Good morning. Thank you all for joining the APA Group FY22 result presentation. My name is Kynwynn Strong, and I am the General Manager, Investor Relations at APA. In terms of today's session, to start, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the Star key, followed by the number one on your telephone keypad. We will start with a formal presentation by our CEO, Rob Wheals, and CFO, Adam Watson, and then we will open it up to question. I will now hand over to Rob Wheals, our CEO. Please go ahead, Rob.
Good morning, and thank you for joining this morning's call. I want to start by acknowledging the traditional custodians of country throughout Australia and pay my respects to their elders, past, present, and emerging. I'm joined today by APA's CFO, Adam Watson, and we are together on Wurundjeri land here in Melbourne. As we announced on Monday, I will be stepping down as CEO and Managing Director of APA at the end of September 2022. After 14 years with the business, including three years as CEO and Managing Director, I'm proud to leave the business in a strong position, both financially and operationally. It has been a true privilege to lead APA and to have been part of an outstanding team of people who have together built a truly great business.
Adam will be stepping into the acting CEO role when I move on, while the board conducts a search for a permanent replacement. I'm confident that Adam, together with the other members of the executive leadership team, will continue to take this great business from strength to strength. Financial year 22 marks another year of solid performance for APA. With gas dominating the headlines in a year marked by an energy crisis on Australia's East Coast, we've had what I call a real-time window into just how critical gas and gas infrastructure will be to the energy transition. APA plays a vital role in maintaining Australia's energy security. To this end, this past year has seen APA progress with a number of significant gas infrastructure investments ahead of market requirements and in a direct response to customers' needs.
This is alongside continuing to expand APA's renewables portfolio to support customers in reducing their emissions as they, like APA, seek to decarbonize their operations. I want to take this opportunity to thank our employees, our contractors, and our partners who support us around the country. It's their hard work and dedication that allows us to achieve the results we're announcing today. With that in mind, I can't emphasize enough that the safety of our people and the reliability of our assets are fundamental elements of our business that underpins everything that we do. We employ nearly 2,100 people, and their safety is always at the top of my mind. I'm proud to say that we continued to make improvements to our total recordable injury frequency rate or TRIFR, achieving a 43% reduction during FY22. That's 43%.
Pleasingly, it has been another good year for process safety as well, with a program in place to further mature our approach. Notwithstanding this impressive result, the business won't stop in its efforts to lift the bar to continue to keep our people safe. At the same time, we've delivered our gas transmission nominations 99.9% of the time, which I think is something really to be proud of. Our FY22 financial performance again demonstrates APA's success in navigating challenging market conditions and delivering another reliable and solid performance. Now you've seen the preliminary results on Monday, and so here's some more detail. I'm pleased to report that compared to last year, revenue is up 4%, and underlying EBITDA is also up 4%. Our free cash flow is strong and up 20%.
Full-year distributions of AUD 0.53 are in line with guidance and up 4%, which I'm proud to say is a continuation of 18 years of growth in distributions to security holders. We're announcing distributions guidance for FY23 of AUD 0.55 per security, which is again up 4% on FY22. Revenue and earnings growth were driven by a solid performance from our key energy infrastructure assets and a positive leverage to inflation. The solid performance both underscores the strength of the business today and the capacity that exists to continue investing in the energy transition. What's more, our strong free cash flow and strong balance sheet will support the business to deliver on APA's growth strategy. Throughout FY22, we've invested in energy infrastructure that will be vital for our nation for today and into the future.
That's consistent with APA's vision and our purpose. We've invested in both gas infrastructure and renewables and responded to the changing needs of our customers and our communities, while also progressing our efforts in new energy technologies like hydrogen through our Pathfinder program. We've done this while maintaining a strong balance sheet and financial discipline. Many of APA's investments have built critical momentum during the year. In FY22, we progressed the expansion of the East Coast Gas Grid ahead of market shortfalls. We've commissioned the microgrid in Western Australia, which includes solar. It's supported by a battery storage system, and it's underpinned by gas generation. We've commenced construction on an 88-megawatt solar farm in Mount Isa. We've progressed hydrogen pipeline research following the international validation of the first stage of our test results.
We've also progressed the Central Queensland Hydrogen Project, which is a feasibility study with Stanwell and our Japanese consortium partners. I'm also pleased to report significant progress has been made during FY22 on APA's ambition for net zero operations, and that's culminating in the publication of our climate transition plan. The plan details APA's interim 2030 climate commitments, which include a target to reduce emissions in our gas infrastructure portfolio by 30% by 2030. That's 30% by 2030, with a goal for net zero operations emissions by 2050. We also have a goal to reduce emissions intensity for power generation by 35% by 2030, and a more ambitious goal of net zero operations emissions by 2040 for our power generation and electricity transmission infrastructure. Now importantly, these commitments are, firstly, fit for purpose. Secondly, they are based on currently available and proven technologies.
Thirdly, they are tailored to reflect different rates of decarbonization within our diversified energy infrastructure portfolio. Now I'll return to the climate transition plan and these commitments shortly. As I said in my opening remarks, the challenges in the National Electricity Market, or NEM, have brought into sharp contrast the kinds of shocks that must be avoided in order to navigate an orderly transition in Australia. Now as we know, coal generation is still responsible for well over half of the electricity generated in the NEM. It is declining, and it's becoming increasingly unreliable, and that is driving an increased reliance on gas generation. We saw this particularly in the month of May this year when gas generation increased to 1.6 TWH. Now that's a staggering 50% increase on the May of the prior year. We see a continuation of those trends today.
Now, this growing reliance on gas underscores the heavy lifting that it's doing right now in the electricity sector and also the critical role that it will continue to play into the future. Now, my comments were about the electricity sector, but this is true too for the high heat and hard-to-abate manufacturing sector where gas is currently irreplaceable as an energy source. Now, on a daily basis, the flexibility and the reliability of gas is essential to maintaining grid stability given the intermittency of renewables. This slide provides a snapshot over one week from earlier this month, and it demonstrates exactly what I'm referring to. The renewables generation mix that you can see there constantly changes. Gas, which is shown in yellow, that's gas generation, it remains a constant. It dials up, and it dials down, and it responds to the daily peaks and troughs.
Now, the new federal resources minister said earlier this month, natural gas is the ally of renewable energy. Now I often talk about it as being the companion, the best companion. Natural gas is the ally of renewable energy and will support the addition of more intermittent energy sources. To put quite simply, gas generation is the key ingredient to help Australia fast-track the energy transition. That's why it's so important that as a nation, we continue to invest in domestic gas. To quote the resources minister yet again, and I quote, "The best solution to the tight domestic and international gas markets is to boost supply." We need to continue to see this type of clarity and strong advocacy from governments for developing domestic gas supply.
I would absolutely echo what the minister's saying, that boosting supply is the right solution, and that's why governments should also reject Squadron Energy's request for a handout for its proposed import terminal in Port Kembla. If we were to proceed with gas import terminals on the East Coast, Australia would be, and think about it, in a somewhat bizarre position of being a leading gas exporter while simultaneously importing potentially the same gas. It's also disingenuous to stop the much-needed new gas development in Australia while at the same time supporting high cost, higher emissions, LNG gas imports from elsewhere. That's why frontier basins in the Northern Territory, Queensland, and elsewhere will need to be developed and require connection to the East Coast markets.
Our focus on development opportunities will help connect and support incremental domestic gas production to markets in the most efficient and cost-effective way. Now, as gas generation in the south of eastern Australia, as we know, is forecast to decline, it's putting greater reliance on supply from the north for delivery to eastern and southern markets. APA's investments on the East Coast, in particular our East Coast Gas Grid, are in a direct response to these forecast supply risks and our customers' needs. Now, on the other hand, on the West Coast, our investments are driven by strong demand to transport gas to the growing resources sector that will unlock new investments. These include resources in metals and minerals that will in turn support the energy transition.
Our customers need secure and reliable gas supply during this time of energy transition, and APA is supporting them to do just this. We're investing to increase capacity by some 25% on the East Coast Gas Grid. We're expanding the South West Pipeline in Victoria. We're constructing the Western Outer Ring Main, or WORM, as we like to call it, which is a transmission pipeline in Victoria. We will deliver the pipeline connection for the Hunter Power Project in New South Wales, which in turn should facilitate further expansion of renewable generation in the NEM. We are constructing the Northern Goldfields Interconnect Pipeline to support strong gas demand in the resources sector of Western Australia. It's not solely about gas. The business is also very much focused on the other investment opportunities in the energy transition, of which there are many.
There is enormous potential and opportunity for APA to invest in electrification, renewables, and new energy technologies by leveraging our existing capabilities to broaden our business into other growing energy infrastructure markets. Now, AEMO's 2022 Integrated System Plan, or ISP, as we call it makes clear that Australia effectively needs to rebuild the national electricity market, or NEM. Now, this involves nearly doubling the amount of electricity that it delivers now, building out a ninefold increase in grid-scale renewables, trebling the firming capacity, which includes gas generation, and installing over 10,000 km of new transmission lines to bring all this new energy to market. If you step back and have a think about that's a monumental undertaking. It's gonna require careful planning and execution, and I am confident that APA has the strategy and capability to play a critical role.
I'll now hand over to Adam Watson, APA's CFO, to talk you through this year's financial performance. Thank you, Adam.
Thanks, Rob, and good morning, everyone. Before I dive into the financials, though, I'd just like to take a moment to acknowledge Rob's considerable contribution to the success of APA. It's been an outstanding 14-year career, Rob, and it's included the ongoing enhancements to our East Coast Gas Grid, the recent development of our West Coast business, and even most recently, the development of our climate transition plan, just to name a few. I know you would say this has all been a big team effort in your usual style, but you've been key for all this. Rob, you'll be leaving the company in a position of strength, both financially and operationally, and today's result hopefully clarifies and demonstrates that. More than that, you're a fantastic person. On behalf of the APA team, we wish you all the very best for your future.
To echo Rob, and I'm on slide 16, we're very pleased with our financial results for FY22, which builds on the positive momentum we saw during the first half. At the macro level, our revenue and underlying EBITDA were around 4% higher than last year. Free cash flow was up an impressive 20%. Our distributions are 4% higher, and we continue to have a very strong balance sheet. Today's results reflect our investment thesis. We have solid foundations such as our inflation-linked revenues and our diverse customer base. Our strong cash flow conversion is another foundation, which allows us to appropriately balance our desire to internally fund our investments where possible and concurrently reward our investors with healthy distributions.
We govern and manage these foundations through our capital strategy.
Which continues to serve as a critical tool to create value for you, our security holders. We start our analysis on slide 17 with a bit of detail about our key financial line items. I'll talk through our revenue and EBITDA drivers in a moment, but suffice to say, we have benefited from favorable inflation impacts and solid ongoing operating activity. Depreciation and amortization was higher because of our growing asset base. Interest expense was lower because of our recent liability management activity, havingst refinanced AUD 2.2 billion of debt last year at attractive long-term rates. We recorded a small favorable significant item following the sale of Orbost. As I said before, cash flow was strong, distributions in line with guidance, and we have a strong balance sheet. Slide 18 provides some detail on our segment results, and I'll call out a few highlights.
The East Coast benefited from the ramp-up of Orbost and stronger demand from the Victorian Transmission System. Our East Coast earnings were otherwise relatively stable year on year. The West Coast continues to deliver solid results, which for FY22 was influenced by our new goldfields laterals. The Wallumbilla Gladstone Pipeline had strong tailwinds in the second half, with the 7.5% inflation escalator kicking in for the twelve-month period beginning 1st January 2022. Our power generation assets performed strongly. Asset management was slightly lower than last year, which benefited from a high volume of service contracts in the second half of 2021. I'll talk to our costs in a moment. Our revenue bridge on Slide 19 tells a fairly simple story.
On the basis we largely generate revenue by selling capacity, our key drivers of revenue growth continue to be tariff escalation and contributions from new assets. The latter is why our organic development pipeline is so important, and we continue to have positive demand coming from assets such as the Victorian Transmission System. Moving on to our costs on slide 20. I'd once again like to acknowledge our teams who continue to drive operational efficiency improvements. If I can make a specific call-out once again to our operations and maintenance and our procurement teams. You can see that we've been able to maintain a low level of operating cost growth despite a growing asset base and despite the inflationary environment. Importantly, this was done without compromise to our safe and reliable operations.
You can see that we increased our spend on strategic growth projects during the period, which was largely a result of our bidding costs associated with the proposed acquisition of AusNet and a proportion of our costs associated with the acquisition of our interest in Basslink. Our corporate costs reflect the intentional investment we are making to strengthen our capability. This is crucial to ensuring we are well-positioned to pursue our growth opportunities and ultimately create sustainable long-term value for you, our investors. The growth you can see here reflects the program of works that begun last year, which includes investments we are making in areas such as sustainability and community, technology, and business development. Insurance premiums and regulatory compliance costs have continued to increase year-on-year.
We're enhancing our investment in areas such as physical and cyber security, and we are investing to enhance our systems and processes to become more efficient and more scalable. These investments improve the way we get things done at APA and go a large way in making us an employer of choice. Turning to slide 21. Our solid earnings growth and recent capital management initiatives have been instrumental in delivering strong cash flow growth during the period. The liability management exercise we executed in March last year has delivered tax savings and, more importantly, sustainable interest cost savings. We said the transaction would be value accretive, and we said it would be free cash accretive, and you can see this being delivered in our results today.
The lower tax payments are also in part owing to the federal government's accelerated depreciation allowance for capital projects, which will continue through to June 2023. We had lower stay in business CapEx during the period, which last year was unusually high, largely because of the overhaul works at Diamantina. Moving now to slide 22, where we address inflation. The purpose of this slide is to remind our audience about the favorable exposure we have to a rising rate environment. More than 90% of our revenues are inflation-linked. At the request of some investors and analysts, we have provided you with a rough split of our A-dollar revenues between those that escalate quarterly and those that escalate annually. You can see that at the bottom left of the slide, and we hope you find this informative. Our biggest cost, interest, is currently fully hedged.
We don't have any material refinancing due until 2025, and with an average debt maturity of seven years, we are well protected from potential future interest rate rises. Typical of a capital-intensive infrastructure business, we also generate high margins, which helps to cushion the impact of high inflation on our earnings. I mentioned earlier, we're making long-term investments in capability to ensure we have a sustainable future and to ensure we are scalable as we grow. On slide 23, we have called out some of the initiatives that are underway across our technology programs, business resilience, and net zero. With these investments, we're trying to ensure we achieve an appropriate balance between meeting the needs of our security holders and at the same time, the needs of the communities in which we operate. We hold the strong view that they can be complementary.
Like our investment and capability, our capital strategy is also fundamental in supporting our resilient business operations and to facilitate growth. We continue to deliver value for our security holders and use our capital management strategy as a tool to achieve this. Our liability management exercise undertaken last year is an example of this in action. Similarly, you can see on slide 24 that we took action early last year or early this year, I should say, to ensure we had a longer-term debt facility in place to support the acquisition of Basslink's debt and to fund our AUD 1.4 billion organic growth pipeline. We tapped a new investor base for our syndicated loan facility with investors across Asia and Australia, and we priced 5-year debt at 4.9% and 7-year debt at 5.2%. Finally, to slide 25.
We're often asked about how we approach our investment criteria. This slide is intended to address the key aspects we focus on. I won't repeat everything on the page, but in summary, it's about ensuring we have a few fundamental principles in place. The first thing is to make sure our assets and operations are safe and reliable. This is key to our people, it's key to our customers, and it's key to our communities. Our investment in stay-in-business CapEx is an example of this in action. As I mentioned earlier, we also need to ensure we are investing for a sustainable future. Key to this are our systems and processes and our net zero commitments. M&A assessments are undertaken through the lens of strict hurdle rates and a focus on ensuring we create long-term value for you, our security holders. We remain disciplined with this approach.
We know distributions are important to our investor base, and we look to ensure we have an appropriate balance between growing our distributions and efficiently funding our growth. We ensure we can be nimble by having a suite of products at our disposal to create value. Again, I call out our recent efforts with strengthening our debt book as an example. I look forward to your questions later, and I'll now hand you back to Rob.
Thanks, Adam, and thank you also for your kind words. It now gives me great pleasure to take you through the key features of APA's climate transition plan, which we've published today. Now, this plan is the culmination of many months of hard work by our teams, and I wish to thank them all for their tremendous efforts in contributing to this exciting step forward in APA's pathway to net zero. Just really wanna underline that there's been a huge effort by a lot of people across the APA team. Very proud of what we've achieved. This climate transition plan underscores the business' commitment to Australia's energy transition, which we believe is consistent with the objectives of the Paris Agreement.
Now, the publication of the interim 2030 commitments is not the beginning, but it continues the momentum over the past several years in managing climate risks and opportunities. Today's plan follows the publication in October 2020 of APA's climate position statement and the portfolio-wide resilience testing that we undertook at that time. It also follows the announcement of our ambition for net zero operations emissions by 2050, and the release of our climate change management framework, and those are both done in 2021. We're here to talk today about our climate transition plan. Advancing APA's climate change management approach with interim 2030 emissions reductions commitments embeds a pathway to achieve APA's net zero ambition, and it firmly positions APA to achieve our growth agenda. Now, I'll give you an overview of our interim commitments.
Critical to APA is that the business' commitments are based on, one, currently available proven technologies, and two, are tailored to reflect the different rates of decarbonization expected for different asset sectors. Just to repeat that, based on currently available proven technologies and reflecting the different rates of decarbonization for different asset sectors. Our commitments are described as either targets or goals. Where the business has set targets, then there's an identified pathway to achieving those results. Where there's no current pathway and there's further work to do, then we define that commitment as a goal. It's very important. Now, APA has set a target to reduce emissions in the gas infrastructure portfolio by 30% by 2030. That's 30% by 2030, with a goal for net zero operations emissions by 2050.
Critically, the target for our gas infrastructure portfolio is based on emissions reductions that are achievable from proven technologies. As these technologies develop and opportunities become more affordable, APA will continue to evaluate new opportunities to advance this ambition. We've also set a goal to reduce emissions intensity for power generation by 35% by 2030. That's 35% by 2030 for our power generation. The decision to split the target or the targets reflects that APA's infrastructure portfolio includes different types of assets that will decarbonize at different rates. It ensures these commitments are fit for purpose, and importantly, it also allows the business to bring forward its power generation net zero goal a whole decade earlier to 2040. This ambition can be accelerated 10 years earlier because there are known technologies available to achieve it.
Our goal has always been to accelerate our ambition, if that was at all possible. I'm now gonna provide a little bit of detail on our gas infrastructure portfolio. Now we've sought to align our targets and goals with the objectives of the Paris Agreement, and we've taken a bottom-up approach as we assess the material opportunities for emissions reduction. The 30% emissions reduction target for gas infrastructure, as I said earlier, is based on using existing technology, which gives us confidence that it is achievable. Priority is being given to structural abatement where reasonable. Our assessment has focused on four material opportunities of emissions reduction. That's around our compressor methane emissions, other site methane emissions, compressor operational efficiency, and also the electrification of compressors where that is possible.
Now, there will need to be a reliance on responsible offsets to some degree. However, there is an expectation of further opportunities for emissions abatement as we further progress asset level evaluation and embed these in our asset management plans. Now, moving to our power generation assets. The emissions profile of APA's power generation assets is already very efficient, with emissions intensity at less than half of the NEM, meaning the starting point is already well below common benchmarks. Now, there are also a range of complex variables to consider in setting goals focused on the things that we can control, and our role in the decarbonization of the wider grid was important to us as well.
We considered a range of roadmaps in setting this goal for power generation by investment, and we believe meeting the AEMO Step Change scenario at 2030 and then aiming for net zero by 2040 provides the most achievable and realistic pathway. This brings the net zero commitment for this part of the business forward, as I said earlier, a whole decade to 2040. Now, also detailed in this plan is the continued evolution of our approach to climate transition scenario analysis and resilience testing. You'll probably remember that in 2020, we undertook resilience work which we published, and our resilience testing then confirmed APA's portfolio of assets remained robust under each of the model scenarios, which included a 1.5 degrees Celsius pathway. That analysis was done at a APA portfolio asset portfolio level.
In 2022, we've taken this analysis to the next step, and we're looking to assess specific asset resilience, and we've included this in our climate transition plan. Now we've evaluated the resilience of four APA assets to climate transition risk under different Paris-aligned scenarios. What we found across all these scenarios was that the Moomba-to-Sydney Pipeline and the South West Queensland Pipeline taken together were relatively resilient all the way through to 2040 across all the scenarios, providing that northern gas supplies continue to flow to supply demand in the south. We found that the Victorian Transmission System, or VTS as we call it, was not significantly impacted given the nature of the regulatory regime.
For our Diamantina Power Station complex, of which there's a range of different power stations, the role of the generation plant can change from base load to firming or peaking. This really, the role that it plays varies across the different scenarios, across the different time periods with a range of potential financial outcomes. Now, I'm sure you'll agree that the plan that we put together, the climate transition plan, provides a comprehensive analysis of the climate risks, the challenges, and the opportunities confronting the APA business. It's underpinned by commitment to security holders to a non-binding advisory vote on APA's climate transition plan at our 2022 annual meeting. The business will also report annually on progress against our targets and our goals and our commitments. Before we get to your questions, let me wrap up the key takeouts from today's presentation.
Once again, we've delivered a solid financial performance in financial year 2022, and our distribution's online with guidance. Our free cash flow and balance sheet are strong. Our organic growth pipeline has real momentum behind it. We're investing in our business and our pathway to net zero. With our strong balance sheet and liquidity, the business is guiding to full year distribution of AUD 0.55 per security in FY 2023, demonstrating our confidence in the outlook for APA. To wrap up, there are strong foundations to pursue investments for the energy transition, and there are enormous opportunities for this business to grow and prosper in the future. With this energy crisis giving us this real-time window that I describe into just how critical gas and gas infrastructure will be in the energy transition, we continue to invest in gas infrastructure with absolute confidence.
I'm certain there is the strategy and the capability to deliver this vision and to keep APA always powering ahead. I'm also certain the business will continue to thrive under Adam's leadership. With that, we'll now move to Q&A. Now, in addition to Adam and myself, I've also invited along APA's General Manager of Climate and NetZero, Megan Salisbury , to join us for this part of the call. Megan will be able to assist us with answering any questions of detail on our climate transition plan. Thank you.
Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you're on a speakerphone, please pick up your handset before you ask your question. Okay, our first question comes from Tom Allen of UBS. Please go ahead.
Hi. Good morning, all. Rob, congratulations on your achievements and contribution to APA over the last 14 years. With the announcement that you're gonna depart the business in September, recognizing also that APA's Group Executive for Strategy and Commercial and a couple of APA's most senior and experienced general managers in the commercial team are also leaving at what appears to be a key juncture in APA's history altogether suggests there's been a significant shift in strategy, possibly risk appetite since the Investor Day earlier this year. I'm hoping you can please provide some or clarify exactly what's changed, specifically the three key factors that have led to APA walking away from U.S. Growth.
Thanks, Tom, and thank you also for your kind words. Firstly, you know, we're very proud to have another strong financial result and you know, the news of my news on Monday, I think is all covered on Monday. Just to address your question around strategy, the key thing I think we need to reflect on is that we do see the US as an attractive market. However, a lot has changed over the number of years that we've been looking at that opportunity. You know, when you look at the energy transition and the opportunities in front of us here in Australia, there are plenty of those.
You know, I described the opportunity in front of us in Australia as a monumental undertaking to rebuild the NEM, to invest in electricity transmission and renewables and all the firm that goes with it. When we take all of that into account, and then look at the risks and challenges of investing abroad, we've made the decision that it makes sense for us to focus where our competitive advantage and our capability is here in Australia. That hopefully addresses your question around strategy. There's really no major shift aside from the fact that we've made that decision, Tom, that the U.S. is not one of those building blocks for us.
There's plenty of opportunity to focus on not only extending our focus on the gas infrastructure, which hopefully became very clear through my comments this morning. We remain very confident in the role that gas infrastructure will continue to play in Australia's energy transition. Like I said, a significant opportunity to invest in the new infrastructure right here in our home country.
Thanks, Rob. Focusing where your competitive advantage and capabilities make sense. I was hoping you could provide some further color on the possible total growth CapEx demands on the business over 2023 and 2025, including a comment on the range of CapEx that might be required for APA still to the Central-West Orana Renewable Energy Zone, and Basslink. Just how these might impact possible capital management initiatives over the next couple of years. I think some investors might have been expecting a little bit more in the dividend growth looking forward, and hinting that maybe the total CapEx demands might have impacted that.
Thanks, Tom. Look, I'll just talk to how we see the growth opportunities and how that reflects in our CapEx growth. Then I'll ask Adam just to talk to your question around distributions. I think we're being pretty consistent around over the last number of years of our growth CapEx pipeline exceeding AUD 1 billion all the way up to the AUD 1.4 billion, which we mentioned today. That's pretty consistent. Clearly, a lot of what we see in front of us is those opportunities that constitute that AUD 1.4 billion. You did mention participating in the New South Wales REZ process. Obviously, we are shortlisted and very pleased to be shortlisted in that process.
Clearly, the outcome of that is some way away, so we're unable to give an indication of what that's gonna look like. I think you can remain confident that we are confident in the AUD 1.4 billion of growth over the next two to three years.
Tom, thank you. Just on the capital strategy that sits behind and supports that. You know from today's result, we've guided to AUD 0.55. That's just a touch under 4% higher than the FY22 result. We, as an organization, know that the distributions are important to our investor base. What we're really targeting, and we've spoken about this at Investor Day a couple of times, is that we want to ensure that we've got consistently growing distributions is the main goal. We do that within the envelope of a payout ratio. It's at 60%-70%, so that's designed in a way to provide us with cash available to fund that organic development pipeline that Rob spoke to.
That's something and we've said this, you know, many times, but that's something we just will always continue to monitor to ensure that we can get that balance right between keeping the distribution healthy. Equally making sure that where it makes sense that we can internally fund those growth opportunities.
Okay. Thanks, Adam. Thanks, Rob. If I can just sneak one last question. Just currently APA, I should say, provides the only interconnected supply chain of gas transmission services from Queensland to New South Wales and Victoria. Can obviously extract a lot of value from that position. With Santos buying the Hunter Gas Pipeline Development Authority. Now, recognizing it's not a pipeline license, it's only a development option, but if that pipeline were built all the way from Queensland into Newcastle, poses a significant risk to APA's value proposition on the East Coast. Can you explain how you're managing that risk? Perhaps why you think that pipeline might not be developed.
Yeah. Tom, I'll take that question. Look, firstly, I'd say that the development of more gas resources on the East Coast is a positive. There's gonna be some positive momentum forward in the development of Narrabri. That's a good thing. We are discussing the more recent announcement with Santos and its implications, but I can't comment on that further. What I would say is that you rightly described the purchase of the Hunter Gas Pipeline. It's unclear exactly what that is and whether that pipeline will be developed. When you...
What I think is more important is to focus on the existing infrastructure that carries gas every day of the week, every day of the year from Queensland all the way through to Victoria. The most efficient and cost-effective way to bring more gas to market is through the incremental expansion of that system, which, as you know, we are doing right now with our stages one and two, increasing capacity 25%. I think we've also signaled our design work already underway around what a potential stage three would look like. Now, that's always gonna be the fastest, most cost-effective and most efficient way to bring more gas resources to market.
Okay. Thanks, Rob. Thanks, all.
Thank you. Our next question comes from Gordon Ramsay of RBC Capital Markets. Please go ahead.
Oh, thank you very much. I'm just gonna jump on the strategy bandwagon as well. The US, kind of strategy was, you know, acquisition based. The question really comes down to the appetite for inorganic versus organic growth going forward, recognizing you've got AUD 1.4 billion in projects in the pipeline, but clearly the US was gonna be driven by inorganic and just wanted to understand how that is positioned now that you're focused on Australia.
Gordon, Rob here. Look, I won't repeat my comments made earlier about our decision around the US. I think that's clear and that was covered off also in Monday's announcement. To answer your question around organic versus inorganic, you know, we're always gonna assess what the right opportunities are in front of us. When I look ahead at the undertaking of rebuilding the National Electricity Market over the coming decades, the 10,000 km of transmission links, the ninefold increase in large-scale renewables, the threefold increase in firming, which includes gas generation. When you stare at all of that's billions and billions, tens of billions of dollars. Whatever number you put on it, you know you're gonna get the wrong number.
It's gonna be more. That's another way of answering your question, is to say there's significant organic growth opportunities in front of APA. We believe we've got the strategy.
Okay.
the capability to participate in that.
The focus is on generation renewables infrastructure, on the electricity side, more so than gas?
Sorry, Gordon, I just missed the first part of your question. If you don't mind repeating it, please.
I'm sorry. The focus is more on the electricity side of the energy equation, infrastructure, generation renewables, as opposed to gas infrastructure going forward.
No, just to be very clear, we remain very confident in the role that gas will continue to play in the energy transition. When you think, just going back to my points earlier about the enormous undertaking that has to be implemented over the coming decades of rebuilding the national electricity market, effectively doubling it. That's an enormous undertaking. It's gonna take time, and gas gives us that time. Gas infrastructure's a very big part of the energy transition. In fact, you know, we see it as a way you can fast-track coal out of the system, bringing more renewables in and supporting it with gas.
In terms of our strategy, just to be very clear, it involves a continued investment in gas infrastructure to support that energy transition, to invest in the renewables on a contracted basis. As you know, our business is about investing in energy infrastructure where we have long-term contracts that support it. So whether that's on-grid or off-grid, we'll be investing in renewables, we'll be investing in the firming that goes with that, whether that's gas or batteries or other form of infrastructure. Of course, we've declared our focus around electricity transmission infrastructure with our interest in the New South Wales renewable energy zone processes, as well as our acquisition of the debt in Basslink with the ultimate goal of acquiring that asset.
Okay, that's good. Thanks, Rob.
Thanks, Gordon.
Thank you. Our next question, Rob Gillam, CLSA. Please go ahead.
Thank you. Good morning. Please can I join the long line of people wishing you well, Mr. Wheals, and congratulations on a wonderful career with APA. Wish you well for whatever is next in your journey. Maybe can I ask my first question just in relation to slide 22, which is very helpful. Thank you. That's about the inflation escalation. Can I just double-check that the annual escalation is that meant to be financial year, so that's what we should be modeling for FY23?
Rob, firstly, thank you for your kind words. It's been a tremendous 14 years and, you know, when I reflect on that it's a big part of anybody's life. When I first started at APA, my eldest was in kindy, he's now 20, so that gives you some idea. In terms of answering your question on inflation, I'm gonna look to Adam on my left here to answer that on that chart.
Thanks, Rob, and morning, Rob. The inflation escalator chart is not meant to provide a financial year or an annual year snapshot. It's a look at our contracts. The chart there, just to be clear too, is our Australian dollar inflation escalators. You've got Wallumbilla, which is a US dollar one that sits outside of that, and you know how that one works. This is just to look at our contract base, and to provide you with some views around that contract base. Remembering that more than 90% of our revenues, including Wallumbilla, are inflation-linked. They are split. You can see it there. It's about half of it evenly split between annually escalating or quarterly escalating.
Okay. Cool. Thank you, Adam. That's helpful. Can I ask a question about the decarbonization targets, seeing as you have your head of climate on the call as well? Thank you very much for the target and the details. Just want to understand how you're thinking about growth, acquisition, and divestments and how those would be treated. Would you be able to meet your decarbonization targets by divesting of assets? If you were to acquire another asset, would you incorporate the target emissions within the base for reduction?
Thanks, Rob. I'm glad we got a question on the climate transition plan 'cause, like I said in my opening comments, there's a lot of good work that's gone into it. Look, firstly, our targets and goals are set by reference to our last audited emissions numbers, which is FY21. So everything's referenced off that, and that's our base year. Our plan is when you look on a look-forward basis is based on that. If we add to emissions in the normal course through organic growth, then obviously, as we call out in our plan, and we actually anticipate that supporting Australia decarbonize and more coal coming out, it might be that temporarily our emissions do go up, and we'll.
If that is the case, we'll call it out and also demonstrate how we show the whole system-wide emissions reducing. That's the first point because we do, you know, just to be very, very clear, see the role of gas as so important in helping Australia decarbonize. But if there was to be a major add on in terms of, let's call it an acquisition or divestment, then that.
If it's material enough, that would trigger a revisiting of what that baseline is, and obviously from that point onwards, we'd adjust our climate transition plan. I'm also looking across at Megan, and she's reminding me that if the shift in our emissions based on that transaction activity was in excess of 10%, that would be the time that we would trigger a revisiting of our targets and so forth.
Excellent. That's very clear. Thank you so much. Yeah, all the best.
Thanks very much, Rob.
Thank you. Our next question comes from Mr. Anthony Moulder of Jefferies Australia. Please go ahead.
Good morning, all. Since we're on climate, can we start there, please, with the CapEx profile of AUD 150-AUD 170? Is that? Do we think about that as being spent more towards the end of the decade as technology before that spend improves?
Thank you. It's Rob here. Look, I think that's obviously our best estimate today of what that CapEx will look like over the next, you know, seven or eight years, and it's pretty evenly spread. Based on when we're planning to do that, implement the structural abatement, which is where the majority of the CapEx is. It's certainly not back-ended, but it's not, you know, it's not even on an even basis, and it'll be lumpy from year to year. I've given you the exact process.
Sure. I appreciate that.
Just to remind you if I can, that AUD 150-AUD 170 is a P50 estimate based on the opportunities that we've seen in front of us and the way we screen them. The lion's share of it includes CapEx, but there is some OpEx, operating expenditure in there, as well as the cost of responsible offsets.
Very good, thank you. I want to ask, one of the operations, MSP, had a low second half 2022 relative to second half 2021. Anything particular in that that we should think about going forward, please?
Thank you. Look, I think the first thing I'd say is that we have to recognize the current changing market dynamics. You know, I won't go into that too much detail because I think you're well aware of just what's been happening in our energy markets. That presents a challenging time for our customers. A lot of them are taking shorter-term contracts or they're changing their supply sources. As we know, a lot of them have been looking to try and get new short-term contracts to focus on gas-fired generation. You know, when you take all of that into account, we can expect some changes from asset to asset from time to time.
When you strip out the contribution of the Orbost plant from our East Coast results, what you see is a relatively stable East Coast, albeit that there's some ups and downs on different assets. I think that just reflects the benefits of the diversified nature of the asset base. Just a few comments around what we saw over the winter period. We found that our pipeline system was largely fully contracted across the recent winter. A lot of customers taking short-term contracts to get them across the difficult times.
I think that criticality of gas for energy security that we've seen over the last few months gives us confidence in the volumes that will be taken up in stages 1 and 2 of our East Coast Gas Grid expansion.
Very good. Thank you.
Our next question comes from Ian Myles, Macquarie. Please go ahead.
Hi, guys, and sorry to see you go, Rob. Couple of questions, just again, on the climate side. Can you maybe just articulate in that 30% reduction in your pipeline usage? Is that just electrifying your pumps or gas pumps through the process? I guess the extension is, why can't it be 100%?
Well, Ian, Rob here, and thanks. Looking forward to catching up over the balance of this week. I think you focused on. As we sort of described our climate commitments around our gas infrastructure and then separately with the split target around our gas generation. For our gas infrastructure, I think you said a 30% reduction in our gas usage, but it's actually a 30% reduction in our emissions by 2030. There's distinctly a very important difference. Now, where we focus on emissions reduction is across four areas. Very simply, I'd put them into two buckets, which is methane emissions, which is either compressor-related methane emissions or site-related methane emissions.
That's really initiatives where we focus on making sure we can minimize methane emissions. You would have seen that we signed up to a methane protocol on reducing emissions. Secondly, around our compressors, there's two categories there, which is around focusing on things that we can do to make our existing compressor fleet more efficient. Finally, on a case-by-case basis, where it makes sense, replacing gas-driven compressors by electricity-driven compressors, so electrifying them. Now, it's fair to say that you can't easily go along and start to think about electrifying your whole fleet. I think that's plain to see given the remote nature of our network.
We've really focused on where we can make the biggest bang for the buck if you like. That is essentially how we've thought about things. We've looked at how can we reduce the most amount of our carbon emissions, and look at that on a cost basis and measure that against the cost of carbon with an abatement premium, which we've applied. That importantly means that we don't unnecessarily screen out opportunities because we've taken the forecast cost of carbon applied an abatement premium of 100% to it, and that then it forces, if you like, further opportunities. I just wanna make one other point, which is that our focus on the gas infrastructure is on...
For our gas generation is on existing technologies. We're quite confident too, because we wanna be confident that we can achieve our outcomes, that we've put our targets and goals to existing technology and not rely on something that doesn't exist yet. That said, I've no doubt that there will be new opportunities that we will identify, both as we do more detailed asset-by-asset scenario analysis and testing and build it into our asset plans, but also as technology improves.
Apologies for the poor wording. When you think about that 150 million of spend or 150-170, given the nature of the way you charge for compression, will you be able to get compensation from your customers for the change in process by using electrification as opposed to burning their gas?
Very good question, you know. As you know that, you know, and I think you just sort of highlighted the fact that, our the way our contracts currently work is, our customers either supply that gas or we charge for the gas that we consume in our compressor stations. The analysis that we've currently done, firstly was really the capital cost of electrification, and then we clearly need the operating cost of electrification. We haven't currently factored that in to our assessment. You know, we've really just looked at what the raw cost is, understanding of course that our customers have got climate goals, and we are there to help them achieve that.
If the way we can do that is the most cost-effective way, then you would reasonably expect that we may be able to recover some of their cost.
Okay. On a broader question, your dividend growth at 3.8%. We have CPI running, I don't know, between five and six, maybe seven in Australia. You have CPI in America, probably 7.5 for half the year and probably closer to 10 for the second half of the year. Why isn't the dividend keeping up with inflation?
I'll just throw that one to Adam.
Yeah, thanks. Thanks, Rob. Hi, Ian. Again, I'll just go back to what I said before, that we've been very clear for quite some time now that our target there is to try to consistently grow our distribution. That's something that we have spoken with our investors about a lot, sought views around how that could play out. Almost unanimously, everyone has said that they would prefer a consistently growing distribution rather than something that was moving with the tide. What we're trying to do is exactly that. Equally, we're trying to get that balance right with the organic growth opportunities ahead of us, which again, over the longer term, as Rob said, is quite significant, we believe.
Okay. That's great.
Our next question comes from Peter Wilson of Credit Suisse. Please go ahead.
Thanks. Morning. Adam, I might just follow up that question on dividends. So I get that you wanna consistently grow dividends. I guess the first part of that is the payout ratio was 58% in FY22. Are you expecting the FY23 dividend to still be below your target range of 60-70?
Thanks, Peter. We only give one number out for guidance, and that's distribution. I'm not gonna be able to provide you any guidance around the payout ratio other than to say that payout ratio is a target. If we oscillate 1 or 2% outside of that range in any given year, then please forgive us. It's only a target, it's not a policy. Again, I'll just repeat, our objective is to ensure that we can consistently grow our distributions and balance that with the funding of our organic growth portfolio. It's a balancing act for us. Again, the main focus for us is being able to ensure that we can continue to grow our distribution, which we did for FY 2023.
I guess another way to ask that is, why is 4% the rate that you can consistently grow your dividends? You know, you could take the view that we're gonna be in an elevated inflation period for at least some time, and you're already below that payout ratio. Could you not be consistently growing it at a couple points higher?
Oh, look, the flexibility that we have in our free cash flow generation means that we could adjust our distribution up or down. Again, that goes to the payout ratio being 60%-70%. You know, we could arguably pay out 100% and then be asking our equity investors for that money back by raising equity to fund the balance of our organic growth pipeline. That's speaking with our investors on a regular basis, we know that that's not what they want. Again, we're trying to get the balance right between the distribution growth and the internally funding of organic growth. We paid circa 4% growth last year. That's been a fairly consistent trend for us over time. It does.
It will move every now and again, but again, we're not trying to have a lumpy distribution profile. We're just trying to keep it consistently growing moving forward. We do have the AUD 1.4 billion organic growth pipeline, as you know. That's healthy and attractive, but again, we've been very clear, that's not really generating cash until FY 2025. You've got things like movement in tax because of the timing of the depreciable allowance benefit that we're getting because of the CapEx spend and so forth. The free cash flow numbers will move around over time. Our main focus, to repeat again, our main focus is rewarding our security holders with consistently growing distributions.
Okay, got it. Corporate costs, I guess, EBITDA grew a little bit slower than 0.2% slower than revenue this year with corporate costs, one of the key items there. Should we expect a similar trend there with increased insurance, environmental spend and other items increasing corporate costs a little bit faster than revenue?
Yeah. Thanks, Peter. It's an area of focus for us. Again, we've been really clear about that over the last year or two, that it's an area of focus in making sure that for the next generation of growth, we're well positioned with systems, processes, with capability that is efficient and scalable. We're making those investments. We've called it out in spaces like technology. We've called it out in areas around business resilience, cybersecurity, physical security, those sorts of investments. Then obviously the commitments we're making today around net zero is also important to that. We're building our capability. We're getting ourselves positioned for growth.
Our philosophy is that we, if we have to make an investment to facilitate growth and know that we can generate a strong return from that for our security holders, then we're prepared to make those investments.
Okay. Fair. One last one if I could. Just the New South Wales REZ program. Is there any update you can give on that in terms of anything at all, timing, you know, likely equity contribution? Any update at all since we spoke at the investor day?
Yeah. Peter, obviously, we're delighted to be part of the shortlist for that project, which we think is gonna be sizable. The short answer is I can't give you an update 'cause we're right in the middle of that very confidential process. We'll only really know the outcome, whether we're successful or not, somewhere in the first quarter of next calendar year. I wish I could give you some more guidance on that. Obviously, we're working very hard on wanting to put our best foot forward and a very exciting opportunity for APA.
Agreed. All right, I'll leave it there. Thank you.
Thank you.
Our next question comes from Reinhardt van der Walt of Bank of America. Please go ahead.
Thanks, Rob and Adam. Rob, congratulations again on your career. Congratulations also on that Central-West Orana shortlisting. I must say the TNSPs were quite noticeably absent from the shortlist. What do you think were some of the competitive features. Maybe why do you think the TNSPs weren't so prominent?
I can only speculate. It's Rob here. Thank you for your comments too on my 14 years. It's hard for me to comment on the New South Wales selection process. That's for them to comment on. What I can say is that, you know, we put together a credible bid with our capability. We've got strong experience in managing, owning, and operating linear infrastructure, the development of new infrastructure, a real focus on customers. I suspect we brought. I can only speak for ourselves. I can't speak for the others, but we brought some fresh thinking. Look, I think that's all I could really say.
Clearly, like I said, the answer to Peter's question earlier, we're very busy at the moment putting together our bid and we'll be putting our best foot forward and we'll see what comes out of the end of that process.
Got it. Thanks, Rob. Maybe a question just on Basslink. What exactly does the pathway look like to get that over to a regulated asset? You know, is this gonna involve a standard sort of RIT-T and CPA process, like you would do for a new asset, or is there a different process for brownfield? And maybe any comments you can give on lead time for that. And also just curious to know whether the investment decision actually hinges on that conversion over to the regulatory footing.
I think there's a few questions in that one, Reinhardt. Just to try and summarize, we're currently in the middle of a process which so clearly I can't comment on the specifics of what that outcome will be. Hopefully that'll be known in the not too distant future. Regardless of whether we, you know, successful or not, we certainly focus on being the successful bidder. There's a regulatory process which is well
Documented because there are other existing assets that have gone through that process in the past, including Murraylink, Directlink, which we already own. It'll follow a similar process, and we would expect that timeframe to be somewhere in the order of about two years. It's a process that, you know, does exist. It's not necessarily one that is a common process. Our expectation is that'll be somewhere in the older of two years, as I said.
Perfect. Thanks a lot, Rob. Thanks, Adam.
Our next question comes from Nathan Lead of Morgans. Please go ahead.
Thanks for your presentation, gents. Rob, best of luck for your future endeavors. I've got three questions, if I could. The first one is, I suppose you've talked about your climate change targets, but also your targets of, you know, hitting particular hurdle rates with investments. How do you consider that trade-off? I suppose, you know, what it sounds to me like is you're willing to do negative NPV investments here in terms of hitting your climate change targets. Am I thinking the right way? If you just maybe discuss that balance.
Nathan Lead, Rob Wheals here, and thank you for your comments. The short answer to your question is no. We have a climate plan which, you know, I'll just to quickly summarize the two key elements. Firstly, around structural abatement as a priority together with the use of responsible offsets where necessary for our gas infrastructure assets. For our gas power generation assets, as I said, we have a split target, and that split target focus on from the perspective of power generation. I'll just maybe just pause there for a minute just to explain.
You know, we could have focused on an absolute, but we think it's more useful and more transparent to focus on emissions intensity because our customers, you know, may wish us to use our power generation assets, more or less at any particular point in time. Focusing on absolute emissions, we don't believe is the right answer, focusing on emissions intensity is, and the way to achieve that is by investing in further renewables, which over time will reduce that emissions intensity. We expect that over the course of the remainder of this decade, that we would, you know, to give you a bit of a guide, we would. You know that we're currently building or constructing the Mica Creek Solar Farm up at Mount Isa. That's an 88-MW solar farm.
Just to give you a bit of a guide, we think that to achieve our intensity goal by 2030 will mean that we would construct something like six Mica Creek Solar Farms. We think that's very achievable. If you look at the federal government's 43% emissions target by 2030, together with that, they've also got an 82% renewables target. So if you put those two together, I'm very confident that more renewables will be required in the system, whether that's on-grid or off-grid, that's supported by long-term contracts. That was the long answer. Back to the short answer. No, we're not gonna be making investments that are negative NPV. We always are financially disciplined in the way we invest capital.
Okay, great. Second question for Adam. If I could take you to slide 40 where it talks about the EBITDA bridge to free cash flow. There's some items in there that, maybe if you could just give us a bit of a steer on where they're heading. You've got the AUD 21 million in there for the non-operating items cash flow impact. There's an offset of a material technology transformation projects number in there, AUD 13.6 million, and then also give us a steer maybe on just where sustaining CapEx is going over time.
Yeah, thank you. Look, I'll try and hit the three. If you look at the investments that we need to make in technology projects, and we've called them out because under the previous accounting guidelines, you would otherwise capitalize those. Under the new guidelines that came out, I think it was in May last year, you now have to put those through the P&L. We're in a bit of a ramp-up phase at the moment with projects like the ERP, our new payroll system, our new billing system. That wouldn't continue materially in the future. There will be ongoing projects, no doubt, but they're three pretty meaty projects.
I should say that they're going to be cloud-based, which means instead of doing a big investment every six, seven, eight years, you're gonna be having ongoing cloud-based investment in those projects. We've called that out as one. The other one, which was around the impacts of SIB, it was fairly high in FY21 because we had the Diamantina Power Station overhaul. At AUD 130 million, I'm not gonna say that that's the forecast to put forward. We wouldn't expect it to go materially lower than that because ultimately we've got to maintain our assets for safer and reliable operations. That's our number one priority. Assets will typically only get older.
They're not gonna get younger, so you need to make sure that you're doing the right thing by maintaining them. We think that where that sits now is not a bad guide, but we'll continue to assess that on a year by year basis.
Okay. The last question, just slide 31. Really interesting work you've done there. Can you maybe just talk about what the actual baseline is there and how the NPV is being calculated? Obviously it's for those scenarios there, you know, it's a -5 to -15 below business as usual. What is business as usual in terms of how you've done it?
It's obviously a lot meatier for Mount Isa power stations.
Again, we're not gonna provide forecasts, so I'll be careful in how I describe this. In our base case models, we haven't taken a house view on whether or not it's gonna be 1.5 or 2-degree disorderly future. The simple answer to why we do that is because the future is so uncertain. The reason we've used scenarios for resilience testing is because you've got to effectively pick, as the name suggests, some scenarios that you can somewhat quantify and based on reasonably credible external and independent data.
Our internal view is based on our best estimates at the time around how we see our assets playing out over the longer term. If I take an example for Diamantina, our view was that that would become a peaking plant potentially sooner than what some of these scenarios suggest, which is why you've got a reasonably moderate impact on your earnings in the earlier years. Again, I'm not gonna be able to give you the detail behind that, but hopefully that gives you some indications on how we've framed this.
Ultimately, the message that we wanted to get out to everyone is that when you look at the impact and if NPV is an important indicator, which it should be, then it's not a significantly material impact on those assets. We've picked assets that again were ones that you would expect could be impacted by those various climate scenarios. It's not a material impact over the decade periods that we've chosen.
Thank you.
Our next question comes from Dale Koenders of Barrenjoey. Please go ahead.
Morning, guys. I was hoping you could expand on the comments around sort of tax payments and the impact on franking credit over the next couple of years. Looking at the EBITDA bridge, it kind of indicates something effective tax paid rate of in the order of sort of 5%. Is that what we should be thinking for the next couple of years, something similar at that level?
Yeah. Look, the best I can say is when you look at the deductibility that we're going to get through the accelerated depreciation allowance that you get, and when you look at the CapEx that we're spending, in particular in FY23, and these assets that are gonna be commissioned in FY23, there is going to be quite a significant income tax deduction in that financial year. FY23, and because of the, as you know, that you pay the tax the year after your income tax is declared, FY23 and FY24 are gonna be very low tax paying years, and then it will come back to normalization in FY25.
Perfect. Thanks for that. Just a second question I might have missed. Can you provide some guidance, I guess, on the discontinued operations from OGPP sale, sort of what earnings were made in 2022?
It's actually in our presentation. I am just flicking through the pages. If you look at page 18 of the pack, we've actually got underlying EBITDA, and then the asset held for sale.
Okay.
In that line item is effectively the earnings of Orbost for that period. We've also then backed that out so you could see what our underlying EBITDA would be, excluding that line item.
Okay.
Slide 18 gives you that detail.
Okay. Maybe sneak one other one in. All the discussions then around, I guess, continuing to review payout ratio, and there's a lot of discussion on the outlook for growth and growth pipeline. That review of dividend payout ratio, is that something that's just you're doing every period, or are you trying to signal to the market that over the medium term you might change away from that payout ratio guidance?
No, it's something that we developed based on the pipeline at the time. Again, I'm sorry to repeat myself so many times, but really it's getting that balance right between trying to internally fund our organic growth development pipeline and balanced with a healthy distribution profile. Again, having spent so much time with our investors and asking each of our investors that very question, "How would you like us to get that balance right?" The overwhelming feedback is that it's inefficient for our investors, for us to pay an overly high distribution, only then to ask for it back straight away to fund our pipeline. We're trying to get that balance right.
The 60%-70% at the time was based on our near-term outlook in terms of the organic growth profile, which at the moment is in that order of AUD 1.4 billion. If we are going to ramp up that development pipeline over time, or you know, if it went the other way, which is unlikely, so we would only expect it to go one way. Then we would have to assess our payout ratio at that time. Again, we're not making any forecasts or trying to make any suggestions. We're just being realistic that it's something that will be dynamic as our organic development pipeline evolves.
Okay. Not signaling a change anytime soon.
All we can provide you is guidance for the FY23 distribution. I'm sorry.
Okay. Thank you. That's fine.
Once again, if you have a question, please press star then one. Looks like we have one more question from Nathan Lead of Morgans. Please go ahead.
Guys, couldn't help myself. I've got two more questions if you don't mind. The first one is just if you can give us a bit of an update in terms of revenue contracting for both the East Coast and West Coast pipeline developments you got underway.
Thanks, Nathan. I was waiting for somebody to ask that question. Look, I think I've largely covered off the East Coast, the question in terms of my comments earlier, where we've got strong demand for those services. You just have to look at what's happening in the East Coast market. In fact, if the expansion for stage one had been available in the winter just gone, then, you know, I've got certainty we would have contracted it in a short-term basis, a lion's share of that, there and then. East Coast, very confident based on the dynamics in the markets on where we're gonna land from a contract perspective. On the Northern Goldfields Interconnect on the West Coast.
As you're aware, there were some delays to get the approvals, both access and environmental approvals, which really, what that meant is a delayed start to construction. Importantly, construction's well on its way. We now are looking at first gas at quarter one of next calendar year. Now, why I started there is that's important for our customers because it provides them with certainty when they can commit. I'm clearly not gonna go into individual customers, what I can say is we're in active discussions for about half of the capacity of the pipeline, that involves gas transportation agreements, early works agreements, et cetera. We've executed our first agreements, in final stages for the second.
You know, what I'd also say, and I think we might have said this at Investor Day in May, that our longer-term market outlook and case has improved since we made our original investment decision. Very confident about the future for that pipeline.
Okay. That's great to hear. Look, my final question is, I mean, I suppose you got the chart in there showing about how, gas power generation firming the renewables, in the system. Could you talk about just from a pipeline perspective and I suppose revenue earnings, sort of I suppose, the sort of trade-off between having a firm forward haul type contract versus what a peaking power station wants more in terms of, park and loan, and whether you're getting sort of equivalent amounts of revenue for the utilization of the pipeline's capacity?
Nathan, I'll make some just high-level comments, but that's maybe one to discuss in a little bit more detail one-to-one. In essence, power stations need to have capacity available when they need it. You know, and you can infer from that they need to pay for that capacity 365 days of the year for when they need it. And that's the model that we've always worked on for other power stations. It's the model we're working on for the Kurri Kurri Power Station with the Hunter Power Project in New South Wales. Over and above that, customers always like to take more flexible services that they can layer on top.
From a, you know, when you're thinking about committing to a financial investment decision to build a power station and you wanna run it when you need it, you need that gas available when you need it, not just the transport of the gas to the power station, but it's gas stored close by.
Okay. Thanks, guys.
I think I'm just looking around. I think that's the last of our questions. Just wanted to thank everybody and looking forward to catching up with you over the rest of the results period. Thank you very much.