Decision will affect profitability of CKI and Hongkong Electric's assets in Australia A final verdict on future tariffs that Cheung Kong Infrastructure Holdings (CKI) and Hongkong Electric Holdings can charge at their jointly owned power assets in Australia is due on Wednesday. The outcome will directly impact the profitability of the facilities over the next five years with immediate ramifications for a planned A$10 billion ($58.3 billion) spin-off of power assets. Electricity watchdog Essential Services Commission in July provisionally cut the tariffs that Victoria-based distributors PowerCor Australia and CitiPower could charge in the five years to 2010. The 'draft' decision cut tariffs by 25.5 per cent and 22.3 per cent respectively. While the proposed cuts are sharper than analysts predicted, both CKI and Hongkong Electric have voiced confidence that they can roll back the decision after protracted talks with the regulator. 'We are not worried about the final decision and are hopeful of a better deal,' one senior executive involved in the talks said. 'If the final figures are unacceptable, we will certainly appeal in accordance to existing regulatory mechanism.' The final decision poses a stumbling block in the planned separate listing of CKI and Hongkong Electric's 50-50 power distribution portfolio, including ETSA utilities in South Australia, regional Victoria-located PowerCor and Melbourne's CitiPower. Informed sources said deal sponsors - Citigroup, Deutsche Bank and Merrill Lynch - planned to submit a formal listing application to the Australia stock exchange as soon as a final decision was available. It is understood that the listing will take place next month at the latest. One source said the power assets would be bundled into an investment trust to be managed by Deutsche Bank, allowing CKI and Hongkong Electric to retain majority ownership of the assets while minimising their on-going tax liabilities. Macquarie Research analyst Gary Chiu estimated CKI could recognise a one-time gain of A$214 million from floating 40 per cent of its 50 per cent stake in the power assets on assumption that the total asset value was A$8.54 billion. Mr Chiu's estimate implies an enterprise value equal to 8.5 times earnings before interest, taxation, deprecation and amortisation which was in line with an average of 10.5 times of a group of seven comparable regulated utilities in Australia. BNP Paribas has a more aggressive estimate on CKI's disposal gain, at A$449 million, assuming that CKI would unload 40 per cent of its 50 per cent stake in the power assets with a listing value of A$8.91 billion and an acquisition cost of A$6.66 billion. CKI's decision to omit toll tunnel assets in the planned spin-off was aimed at making the listing more appealing to fans of fixed-income products, analysts said. Nevertheless it appears to be a right decision given controversy at the recently commissioned Sydney cross-city tunnel. Opened for traffic on August 29, the 2km tunnel costing A$1 billion was forced to announce a three-week toll holiday last week after the public complained against high toll fee and associated road closures.