Higgy Posted August 3, 2010 Share Posted August 3, 2010 Who else has gas and has seen some very scary bills this year? http://www.guardian.co.uk/business/2010/feb/25/british-gas-profits-energy-prices I wonder if Manx Gas should follow suit..... The problem is we can't switch providers over here Link to comment Share on other sites More sharing options...
In fact . . . Posted August 4, 2010 Share Posted August 4, 2010 When it was debated in Tynwald Link to comment Share on other sites More sharing options...
In fact . . . Posted August 4, 2010 Share Posted August 4, 2010 Prices did drop Link to comment Share on other sites More sharing options...
cheeky boy Posted August 4, 2010 Share Posted August 4, 2010 From the 2009 annual report Doesn't give specific figures for Manx Gas but they seem to be doing very nicely International Energy Group International Energy Group (IEG) owns a portfolio of natural gas distribution and retailing businesses, located in the Channel Islands (Guernsey and Jersey) and the Isle of Man, and a gas and electricity distribution business in the United Kingdom (UK). IEG’s UK businesses operate under a regulated price regime, while assets in other jurisdictions are not regulated. IEG’s businesses provide an essential service to a customer base that underpins its cash flows. In the UK, existing installed connections provide an “availability based” income stream from a small group of high credit quality counterparties with minimal operating costs. Key Finan cials A$ millions FY09 FY08 Total revenue 232.4 201.4 EBITDA 86.3 70.9 Contribution to EBITDA1 11% 9% Contribution to BBI’s operating cash flow1 14% 10% Maintenance capital expenditure 10.8 10.7 1. Excluding Babcock & Brown Infrastructure corporate costs. Operating cash flow is pre funding of organic growth capex and repayment of asset level debt. Key Events • In May 2009, BBI sold its IEG Portugal operations to Fundo Explorer II. The net proceeds of this sale were applied to the reduction of debt at the IEG level. • The Island businesses performed strongly above last year due to a colder winter and the softening of the LPG procurement costs. • The UK business increased gas and electricity connections by 10.5 per cent to 378,954 albeit at a slower rate than last year. • The UK Housing market is under severe strain which impacted growth in the order book for both the gas and electricity “last mile” businesses, as developers are focused on completing existing developments and delaying new green field investments. Outlook • The UK Housing market remains severely depressed. Although connections of previously contracted sites continue, there has been a significant reduction in new developments. However, there are now some signs emerging in the UK that residential construction is beginning to improve. • A stable performance is expected with the Island businesses. 10 BBI Link to comment Share on other sites More sharing options...
Snowflake Posted August 7, 2010 Share Posted August 7, 2010 New pipeline means a probable increase in price, per unit, of 7.48p Existing Manx Gas customer price increases by 30% (approx) Conversion customers (Ramsey etc, from LPG/air to Natural Gas) will be paying approx.4% less than before Customers converting from LPG to Natural Gas will pay 9% more (approx) If 10% of customers 'convert' from gas to oil, (at 18% cheaper than natural gas), gas price rises to 7.6p per unit, which means natural gas is approximately 38% more than oil More people 'convert' to oil Price rises again Manx Gas will be unable to repay the new pipeline loan Debt written off. Prices will probably stay the same though... Link to comment Share on other sites More sharing options...
Hugh Jampton Posted August 8, 2010 Share Posted August 8, 2010 Snowflake, what is the source of your infomation? Link to comment Share on other sites More sharing options...
Snowflake Posted August 8, 2010 Share Posted August 8, 2010 Position Paper on The Natural Gas Extension Project Approved by Tynwald on 13th July 2010 August 2010 Background Before looking into the project in detail, it is perhaps worth considering its background. In the late 19th and most of the 20th century gas generated from coal was used for both lighting and heating purposes. The production process, known as coal gasification, was both labour intensive and expensive requiring the shipment and handling of large quantities of coal. The gas produced from this gasification process was at low pressure (inches water gauge) and was transferred to large gas holders, which operated as buffer storage to cover for fluctuations in supply and demand. For reasons of economy gas production and storage was generally kept as close to consumers as possible, at or near the centres of towns, and hence the name towns gas In the 1950s and early 1960s, the advent of freely available liquefied petroleum gas (LPG) from oil refineries, made it possible for gas companies to convert from gas production using coal to gas production using LPG. Producing gas from LPG was much cleaner, less expensive and labour intensive than producing it from coal. However, LPG has a much higher calorific value than towns gas and, to enable it to be safely used using existing towns gas appliances, its calorific value had to be drastically reduced. This was achieved by blending air into the LPG, to reduce its calorific value to that of towns gas, hence the LPG/Air systems in use in Ramsey, Peel and the South. New networks, which did not have an old towns gas system, could use LPG direct, without dilution with air, and this resulted in the LPG systems such as those in operation in Ballasalla, Laxey, Bride and Kirk Michael. In the early 1970s, following the discovery of natural gas in Groningen in Holland and shortly after in the UK Sector of the North Sea, natural gas became available in both the UK and Europe. Natural gas was delivered to both domestic and business users through networks of high pressure gas pipelines. Natural gas has a higher calorific value than towns gas but a lower calorific value than that of LPG. The large difference in price between natural gas and LPG made it economic to convert all appliances with access to natural gas to run directly on natural gas. The consequence was that since that time most new gas appliances manufactured in Europe were designed to operate on either natural gas or LPG but not on the old towns gas systems, for which there was no demand. The Channel Islands and the Isle of Man did not have access to natural gas in the 1970s and consequently they continued to use their LPG/Air and LPG systems. However, difficulty was increasingly experienced obtaining appliances and spare parts for the older low calorific value towns gas systems. In addition, by the 2000s the gas holders were over 40 years old, in a bad state of repair and in need of extensive refurbishment. In the Channel Islands the problem was/or is being, solved by converting appliances to operate with a higher calorific value, and by installing a second LPG/Air gas production train. This enables the gas holders to be taken out of service with the benefit that the land occupied by the gas holders can be made available for redevelopment. In the Isle of Man natural gas was landed on the Island in 2002/3 to supply the Pulrose power station giving the Isle of Man the additional option of converting their LPG/Air customers to natural gas. The International Energy Group, the owner of Manx Gas, decided that, whilst it was economic to convert the (approximately 13,000) LPG/Air customers in the Douglas area to natural gas, it was uneconomic to convert the (approximately 6,000) LPG/Air customers in Ramsey, Peel and the South, on the grounds that there was insufficient demand to justify the expenditure. The Project January 2010 DTI Briefing In January 2010, after 3 years intensive study, the Department of Trade and Industry (DTI) gave a briefing to Tynwald members on its proposal to convert 6,500 LPG/Air and LPG customers to natural gas. The capital cost of the project was estimated at £28.5 million broken down as follows:- Conversions £8.5 million Pipelines £20 million The capital cost of the pipelines was estimated by the MEAs pipeline consultant Bell Burton, and broken down into £15.5 million for the pipelines, plus a £4.5 million betterment charge (see below). The capital cost of the conversions was based on Manx Gas experience with the conversions in the Douglas area in 2002/3. The betterment element was explained as the differential cost of increasing the diameter of the pipelines from 185 mm to 318 mm, at the request of the Isle of Man Government, to allow for future expansion of the system and to enable the Peel power station to be converted to run on natural gas, at some unspecified time in the future. It was implied, but not stated, that the conversion cost would be paid by Manx Gas, because the conversion costs for customers in the Douglas areas had been paid by Manx Gas and recovered through the tariffs charged. It was claimed by the DTI that LPG/Air customers in Ramsey Peel and the South would each save an average of £100 per year and that, extending the natural gas network to Ramsey, Peel and the South, would enable Manx Gas to introduce a unified gas tariff (to include LPG customers) across the Island. It was further advised that the pipeline project would be funded by the Isle of Man government and that the Isle of Man government would own the pipelines. Manx Gas would repay the capital cost of the project (less the betterment cost of £4.5 million see above) over the 60 year life of the pipelines, whilst at the same time giving the Isle of Man government a 6% rate of return on its capital investment. The project involves the laying of approximately 40 km pipe or twice the length of the existing Glen Moore to Pulrose pipeline, which was installed in 2002/3. The 20 km Glen Moore to Pulrose pipeline cost £23.5 million to install in 2002/3.(see PKF) and the estimated cost of the 40 km Gas Network Extension is £20 million, one third of the cost of the Glen Moore to Pulrose pipeline (on a per kilometre basis) after allowing for inflation. The DTI explained that the cost of the pipelines was much lower than the cost of the Glen Moore to Pulrose pipeline because, instead of steel pipe, operating at approximately 90 bar the Gas Network Extension would be plastic pipe operating at 4 bar and that this could be installed at very much lower cost using only local labour. At the presentation it was implied that there was no option but to extend the gas network to Ramsey, Peel and the South, since, if the gas network extension was not approved, Manx Gas could discontinue supply to LPG/Air customers leaving them with no alternative means of heating their homes and businesses. None of the options outlined above, such as installing spare LPG/Air trains, as in the Channel Islands, or converting to LPG systems or even converting to oil were considered. Explanatory Memorandum The Government issued an Explanatory Memorandum, describing the benefits of the Natural Gas Network Extension project, prior to the July Tynwald, to support its request for authorisation to spend up to £23.5 million on the project. There were significant differences between the information provided at the January Briefing for Tynwald members and the information provided in the Explanatory Memorandum. In the January Briefing the total cost of the project was estimated at £28.5 million, whereas in the Explanatory Memorandum Tynwald was asked to provide up to £23.5 million to fund the project. No breakdown was given of the £23.5 million, prompting the question how had the total cost of the project been reduced by £5 million? The betterment element in the Explanatory Memorandum had been reduced from £4.5 million at the January Briefing to £1.5 million, which may explain £3 million of the difference. However, no explanation was given as to how this had been achieved. Have the pipeline diameters been reduced to 185mm for all pipelines except the Glen Moore to Peel pipeline? In this context it is questionable whether the conversion of the Peel power station to natural gas could ever be economic in view of its very limited use. This prompts the question why waste £1.5 million of taxpayers money on a project that will, in all probability, never be economic and in all probability, never be implemented? In the Explanatory Memorandum the estimated life of the pipelines is given as 40 years, whereas in the January Briefing the estimated life of the pipelines was 60 years. No explanation was given as to why this was done. Have the MEA discovered that plastic pipelines can only be guaranteed to last for up to 40 years? This is significant because Manx Gas will have to repay the capital cost of the pipelines over their life (i.e. 40 or 60 years) whilst giving the Isle of Man Government a 6% rate of return on its investment. Since the January Briefing the DTI have become the Department of Economic Development who have advised that, of the total project cost of £23.5 million, only £8 million will be spent off Island (i.e. £15.5 million will be paid to on Island companies paying their taxes in the Isle of Man and employing local employees who will also pay their taxes in the Isle of Man) This is significant since it has an impact on project economics. In 2002/3, when the Douglas area was converted to natural gas, off island contractors with off Island supervision were employed for all the conversions, resulting in virtually all conversion costs being spent off Island. Since the January Briefing the Department of Economic Development has advised that their pipeline consultant is Bord Gais Eireann (BGE) not Bell Burton, who has estimated the cost of the pipelines based on its experience in the Republic of Ireland. This may explain why the life of the pipelines has been reduced to 40 years and part of the pipelines capital cost reduction. However, it remains to be seen whether BGE experience in the Republic of Ireland can be replicated on the Isle of Man. On the 13th July, after a lengthy debate, Tynwald approved capital expenditure on the project of up to £23.5 million. During the debate there was no discussion on the economic or financial viability of the project. This is particularly surprising given the Isle of Mans current financial situation, when Tynwald members would have been expected to scrutinise a capital expenditure of over £20 million, or possibly very considerably more, extremely carefully. Project Economics In February Liberal Vannin issued a Comment on the DTIs Briefing to Tynwald members on January 20th 2010. The Comment was based on the information presented at the Briefing and assumed that almost all of the pipelines and conversion costs (as in 2002/3) would be spent off Island. This showed that, with a capital cost of £28.5 million, almost all of which would be spent off Island, the project would be not only uneconomic but very uneconomic and not financially viable. The information provided in the Explanatory Memorandum, plus information gathered during an exchange of letters, changes the situation somewhat. Provided the capital cost can be restricted to £23.5 million and, more importantly, the off Island spending restricted to £8 million, both the project economics and financial analysis improve, but not sufficiently to make the project either economic or financially viable. It has therefore been necessary to recalculate the project economics and financial analysis to provide a benchmark for future monitoring of the project. As in Liberal Vannins February Comment, the assumptions used during the analysis have been based both on information supplied during the DTIs January Briefing and Manx Gas tariffs in January 2010. On this basis each LPG/Air customer and each LPG customer is assumed to consume approximately 5,000 units per year and converting to natural gas would result in a saving of 1.15p/Unit (the difference between the natural gas and LPG tariffs in January 2010) for energy import costs, or, for the whole Island, a total approximately £400,000 per year. Economic Analysis Provided that the overseas expenditure can be held to a maximum of £8 million, the energy cost saving of £400,000 per annum will repay the overseas expenditure over a 20 year period. This reduces the capital loss, when discounting cash flows at 10% over a 20year period, from £25 million to £5 million. In other words the Isle of Man will spend £8 million to get back that £8 million over a 20 year period. It should be noted, however, that the cost of importing gas will change in 2023 when the Bord Gais agreements come to an end. However, even a large reduction in the cost of gas after 2023 will be unlikely to significantly change the project economics. The result of the economic analysis is shown in Appendix 1 Financial Analysis The Financial Analysis assumes that there will be a total of 20,000 customers, each consuming on average 5,000 Units per year. On this basis the total revenues of Manx Gas, excluding appliance sales, based on January 2010 tariffs is some £6.42 million per annum. Manx Gas will repay the Isle of Man Government its capital expenditure of £23.5 million, less the £1.5 million betterment, over a 40 year period plus interest at a rate of 6%. Whilst details of the agreement have not been released, it is assumed that this will result in annual payments by Manx Gas to the Isle of Man Government of some £1.46 million per year. Adding the interest plus capital repayments to the 2009 revenues and subtracting the £400,000 savings on the cost of energy imports results in an increased cost for Manx Gas for 2011 and beyond of some £1 million per annum which will have to be recovered from gas users through the unified tariff. The resultant unified tariff is some 7.48p/Unit which represents an increase for existing natural gas users in the Douglas area of approximately 30%, a reduction for existing LPG/Air customers of approximately 4% and an increase for existing LPG customers of approximately 9%. Details of the financial Analysis are shown in Appendix 2. Faced with a 30% increase in tariff many existing natural gas consumers would change to oil which at January 2010 prices was already 18% less expensive than gas (based on Manx Gas Star Saver Tariff and Manx Petroleums price for 900 litres or more) If this happened Manx Gas would be forced to further increase prices to continue repaying the Isle of Man Government its capital repayments plus interest. If 10% of existing natural gas users were to switch to oil the unified tariff would need to increase to 7.6p/Unit or an increase in price over oil of some 38%. This would cause a further fall in the number of existing natural gas users etc. etc. This could ultimately result in all existing Manx Gas customers, including LPG/Air and LPG customers converting to oil, and clearly defeat the object of the exercise. Details of the Financial Analysis with 10% fewer existing natural gas customers in the Douglas are shown in Appendix 3. Manx Gas In 2005 the International Energy Group, a UK publicly listed company and the owner of Manx Gas, was taken over by Prime Infrastructure a subsidiary of the Australian company Babcock and Brown. Babcock and Brown was a large Australian multinational which, in 2006, had a market capitalisation of A$ 8.5 billion this, by end 2008, had increased to A$ 9.1 billion. However, Babcock and Brown had over extended itself and by end 2008 its market capitalisation had reduced to only A$ 50 million. In March 2009 Babcock and Brown finally went into administration. As a result of the collapse of Babcock and Brown, Prime Infrastructure had to be recapitalised on the Australian market. It is understood that this recapitalisation is now complete, but the details are unknown. In view of the above it is unsurprising that Manx Gas was/is unable to fund either the extension of the pipeline system or the upgrading of its facilities. In its present state, with its ageing infrastructure (outside Douglas), Manx Gas is not a readily saleable asset. However, with the Isle of Man Government funding its facilities upgrade, the situation changes. What is surprising is that the Isle of Man Government is, yet again, entering into a long term financial agreement (40 years) with a multinational company already known to be in financial difficulty. Is this a repeat of the Enron fiasco with the Pulrose power station? Will the Isle of Man Government and Tynwald members never learn? Summary On the basis of information available to Liberal Vannin the Natural Gas Network Extension Project:- Is not economic, loosing some £5 million over a 20 year period. (Discounting future cash flows at 10%) Is not financially viable, gas customers in the Douglas area suffering initial tariff increases of some 30% Could result in significant numbers of natural gas customers defecting to oil. Could result in a significant increase in the cost of importing LPG (because of lower quantities) Requires the Isle of Man Government to enter into a long term financial commitments with a multinational company already known to be in financial difficulty. Appendix 1 Natural Gas Pipeline Extension Economic Analysis In 2009 £ Year CAPEX Saving Cash Flow 2011 8 0 -8 2012 0.4 0.4 2013 0.4 0.4 2014 0.4 0.4 2015 0.4 0.4 2016 0.4 0.4 2017 0.4 0.4 2018 0.4 0.4 2019 0.4 0.4 2020 0.4 0.4 2021 0.4 0.4 2022 0.4 0.4 2023 0.4 0.4 2024 0.4 0.4 2025 0.4 0.4 2026 0.4 0.4 2027 0.4 0.4 2028 0.4 0.4 2029 0.4 0.4 2030 0.4 0.4 2031 0.4 0.4 Totals 8 8 0.00 NPVat10% -4.59 IRR 0% Appendix 2 Natural Gas Pipeline Extension Financial Analysis In 2009 £ Revenues 2009 Revenues 2011 and thereafter Year Nat Gas LPG/Air LPG Total Repay Fuel Total Tariff £MM p/Unit 2011 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2012 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2013 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2014 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2015 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2016 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2017 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2018 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2019 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2020 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2021 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2022 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2023 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2024 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2025 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2026 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2027 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2028 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2029 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2030 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 2031 3.71 2.53 0.17 6.42 1.46 0.40 7.48 7.48 Totals 74.30 50.62 3.43 128.34 29.20 8.00 149.54 Appendix 3 10% Fewer Users in Douglas Area Natural Gas Pipeline Extension Financial Analysis In 2009 £ Revenues 2009 Revenues 2011 and thereafter Year Nat Gas LPG/Air LPG Total Repay Fuel Total Tariff £MM p/Unit 2011 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2012 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2013 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2014 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2015 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2016 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2017 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2018 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2019 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2020 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2021 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2022 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2023 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2024 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2025 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2026 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2027 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2028 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2029 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2030 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 2031 3.34 2.53 0.17 6.05 1.46 0.40 7.11 7.60 Totals 66.87 50.62 3.43 120.91 29.20 8.00 142.11 Link to comment Share on other sites More sharing options...
Hugh Jampton Posted August 8, 2010 Share Posted August 8, 2010 Thanks snowflake, I shall settle down and read it tonight Link to comment Share on other sites More sharing options...
scarbunny Posted August 8, 2010 Share Posted August 8, 2010 New pipeline means a probable increase in price, per unit, of 7.48p Existing Manx Gas customer price increases by 30% (approx) Conversion customers (Ramsey etc, from LPG/air to Natural Gas) will be paying approx.4% less than before Customers converting from LPG to Natural Gas will pay 9% more (approx) If 10% of customers 'convert' from gas to oil, (at 18% cheaper than natural gas), gas price rises to 7.6p per unit, which means natural gas is approximately 38% more than oil More people 'convert' to oil Price rises again Manx Gas will be unable to repay the new pipeline loan Debt written off. Prices will probably stay the same though... Just a quick correction from the provided text its an increase to 7.48p per unit not and increase of. As stated here The resultant unified tariff is some 7.48p/Unit which represents an increase for existing natural gas users in the Douglas area of approximately 30%, a reduction for existing LPG/Air customers of approximately 4% and an increase for existing LPG customers of approximately 9%. *Snip* If 10% of existing natural gas users were to switch to oil the unified tariff would need to increase to 7.6p/Unit or an increase in price over oil of some 38%. This would cause a further fall in the number of existing natural gas users etc. etc. This could ultimately result in all existing Manx Gas customers, including LPG/Air and LPG customers converting to oil, and clearly defeat the object of the exercise. Link to comment Share on other sites More sharing options...
Snowflake Posted August 8, 2010 Share Posted August 8, 2010 thank you for that, Scarbunny Link to comment Share on other sites More sharing options...
integrity Posted December 8, 2012 Share Posted December 8, 2012 When it was debated in Tynwald I may be stepping into a recent thread, but the present tariffs on gas but have we not been through this before? Link to comment Share on other sites More sharing options...
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