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Power station owner prefers buy-out to compo -

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ELEANOR HALL: It's Australia's largest coal-fired power station but the British owners of the
Hazelwood facility in Victoria's southeast say they'd rather be bought out and closed down rather
than compensated by state and federal governments if an emissions trading scheme is brought in in
Australia.

Today though the Victorian Premier would not confirm whether he is considering using taxpayers'
money to pay the International Power company to close down the controversial power station.

In Melbourne, Alison Caldwell reports.

ALISON CALDWELL: As the deadline approaches for the Federal Government's proposed Carbon Pollution
Reduction Scheme, tensions are rising in the sector which will be hardest hit - brown coal fired
power stations - four of which are in Victoria.

The largest is the Hazelwood power station in the Latrobe Valley. It's privately owned by British
company International Power.

Last year it wrote a submission to the Federal Government in which it proposes state and federal
governments pay it billions of dollars to close down the polluting asset instead of paying it
compensation under the proposed ETS.

It's understood that the company has also lobbied the Victorian Government about the idea. But
speaking to ABC Local Radio in Melbourne this morning, Premier John Brumby wouldn't say anything
about it.

JOHN BRUMBY: Well these are judgements obviously for the Federal Government in the context of the
Carbon Pollution Reduction Scheme. And obviously it's the Federal Government that's putting through
the Carbon Pollution Reduction Scheme.

And I wouldn't go into what are private discussions between governments and between companies.
There are often propositions which are put.

ALISON CALDWELL: International Power also owns the Loy Yang B power station nearby. In its
submission, International Power claimed the pre-CPRS market value of the two power stations is more
than $4 billion.

It's understood the Federal Government rejected the proposal last year on the basis that it
wouldn't contemplate special arrangements with individual companies.

The idea has been floated again in The Financial Review just days before the Opposition meets to
discuss its own ETS policy.

Premier John Brumby says he has three key concerns when it comes to an ETS.

JOHN BRUMBY: The first is I do want to make sure that we have continuing energy security in
Victoria. In other words, if you turn on a power point the lights will come on. I think that's
crucial obviously for our state.

Secondly I want to see as a result of CPRS, lower emissions. In other words I want to see a smaller
carbon footprint from our energy generation sector.

And thirdly I want to see more investment, particularly in clean coal technology, in gas as we're
already seeing, and of course in renewables, in solar and wind.

And if I can achieve all of those three things then I think that's a great outcome for the state.

ALISON CALDWELL: Malcolm Roberts is the spokesman for the National Generators Forum. He won't
discuss the specific idea but says privately owned power stations are facing substantial challenges
in the years ahead.

MALCOLM ROBERTS: Operators of power stations are very concerned about the impact on their asset
value from the Carbon Pollution Reduction Scheme.

Power stations are long lead assets. They're very expensive to buy and maintain. It's a very
difficult economic climate at the moment to find capital to continue to invest in the maintenance
of your existing plant and to invest in a new plant and the new capacity that we need.

ALISON CALDWELL: What sort of risks are they facing?

MALCOLM ROBERTS: The major risks at the moment is the impact of the Carbon Pollution Reduction
Scheme on the value of their assets.

Independent modelling has suggested that over the next 10 years, under the existing CPRS, $10
billion of asset value will be lost. Now that $10 billion will affect their capacity to borrow.
It'll affect their business's capacity to service debt. And it will also probably attract a
premium.

Given the global financial crisis it's a difficult time to be going to the market to look for
capital. The sector is looking to borrow or refinance probably about $19 billion over the next five
years.

So it's a very difficult time to go out and find the money needed to invest in new capacity, needed
to be invested in maintenance of existing capacity.

There will be a very large cost placed on the business to buy the permits required. There will also
be the holding costs for forward contracts where generators will be required to hold the permits
for energy they have contracted to supply into the future.

So it's a significant additional cost to doing business.

ALISON CALDWELL: Do you think there is a possibility that we could see one day, say, banks having
to run power stations?

MALCOLM ROBERTS: I suspect that if there are problems it'll be more a question of banks being
cautious about renewing their investment in power stations. So I don't think we've got the prospect
of banks taking over that role.

ELEANOR HALL: That's Malcolm Roberts from the National Generators Forum speaking to Alison Caldwell
in Melbourne.