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Hunter River Salinity Trading Scheme Credit Auction: 2008 Auction Report

 

On 2 April 2008, the NSW Department of Environment and Climate Change (DECC) held the third auction of 200 credits under the Hunter River Salinity Trading Scheme (HRSTS). The credits have a 10-year life from 1 July 2008 until 30 June 2018. These credits replaced the 200 credits that will expire on 30 June 2008. The next auction will be held in 2010.

Where and who

The Auction was held at the Quality Inn Charbonnier, New England Highway Singleton. Slattery Auctions Australia conducted the auction in accordance with the auction rules as detailed in the Hunter River Salinity Trading Scheme Credit Auction – Process and Rules. These rules were developed in consultation with the HRSTS Operations Committee, scheme participants and other stakeholders.

Thirteen bidders representing mining and power generation facilities competed for credits. All but one bidder represented organisations that were already participating in the HRSTS. There were no registrations from non-industry bidders and no community representatives attended the auction.

Results

The auction continued for 10 full rounds of bidding which took approximately 2 hours and 48 minutes to complete

All 200 credits were allocated at the auction. The credits were distributed between nine companies.

The auction raised $189,442. The average price paid per credit of $947 increased 68% from the 2006 auction. The maximum and minimum credit prices were $1019 and $869 respectively. The credit allocation and the cost to each organisation is shown in the table below.

Organisation

Credits allocated

Total cost

Macquarie Generation

50

$50,250

Ravensworth Operations

45

$41,685

Hunter Valley Operations – Coal and Allied Pty Ltd

37

$33,569

Warkworth Mining Pty Ltd

20

$19,200

Liddell Coal Operations

20

$17,770

Xstrata Mangoola Pty Ltd

10

$9,110

Bengalla Mining Company

10

$9,850

Bulga Coal Management

5

$5,095

Xstrata Mt Owen Pty Ltd

3

$2,913

Hunter Valley Energy Coal Pty Ltd

0

$0

Wambo Coal Pty Ltd

0

$0

Anglo Coal (Dartbrook Management ) Pty Ltd

0

$0

Redbank Project Pty Ltd

0

$0

Total

200

$189,442

 

Figure 1 below shows the highest, average and lowest successful credit prices offered for each of the 10 rounds. By the last round, the difference between the maximum and minimum successful bids was $150 which is 14.7% of the maximum bid per credit.

graph - 2008 auction results

Figure 1 – HRSTS Credit Auction 2008 Results

The rate of increase of the highest and average bids remained relatively constant throughout the auction, with a slight increase in bid price in the final two rounds of bidding (see Figure 1). This is in contrast to the 2006 auction where bidding increased in a stepwise manner until the bid price increased more steeply in the final rounds. The decreased number of bid rounds (10 in 2008 compared with 21 in 2006) may have encouraged bidders to place fewer but higher value bids rather than waiting until the final round of a greater number of bid rounds to secure credits.

Revenue and costs

Net revenue from the auction ($189,442 less expenses including GST of $17222) will be used to offset the HRSTS participants’ scheme contribution for the 2007/2008 scheme year.

Objectives achieved

The HRSTS auction process is designed to:

  1. Distribute credits to stakeholders who place the highest ‘value’ on the credits;
  2. Provide equitable access to credits for all bidders, including new entrants to the market; and
  3. Ensure that all available credits are taken up (NSW Government not left holding credits).

To ensure these objective are met, the auction process:

 

  1. allows bidders to learn about the auction process and the market value of credits as the auction proceeds
  2. ensures bids are genuine and reduces the possibility of bidders defaulting on a winning bid
  3. includes safeguards against anti-competitive behaviour1.

 

Against these objectives the DECC can report that:

  1. No complaints were submitted about the distribution of the credits or the way in which the auction was conducted.
  2. All 200 credits were taken up and invoices have been forwarded to the successful bidders.
  3. There was no apparent anti-competitive behaviour.
  4. The auction has achieved a distribution of credits based on the value of credits to the operational requirements of existing licence holders and new companies entering the market. The auction distributed 190 credits between companies that are already HRSTS participants with a discharge licence.

Xstrata Mangoola Pty Ltd (formerly Centennial Coal Pty Ltd), who recently received development consent for the proposed Mangoola (formerly Anvil Hill) Coal Mine and who do not hold a discharge licence, acquired 10 credits. 1. Department of Environment and Conservation: “Proposal – Auctioning Hunter River Salinity Trading Scheme Credits” (2003)

Feedback received

Feedback on the auction arrangements and the outcomes was sought from all participants. Feed back received was positive. The advanced advertising of the auction was well received and containing the auction to 10 rounds was widely viewed as an improvement on previous auctions. The following suggestions were made to improve the 2010 auction:

  1. Provide a venue with room to allow individual tables for bidders;
  2. Allow a person to bid on behalf of multiple legal entities or improve the bidder registration process so that bidders are fully aware that they can only bid on behalf of one legal entity.
  3. Consider shortening the process to five rounds of bidding.

DECC’s response to feedback suggestions

  1. DECC will investigate an alternative venue in Singleton that can provide more room for the necessary seating arrangements.
  2.  For the 2008 auction the circumstance arose where one person registered to bid on behalf of three different legal entities. DECC only advised the registered bidder that this was not permitted immediately prior to the auction. The suggestion has been made that either DECC allow one person to bid on behalf of multiple legal entities, otherwise DECC clearly communicate through the registration process that a person may only bid on behalf of one legal entity.

    The auction process is designed to safe-guard against anti-competitive behaviour and allowing one person to bid for multiple legal entities was never envisaged for that reason. If a parent company wishes to send only one person to the auction, they can bid on behalf of one entity and allocate credits to any other entity via the credit register after the auction.

    In future, DECC will advise people registering to bid at auction that they will only be permitted to bid on behalf of one legal entity.
  3. An important function of the auction process is to allow bidders to learn about the auction process and the market value of credits as the auction proceeds. For this reason, reducing the auction time to 5 bid rounds may not afford new bidders sufficient time to become familiar with the auction process. DECC will retain the 10 bid round format for the 2010 auction.
Page last updated: 18 June 2013