Peter joined ANZIS in March 2002 from investment bank Salomon Smith Barney, having previously worked for Deutsche Bank. The development office in Melbourne opened early in 2002 as ANZIS saw that much of the energy business in Australia was focused there. Prior to that ANZIS had been run solely from Sydney. ANZIS is led by Managing Director John Clarke – the former Managing Director of Infratil. ANZIS also has an office in Brisbane.

ANZIS has a broad energy focus including renewable energy, with significant developments in train in the wind power sector, and a future outlook that may involve power generation in both gas and coal in addition to energy infrastructure such as pipelines and poles and wires.

According to Peter, ANZIS’ entry into the pipeline market was initiated when Burns & Roe Worley began looking for someone to provide equity and debt on the Esperance Energy Project.

“Worley, with Burns & Roe Worley, won the tender to supply power to Western Power and they were looking for someone to help find equity and debt. ANZIS facilitated the arrangement and ANZ took a 67.5 per cent stake in the Esperance Energy Project. ANZ also provided debt during the construction process.

“Worley runs daily management of the Esperance Energy Project, and also market the pipeline and collect the bills. We are very happy with that arrangement and hope to continue the relationship into further ventures.”

Following that, ANZIS arranged the acquisition by ANZ of what was then Coastal Gas (now Gas Pipelines Victoria) from El Paso, becoming owners and operators in their own right.

“We acquired Coastal Gas in September last year. That was good because that gave us our own taste of both owning and operating a pipeline - now we have our own operating capabilities. We have two full time employees who run the pipeline, and who also assist with other acquisitions.”

The move into owning utilities was viewed as a natural extension for ANZ as they have long been a major provider of debt in the sector. At this stage the investments are wholly owned by the ANZ but that may change in the future.

“We don’t aim to position ourselves against existing players; rather we want to position ourselves to co-invest alongside them. For example, we are currently leading a consortium which is looking to build, own and operate the Trans Territory Pipeline, serving the Alcan operations in Gove. ANZ and Australian Pipeline Trust are the equity partners, and Spie Lucas are the consortium’s EPC contractor.

“What we’re on about is building a portfolio of assets with stable cash flow. Whether they are held long-term or offered to institutional or public investment in the future is to be determined.”

When quizzed about how, as an institutional investor, ANZ Infrastructure Services will manage the technical risks and accountabilities inherent in being an owner of pipelines Peter highlights the knowledge and experience they have brought on board following the purchase of Coastal Gas, pointing to the fact that financial investors can contract out operations if they lack the skilled personnel. He discusses the major role that Ian Jenkins, who came across with the purchase of Coastal Gas, is playing in Gas Pipelines Victoria and in providing advice to the financial team in possible expansion and acquisitions.

“We can certainly contract everything to a Burns & Roe Worley or an Agility, but on the assets we own we tend to be the majority owner and we must be accountable. Our purchase of Coastal Gas allows us to have our own operating capabilities and it brought with it people who had been in the industry for a long time. That is important; we can’t contract it all out to third parties.

“Ian is based in Melbourne and we have one operations person in Ararat. We haven’t changed the operations of Gas Pipelines Victoria at all; however we may revisit that down the track.

“Obviously Ian was on the other side during the Coastal transaction and so wasn’t part of the original planning and due diligence. We therefore had to make our own assessment on timing for maintenance, particularly intelligent pigging of the pipeline which tends to be relatively expensive.

“Ian now supervises all of the maintenance and operations but his main task is to manage the relationship with TXU, the sole customer, and manage the regulatory issues by liaising with government departments such as the Office of Gas Safety and the Department of Natural Resources and Energy.”

Just how ANZIS will integrate themselves into APIA and the industry appears to be something that they believe will grow with time, in a similar fashion to how it has with their interests in renewable energy where they take an active role in submissions to the government relating to regulation and future development of the industry.

“Within the industry we see ourselves in a building phase at the moment, focusing on acquisitions. We are nevertheless keen to play a role in the industry, and for our own involvement to increase going forward.”

The focus for ANZIS’ further expansion into the industry is both in greenfields development and via rationalisations, sometimes in combination with major players, other times on their own.

“We’re more focused on contracted pipelines at the moment rather than regulated pipelines. However, we are also keen to look at regulated pipelines because we think that we are at the bottom of the regulatory cycle and the system is now well understood.

“We would like to do more greenfields work, that is, in being a principal proponent in building new pipelines. It plays to our strengths because we can finance the deal with debt and can take equity risk through construction while some financial institutions can’t do that. We can carry a project and the initial losses through the twelve to fifteen month development stage.

“We’re buying assets for the long term, and whether on ANZ’s balance sheet going forward or not, ANZ is committed for the long haul either as an investor or investment manager. Also, because we have access to ‘patient’ institutional capital, we’re not forced to pay dividends every year and can therefore decide to forgo returns to equity in favour of reinvestment in the business if we wish.”

With respect to the major issues facing the pipeline industry, Peter shares the view prevalent amongst many in the industry with regard to the consistency of regulatory regimes and whether rates of return on pipelines are sufficient to encourage development.

“I think the most obvious headline issue is the regulatory framework and getting consistency across the country, which is slowly happening, although Western Australia is lagging a bit behind the theory and talk of consistency of regimes.

“Also, the consistency of how and why some pipelines are covered while others are uncovered is an issue.

“I don’t think regulators need to consider the asset prices that have been paid in the past, or are currently being paid, when setting returns, but rather need to focus on exactly what is a decent rate of return to justify future investment. The issue right across the energy sector is whether the system rewards people appropriately for taking risks.”