The planned privatisation of electricity transmission operations in Australia's New South Wales state will present an opportunity for Hong Kong and mainland Chinese power firms to increase their exposure to the regulated sector in the country if the government is re-elected, analysts and deal advisers say. The potential privatisation, involving assets worth about A$26 billion in the form of 99-year leases, could attract Hong Kong companies such as Power Assets Holdings and Cheung Kong Infrastructure Holdings, which are seeking energy assets that generate secure returns in regulated markets. "Going into 2015, the most significant deal should be the potential privatisation of power transmission and distribution assets in [New South Wales]," Dave Dai, Credit Suisse's regional head of utilities research, said in a report this month on acquisitions by Hong Kong's utilities firms. The privatisation could interest mainland China's state-owned regional power grid monopolies as well, with State Grid Corp gaining the opportunity to expand its portfolio of Australian assets and China Southern Power Grid to enter a new market. A winning bid could also allow them to gain experience in deregulated power markets ahead of Beijing's expected deregulation. "The state-owned power grid firms are potential bidders in the planned privatisation of New South Wales' transmission and distribution assets if the Baird government is re-elected, given their desire to expand and seek better returns overseas and gain experience in deregulated power market operations," said Hu Xinmin, a senior manager at power-sector consultancy Lantau Group, who knows both the Chinese and Australian power sectors well. New South Wales' premier Mike Baird has said his Liberal-National coalition will proceed with the privatisation, which could free up A$20 billion for much-needed infrastructure like railways and roads, if it wins the March 28 election. The opposition Labor Party has said the privatisation will be called off if it wins. Fergus Smith and Hilary Lau, senior lawyers at Herbert Smith Freehills who have advised on energy acquisitions in Australia and Asia, told the South China Morning Post that the key players interested in bidding for New South Wales' power assets were forming consortiums and "significant interest" was expected from Hong Kong and mainland Chinese firms. The government wants to maximise the proceeds from the sale without any short-term impact on jobs Vincent Dwyer, head of Asia-Pacific energy, Norton Rose Fulbright But they noted uncertainties even if the government was re-elected since it was possible that the state's upper house would be controlled by members who either opposed privatisation or might demand specific conditions for the sale. Richard Lancaster, the chief executive of Hong Kong power utility CLP Holdings, said last month that it would not buy more assets in Australia in the foreseeable future and would instead focus on "restoring value" to its assets there after major write-downs were booked amid falling power demand and prices due to an oversupply of capacity and keen retail rivalry. The assets to be privatised included the 100 per cent trade sale of a 99-year lease of TransGrid, a power transmission firm with A$6.3 billion of regulated assets and A$845 million of expected regulated revenue in the year to June, a report by international law firm Norton Rose Fulbright said. That was expected to be followed by either trade sales or initial public offerings of 50.4 per cent stakes in Ausgrid and Endeavour Energy, which together distributed power to 2.55 million retail consumers, the report said. The two distribution firms have combined regulated assets of A$20.6 billion and projected regulated revenue of A$3.14 billion in the year to June. Vincent Dwyer, the head of Asia-Pacific energy at Norton Rose Fulbright, said the state's revenue caps for transmission and distribution had been reviewed by the energy regulator, which issued draft determinations in November. As a result, household power distribution costs were forecast to fall about 10 per cent over the next two years. Final determinations are expected in the middle of next month. "Following years of higher network charges, the regulator is looking to cut them," Dwyer said. "Meanwhile, the government wants to maximise the proceeds from the sale without any short-term impact on jobs." This means the successful bidders will need to enhance the efficiency of the networks and cut costs amid falling demand and increased complexity from growing renewable-energy output and technological changes. As in past privatisations, where commitments were made to preserve jobs for two to three years, labour issues would remain sensitive, Dwyer said. Pierre Lau, Citi's head of Asia utilities research, said in a note last month that keen competition amid ample liquidity meant landing a "sweet deal" in such acquisitions would not be easy. New South Wales "looks like the only real opportunity for power privatisation" in Australia in the near term, Lau said, given that a planned privatisation was foiled after the former Queensland government was voted out of office due in part to opposition to the plan, while in South Australia and Victoria, privatisations were "deeply unpopular due to perceived high electricity price rises".