Australian watchdog bars AGL from buying Loy Yang

Sept 8 - A bid by Australia's top energy retailer, Australian Gas Light Co , to buy Loy Yang Power, the biggest power plant in Victoria, was blocked by the country's competition watchdog on Monday for the second time. The move could open the door to a bid from Malaysian casino operator and power group Genting Bhd , which said last week it was interested in buying up to 50 percent of Loy Yang after earlier withdrawing a joint bid with Malaysian conglomerate Sime Darby Bhd in March. "The Genting consortium is now strongly committed to proceeding with a bid," said a source close to the Malaysian power group, who declined to be named. The rejection of the A$3.5 billion ($2.3 billion) bid dealt a blow to Loy Yang's U.S. owners, CMS Energy and Xcel Energy's unit NRG Energy, who are eager to sell the debt-laden power plant. AGL, leading a consortium that includes Japan's biggest power firm, Tokyo Electric Power Co , and Commonwealth Bank of Australia , said it remained committed to the purchase.

"We are considering all options in relation to our proposed 35 percent minority interest. We fundamentally disagree with the decision adopted by the ACCC," AGL spokeswoman Jane Counsel said. CMS owns 50 percent of Loy Yang, while NRG owns 25 percent. The remaining 25 percent is owned by Horizon Energy Investments . Horizon said the Loy Yang partners would seek an extension of finance arrangements from their lenders if the sale to the AGL-led consortium fell through but added there was no guarantee that such an extension would be agreed to. The current extension expires on November 11. MARKET POWER AGL and its partners held extensive talks with the Australian Competition and Consumer Commission (ACCC) to try to address concerns about Australia's biggest energy retailer and distributor owning the largest and lowest-cost generator in Victoria.

But the commission said none of the undertakings offered eased its concerns that AGL would have the potential to manipulate the wholesale market and raise the costs of power and electricity hedges bought by its retail rivals, which in turn would hurt businesses and households. "Allowing the acquisition of an interest in Loy Yang Power by AGL to proceed would severely limit the further development of a competitive market and would inhibit greater retail competition in Victoria to the detriment of Victorian businesses and households," the competition commission's new chairman Graeme Samuel said in a statement.

AGL shares closed up 0.1 percent at A$10.79 in a broader market up 0.5 percent. Horizon shares, on a trading halt all day ahead of the commission's announcement, closed on Friday at seven cents, valuing its equity at A$23.5 million. ($1

A$1.54)