Loy Yang has had to obtain special permission from ASIC to continue trading while apparently insolvent. This is serious stuff.
LOY YANG POWER has been forced to ask the corporate regulator for special permission to continue trading in the face of financial strain due to debt refinancing and the carbon tax.
Details of the financial difficulty come less than a week after a federal government report predicted that, should the Loy Yang A plant be forced to close suddenly, wholesale electricity prices would nearly double, with an immediate flow on to household power costs.
The findings, contained in the federal government's draft white paper on energy, said wholesale power prices would surge by nearly 80 per cent in Victoria and by more than 45 per cent in NSW. Loy Yang Power's chief executive, Ian Nethercote, told the Herald the company had received a ''no action'' letter from the Australian Securities and Investments Commission - allowing it to continue to trade after debt totalling $565 million due in November became a current liability on its books.
Mr Nethercote said Loy Yang Power was already in talks with federal ministers, the Treasury and the government's new Energy Security Council about its share of $5.5 billion worth of free carbon permits set aside to help electricity generators through the introduction of the carbon tax.
The company, whose Loy Yang A plant in Victoria's Latrobe Valley supplies one-third of Victoria's power needs, was also talking to ministers and the council about the possibility of the government becoming its lender of last resort in its bid to refinance the debt.
Loy Yang was emerging as the first big test of the government's policies aimed at ensuring the electricity market coped with the introduction of the $23-a-tonne carbon price in July without major disruption.
Mr Nethercote said it was ''more than likely'' Loy Yang would have had to get a no action letter from ASIC even without a carbon price, which will cost it about $450 million a year.
He said some of Loy Yang's customers had asked for more information about the company's financial situation and were reviewing the conditions they placed on their dealings with the generator. Other sources said several companies had stopped trading with Loy Yang.
The (new) Energy Security Council has begun negotiations with several generators, investment banks and financial institutions.
The Tokyo Electric Power Company, operator of the Fukushima nuclear plant, owns 32.5 per cent of Loy Yang, but the company has denied its Japanese shareholder is looking to divest in order to concentrate on the clean-up operations required at home. Another 32.5 per cent is owned by AGL.
Loy Yang is ineligible for the government's scheme to pay for the closure of brown coal plants.
