dropped to $347.5 million from $1.14 billion. However, a drop in other costs meant the company ended up with roughly the same amount of cash on hand at the end of the year.

All the while, Energy Australia’s directors decided to give the top brass a nice little pay rise of $5 million up to $15 million split between executives.

Overseas transfers

Last year, $322 million, compared to just over $1 billion the year before, was transferred overseas before being taxed in the form of transfers to related companies, while another half-billion was siphoned off in recharges to unspecified associates. 

There is simply not enough disclosure about where the money is going or why, but the activities of EnergyAustralia on the tax front have not escaped the attention of the Tax Office. The group disclosed that the ATO had been investigating its affairs.

One of EnergyAustraia’s Mount Piper generators in NSW came online on Tuesday morning, but too late according to a release filed in Hong Kong which said that the company is out billions in potential profit from electricity forward contracts. The company was forced to purchase expensive electricity from the market after having troubles with both its Mount Piper and Yallourn power stations in Victoria.

The company said the overall increase in energy prices will yield higher returns in the long run, so long as it can keep its coal and gas power stations in operation and “purchase fuel as required, generate and dispatch electricity at the higher prices”.

EnergyAustralia Holdings Limited

Callum Foote was a reporter for Michael West Media for four years.

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