APA Group Stapled Securities (OTCPK:APAJF) Q4 2022 Earnings Conference Call August 23, 2022 8:00 PM ET
Company Participants
Kynwynn Strong – General Manager, IR
Rob Wheals – CEO
Adam Watson – CFO
Conference Call Participants
Tom Allen – UBS
Gordon Ramsay – RBC Capital Markets
Rob Koh – MS
Anthony Moulder – Jefferies, Australia
Ian Myles – Macquarie
Peter Wilson – Credit Suisse
Reinhardt van der Walt – Bank of America
Nathan Lead – Morgans
Dale Koenders – Barrenjoey
Operator
Kynwynn Strong
Good morning. Thank you all for joining the APA Group FY ’22 Results Presentation. My name is Kynwynn Strong and I am the General Manager Investor Relations at APA. [Operator Instructions] We will start with a formal presentation by our CEO, Rob Wheals; and CFO, Adam Watson and then we will open it up to questions.
I will now hand over to Rob Wheals, our CEO. Please go ahead Rob.
Rob Wheals
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 Wanjari 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. And 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 2100 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 FY ’22, that’s 43%. Pleasingly, it has been another good year for process safety as well, with the 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 FY 2022 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 such as 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. And we’re announcing distributions guidance for FY 2023 of AUD 0.55 per security, which is again up 4% on FY 2022.
Revenue and earnings growth were driven by a solid performance from our key energy infrastructure assets and our 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 FY 2022, we’ve invested in energy infrastructure that will be vital for our nation for today and into the future and 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, and 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 FY 2022, we progressed the expansion of the East Coast gas grid ahead of market shortfalls. We’ve commissioned the micro grid 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 progressed hydrogen pipeline research, following the international validation of the first stage of our test results and 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 FY 2022 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% but by 2030 that’s 30% by 2030 with a goal for net-zero operations emissions by 2050.
We’ve 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; and 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, but 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 terawatt hours. Now that’s a staggering 50% increase on the May of the prior year and 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 good stability given the intermittency of renewables and 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. But 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 but the natural gas is the ally of renewable energy and will support the addition of more intermittent energy sources.
So put quite simply, gas generation is the key ingredient to help Australia fast track the energy transition. And that’s why it’s so important that as a nation, we continue to invest in domestic gas. And 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 is 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 desired position of being at a leading gas exporter while simultaneously importing potentially the same gas. And 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.
And so 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. And 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 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 growing – to the growing resources sector that will unlock new investments. And 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 grid. We’re expanding the Southwest 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.
And we are constructing the Northern Goldfields interconnect pipeline, to support strong gas demand in the resources sector of Western Australia. But 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, 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 nine-fold increase in Grid Scale Renewables, tripling the firming capacity which includes gas generation and installing over 10,000 kilometers of new transmission lines to bring all this new energy to market.
So, if you step back and have to think about that, that’s a monumental undertaking. It’s going to 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.
Adam Watson
Thanks Rob and good morning everyone.
Before I dive into the financial results, 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 for Rob and it’s included the ongoing enhancements to our East Coast 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 and you’re a usual star, but you’ve been a key for it. 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. And more than that, you’re a fantastic person. So on behalf of the APA team, we wish you all the very best for your future.
So to echo Rob and I’m on Slide 16, we’re very pleased with our financial results for FY ’22 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. And 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 started our analysis on Slide 17 and with a bit of detail about our key financial line items. I’ll talk to 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, having refinanced $2.2 billion of debt last year at attractive long-term rates. We recorded a small favorable significant item following the sale of Orbost. And as I said before, cash flow was strong distribution is 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 FY ’22 was influenced by our new Gold Fields laterals. The Wallumbilla Gladstone Pipeline had strong tailwinds in the second half, with the 7.5% inflation escalator kicking in for the 12-month period beginning 1, 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, and 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. And 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 with our 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 began 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 cybersecurity, 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. And 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 a potential future interest rate rises. And 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 are 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 and we hold a strong view that they can be complementary.
Like our investment in capability, our capital strategy is also fundamental in supporting our resilient business operation 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 AUD1.4 billion organic growth pipeline. We tapped a new investor base for our syndicated loan facility with investors across Asia and Australia and we priced five-year debt at 4.9% and seven-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. And we ensure we can be nimble by having a suite of products at our disposal to create value and 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.
Rob Wheals
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 published today. Now this plan is the culmination of many, many, 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.
And I just really want to underline that there’s been a huge effort by a lot of people across the APA team. I’m very proud of what we’ve achieved. This climate transition plan underscores the business’s 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. And 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.
But 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’s 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. So 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 and where the business has set targets, then there’s an identified pathway to achieving those results. And where there’s no current pathway and there’s further work to do, then we define that commitment as a goal. So 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. Now 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. So that’s 35% by 2030 for our power generation.
Now 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. So this ambition can be accelerated 10 years earlier because there are known technologies available to achieve it and our goal has always been to accelerate our ambition if that was at all possible.
I’m now going to 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% reduction target for – or emissions reduction target for gas infrastructure, as I said earlier is based on using existing technology, which gives us confidence that it is achievable. And priority has been given to structural abatement where reasonable and our assessment has focused on four material opportunities of emissions reduction. So 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 and 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 road maps 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. And 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. And 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.
And that analysis was done at an APA portfolio – asset portfolio level. But 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 alliance scenarios. And what we found across all these scenarios was that the Moomba Sydney Pipeline and the Southwest 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. And 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 baseload to firming or peaking. And 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. And 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 and the business will also report annually on progress against our targets and our goals and our commitments.
So 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 distributions are in line 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 in our pathway to net zero. And with our strong balance sheet and liquidity the business is guiding to a 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. And with this energy crisis giving us this real-time window that I described 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 and I’m also certain the business will continue to thrive under Adam’s leadership.
And 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 Net Zero, Megan Saussey to join us for this part of the call, and Megan will be able to assist us with answering any questions of detail on our climate transition plan. Thank you.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Tom Allen of UBS. Please go ahead.
Tom Allen
Good morning all. Rob, congratulations on your achievements and contribution to APA over the last 14 years, but with the announcement that you’re going to depart the business in September recognizing also that APA’s Group Executive Strategy Commercial and a couple of APA’s most senior and experienced general managers and the commercial team are also leaving what appears to be a key juncture in APA’s history altogether suggest there’s been a significant shift in strategy possibly a risk appetite since the Investor Day earlier this year. I’m hoping you can please provide – or clarify exactly what’s changed specifically the three key factors that have led to APA walking away from US growth?
Rob Wheals
Thanks, Tom and thank you also for your kind words. Firstly, we’re very proud to have another strong financial results. And the news of – my news on Monday I think is all covered on Monday. But two 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. When you look at the energy transition and the opportunities in front of us here in Australia, there are plenty of those.
And I described the opportunity in front of us and Australia is a monumental undertaking to rebuild the NEM to invest in electricity transmission and renewables and all the firm that goes with it. So 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. So that hopefully addresses your question around strategy.
And the – there’s really no major shift aside from the fact that we’ve made that decision Tom that the US is not one of those building blocks for us and 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, but like I said, significant opportunity to invest in the new infrastructure right here in our home country.
Tom Allen
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 ’23 and ’25 including a comment on the range of CapEx that might be required for APA is still at the Central West Arana renewal energy zone and Basslink just – and how these might impact possible capital management initiatives over the next couple of years. I think that some investors might have been expecting a little bit more in the dividend growth looking forward. And I’m hinting that maybe the total CapEx demands might have impacted that.
Rob Wheals
Thanks, Tom. Look, I’ll just talk to how we see the growth opportunities and how that reflects in our CapEx growth and then I’ll ask Adam just to talk to the – your question around distributions. I think we’ve been pretty consistent around over the last number of years of our growth CapEx pipeline exceeding $1 billion all the way up to the $1.4 billion which we mentioned today and that’s pretty consistent.
Clearly, a lot of what we see in front of us is those opportunities that constitute that $1.4 billion. You did mention participating in the New South Wales Res 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 going to look like. But I think we remain confident that we are confident in the AUD 1.4 billion of growth over the next two to three years.
Adam Watson
And Tom, thank you. Just on the capital strategy that sits behind and supports that. So you know from today’s result we’ve guided to AUD 0.55. That’s just a touch under 4% higher than the FY 2022 result. We as an organization know that the distribution is important to our investor base. And 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 consistent growing distributions is the main goal.
We do that within the envelope of a payout ratio. It’s 60% to 70% so that’s designed in a way to provide us with cash available to fund that organic development pipeline that Rob spoke to. And that’s something and we’ve said this many, 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, but equally making sure that where it makes sense that we can internally fund those growth opportunities.
Tom Allen
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 and New South Wales and Victoria can obviously extract a lot of value from that position. We sent us 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 was built all the way from Queensland into Newcastle as is 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?
RobWheals
Thanks Tom. I’ll take that question. Look the – firstly, I would say that the development of more gas resources on the East Coast is a positive. So there’s going to be some positive momentum forward the development of Narrabri. That’s a good thing. We are discussing the more recent announcement of – with Santos and its implications.
So I can’t comment on that further. But what I’d say is that – and you rightly described the purchase of the Hunter Gas pipeline here, it’s only 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 and the most efficient and cost-effective way to bring more gas to market is through the incremental expansion of that system, which is we’re doing right now with our stages 1 and 2 increasing capacity 25%. And I think we’ve also signaled our design work already underway around what a potential stage 3 would look like. That’s always going to be the fastest the most cost-effective and the most efficient way to bring more gas resources to market.
Operator
Thank you. And our next question comes from Gordon Ramsay of RBC Capital Markets. Please go ahead.
Gordon Ramsay
Thank you very much. I’m just going to jump on the strategy bandwagon as well. The US, kind of strategy was acquisition based. So 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 going to be driven by inorganic and just wanted to understand how that is positioned now if you’re focused on Australia.
Rob Wheals
Yes 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. But to answer your question around organic versus inorganic, we’re always going to assess what the right opportunities are in front of us.
But when I look ahead at the undertaking of rebuilding the national electricity market over the coming decades, the 10,000 kilometers of transmission links the nine-fold increase in large-scale renewables, the three-fold increase in Thermi, which includes gas generation, when you steer at all of that, that’s billions and billions of tens of billions of dollars.
Whatever number you put on it, you’re going to get the wrong number. It’s going to be more. So that’s another way of answering your question is to say, there’s significant organic growth opportunities in front of APA, and we believe we’ve got strategy and the capability to participate in that.
Gordon Ramsay
And the focus is on generation renewables infrastructure on the electricity side more so than gas?
Rob Wheals
Sorry Gordon, I just missed the first part of your question if you don’t mind repeating that please?
Gordon Ramsay
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?
Rob Wheals
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 going to take time and gas gives us that time. So, gas infrastructure is a very big part of the energy transition. In fact, we see it as the 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 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 at the form of infrastructure. And 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 this – the debt in Basslink with the ultimate goal of acquiring that asset.
Operator
Thank you. Our next question, Rob Koh of MS. Please go ahead.
Rob Koh
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. I 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. 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 FY 2023?
Rob Wheals
Rob, firstly, thank you for your kind words. It’s been a tremendous 14 years and when I reflect on that it’s a big part of anybody’s life, when I started at APA my eldest was in kindy. He’s now 20, so that gives you some idea. But in terms of answering your question on inflation, I’m going to look to Adam on my left here to answer that on that chart.
Adam Watson
Thanks, Rob. Good morning, Rob. So 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. So you’ve got Wallumbilla, which is a US dollar one, that sits outside of that and how that one works. But this is just a look at our contract base.
And to provide you with some news around of that contract base, remembering that about 90% of our revenues including Wallumbilla or more than 90% of our revenues including Wallumbilla, are inflation-linked. They are split and you can see it there. It’s about half of it, evenly split between annually escalating or quarterly escalating.
Rob Koh
Okay. Cool. Thank you, Adam. That’s, helpful. Can I ask a question about the decarbonization targets? Seems you have your head of climate on the ball as well. I just – 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. So would you be able to meet your decarbonization targets by divesting of assets? And if you were to acquire another asset, would you incorporate the target emissions within the base for reduction?
Rob Wheals
Thanks, Rob. I’m glad we’ve got a question on climate transition plan, because 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 financial year 2021. So everything is referenced off that and that’s our base year. And so our plan is when you look on a look-forward basis is based on that.
If we add to emissions and the normal course, through organic growth and obviously as we called 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 well, if that is the case we’ll call it out and also demonstrate, how we show the whole system-wide emissions reducing. So that’s the first point, because we do just to be very clear see the role of gas is 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. And 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 revisiting of our targets and so forth.
Operator
Thank you. And our next question comes from Mr. Anthony Moulder of Jefferies, Australia. Please go ahead.
Anthony Moulder
Hi, good morning all. Just on climate, can we start there please with the CapEx profile of AUD150 million to AUD170 million. Is that – do we think about that as being spent more towards the end of the decade as technology for that spend improves?
Rob Wheals
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 seven or eight years, and it’s pretty evenly spread. But from time – based on when we’re planning to do that – implement the structural abatement, which is where the majority of the CapEx is. So it’s certainly not back-ended, but it’s not even – on an even basis and it will be lumpy from year-to-year given the exact process.
Anthony Moulder
Sure. I appreciate that.
Rob Wheals
Also just to remind you if I can that AUD150 million to AUD170 million is a P50 estimate based on the opportunities that we’ve seen in front of us and the way we screen them and include – the lions share of it includes CapEx but there is some OpEx operating expenditure in there as well as the cost of responsible offsets.
Anthony Moulder
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?
Rob Wheals
Thank you. Look, I think the first thing I’d say is that we have to recognize the current changing market dynamics and 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 and that presents a challenging time for our customers. A lot of them are taking shorter term contracts, so they’re changing their supply sources.
As we know a lot of them are been looking to try and get new short-term contracts to focus on gas-fired generation. So when you take all of that into account, we can expect some changes from asset to asset from time to time. But 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. And 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 is we found that the – that 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. And I think that criticality of gas to – 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 one and two of our East Coast grid expansion.
Operator
Our next question comes from Ian Myles from Macquarie. Please go ahead.
Ian Myles
A 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 – gas pumps through the process? And I guess inflation is why can’t it be 100?
RobWheals
Well, Ian. Rob here and thanks. I’ll – looking forward to catching up over the balance of this week. So I think you’re 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.
And 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. So there’s distinctly a very important difference.
Now where we focus on emissions reduction is across four areas. So – and very simply, I’d put them into two buckets which is methane emissions, which are the compressor-related methane emissions or site-related methane emissions and then the opportunity. So that’s really initiatives where we focus on making sure we can minimize methane emissions. And you would have seen that we signed up to a methane protocol on reducing emissions.
And then secondly, around our compressors and there’s two categories there which is around focusing on things that we can do to make our compressor our existing compressor fleet more efficient.
And then, finally, on a case-by-case basis where it makes sense replacing gas-driven compressors by electricity just driven compressor so electrifying that. It’s fair to say that you can’t easily go along and start to think about electrifying your whole fleet. And I think it’s clear to see given the remote nature of our network. So we’re really focused on where we can make the biggest bang for the buck, if you like. And that is essentially how we thought about things.
We’ve looked at how can we reduce the most amounts 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.
So that importantly means that we don’t unnecessarily screen out opportunities because we’ve taken the forecast cost of carbon applied in a baked-in premium of 100% to it. And that then force fit, if you like further opportunities.
I just want to make one other point which is that our focus on the gas infrastructure is – and for our gas generation is on existing technologies. And we’re quite confident too that, because we wanted to be confident that, we can achieve our outcomes that we’ve put our targets and goals through existing technology not rely on something that doesn’t exist yet.
That said I have no doubt that there will be new opportunities that we will identify both as we do more detailed asset bias scenario analysis and testing and build it into our asset plans but also as technology improves.
Ian Myles
So apologies for the poor wording, when you think about that AUD150 million of spend or AUD150 million AUD170 million, 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 the gas?
RobWheals
Very good question, Ian. As you know that – 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 through 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.
So, we’ve really just looked at what the rail cost is understanding of course that our customers have got climate goals and we are there to help them achieve that. And 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 that cost.
Ian Myles
Okay. On a broader question your dividend growth of 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 the half year and probably closer to 10 for the second half of the year. Why isn’t the dividend keeping up with inflation?
Rob Wheals
I’ll pass this one to Adam.
Adam Watson
Yes. Thanks Rob and hi Ian. So, 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. So, that’s something that we have spoken with our investors about a lot sought views around how that could play out.
And almost unanimously everyone has said that they would prefer a consistently growing distribution rather than something that was moving with the tide. So what we’re trying to do is exactly that. And 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.
Operator
Our next question comes from Peter Wilson of Credit Suisse. Please go ahead.
Peter Wilson
Thanks, Morning. Adam I might just follow-up the question on dividends. So, I get that you want to consistently grow dividends. But I guess the first part of that is the power ratio was 58% in FY 2022. Are you expecting the FY 2023 dividend to still be below your target range of 60% to 70%?
Adam Watson
Thanks Peter. We only give one number out for guidance and that’s distribution. So, I’m not going to be able to provide you any guidance around the payout ratio other than to say that payout ratio as 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.
But again our – 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. So, it’s a balancing act for us. And again the main focus for us is being able to ensure that we can continue to grow our distribution which we did through FY 2023.
Peter Wilson
I guess another way to ask is why is 4% the rate that you can consistently grow dividends if you take the view that we’re going to be in an elevated inflation period for at least some time and you’re already below that ratio? Could you not be consistently growing at a couple of points higher?
Adam Watson
Look the flexibility that we’re growing – cash flow generation means that we could adjust our distribution up or down. And again that goes to the payout ratio being 60% to 70%. So 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.
And that’s – speaking with our investors on a regular basis, we know that that’s not what they want. So, 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 then. 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 $1.4 billion organic growth pipeline as you know. That’s healthy and attractive. But, again, we’re very clear, that’s not really generating cash until FY 2025.
And then 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. So 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.
Peter Wilson
Okay. Got it. Corporate costs, so I guess, EBITDA grew a little bit slower than – you pointed to, slower than revenue this year with corporate costs, one of the key items there. Should we expect kind of a similar trend there with increased insurance, environmental spend and other items increase in corporate costs a little bit faster than revenue?
Adam Watson
Yes. Thanks, Peter. It’s an area of focus for us. And, again, we’ve been really clear out 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 the spaces like technology. We’ve called it out in areas around business resilience, cybersecurity, those sort – physical security those sorts of investments. And then, obviously, the commitments we’re making today around Net Zero is also important to that.
So we’re building our capability, we’re getting ourselves positioned for growth. And again, 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.
Peter Wilson
Okay, fair. And one last one, if I could. Just the New South Wales res program, is there any update you can give on that in terms of any, if at all, timing, likely equity contribution? Any update at all since we spoke at the Investor Day?
Rob Wheals
Yes. Peter, obviously, we’re delighted to be part of the short list for that project, which we think is going to be sizable. But the short answer is, I can’t give you an update, because we’re right in the middle of that very confidential process.
And we will – I think, we’ll only really know the outcome whether we’re successful or not somewhere in the first quarter of next calendar year. So 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.
Operator
Our next question comes from Reinhardt van der Walt of Bank of America. Please go ahead.
Reinhardt van der Walt
Thanks, Rob and Adam and Rob congratulations again on your career. Congratulations also on that Central-West short listing. I must say the TNSPs were quite noticeably absent from the short list. So what do you think were some of the competitive features of the – and maybe why do you think the TNSPs weren’t so permanent?
Rob Wheals
Look I think that’s – I can only speculate. It’s Rob here and 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, 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. And I suspect, we brought – I can only speak for ourselves, I can’t speak for the others, but we brought some fresh thinking.
So look I think that’s all I could really say. And clearly, like I said to the, answer to Pete’s question earlier we’re very, very, 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 at the end of that process.
Reinhardt van der Walt
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? Is this going to involve a standard sort of IP 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 I’m also just curious to know, whether the investment decision actually hinges on that conversion over to the regulatory footing?
Rob Wheals
So I think there’s a few questions in that one Reinhardt. But 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. And hopefully that will be known in the not-too-distant future. Regardless of whether we’re successful or not, we’re certainly focused 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 and Directlink, which we already own. So it will follow a similar process and we would expect that time frame to be somewhere in the order of about two years, but it’s a process that has does exist. It’s not necessarily one that is a common process. And so we – our expectation is that, it will be somewhere in the order of two years as I said.
Reinhardt van der Walt
Perfect. Thanks, Rob. Thanks, Adam.
Operator
Our next question comes from Nathan Lead of Morgans. Please go ahead.
Nathan Lead
Thanks for your presentation. 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 client change targets, but also your targets of hitting particular hurdle rates with investments. How do you consider that trade-off? Are you – I suppose 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 could just maybe discuss that balance?
Rob Wheals
Nathan, Rob here and thank you for your comments. But the short answer to your question is no. We have a climate plan which 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. And for our gas power generation assets, we have – as I said, we have a split target and that split target focus from the perspective of power generation.
And I’ll just maybe just pause it for a minute just to explain. We could have focused on an absolute but we think it’s more useful and more transparent focus on emissions intensity because our customers may wish us to use our power generation assets more or less at any particular point in time.
And so 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 to give you a bit of a guide we would – you know that we’re currently building or constructing the Market Creek solar farm at Mount Isa,. That’s an 88-megawatt 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 the six, the number six Market Creek solar farms.
We think that’s very, very achievable. And if you look at the federal government’s 43% emissions target by 2030, together with it, they’ve also got an 82% renewables target. And 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 off-grid, that’s supported by long-term contracts. And that was the long answer. Back to the short answer no we’re not going to be making investments that are negative NPV. We always are financially disciplined in the way we invest capital.
Nathan Lead
Okay, great. Second question, 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. So you’ve you got the AUD21 million in there for the non-operating items, cash flow impact. There’s an offset of a material technology transformation projects number in there 13.6 and also give us a step maybe on just where sustaining CapEx is going over time.
Adam Watson
Yes. Thank you. And look, I’ll try and hit the three. So 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 there are three pretty meaty projects. And 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 going to be having ongoing cloud-based investment in those projects. So we’ve called that out as one.
The other one which was around the impacts of SIB it was fairly high in FY 2021 because we had Diamantina Power Station overhaul, at AUD130 million. I’m not going to 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 safe and reliable operations.
That’s our number one priority. Assets will typically only get older. They’re not going to get younger. So you need to make sure that you’re doing the right thing by maintaining them. So 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.
Nathan Lead
Yes. Okay. And then 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 both scenarios there. It’s a minus five to minus 15 below business as usual. And what is business as usual in terms of how you’ve done it and it’s obviously a lot meatier for power stations?
Adam Watson
Yes. So the way we – again, we’re not going to provide forecast. So I’ll be careful in how I describe this. But in our base case models, we haven’t taken a house view on whether or not it’s going to be 1.5 or 2-degree or a 2-degree disorderly future. And the simple answer to it to why we do that is because the future is so uncertain. So the reason we’ve used scenarios for resilience testing is because you’ve got to effectively pick as the name suggests you got to pick 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. And 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 early years. So again, I’m not going to be able to give you the detail behind that. But hopefully, that gives you some indications on how we’ve framed this.
And ultimately, the message that we wanted to get out to everyone is that when you look at the impact if MPV is an important indicator, which it should be then it’s not a significantly material impact on those assets. And 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.
Operator
Our next question comes from Dale Koenders of Barrenjoey. Please go ahead.
Dale Koenders
Morning guys. I was hoping you could expand on the commentary around sort of tax payments and the impact on franking credit over the next couple of years. Looking at the EBITDA bridge, you kind of indicate some effective tax paid rate of the order of sort of 5%. Is that what we should be thinking for the next couple of years something similar at that level?
Rob Wheals
Yes. 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 FY 2023 and these assets that are going to be commissioned in FY 2023, there is going to be quite a significant income tax deduction in that financial year. So FY 2023 and because of the – as you know that you pay the tax the year after your income tax is declared, FY 2023 and FY 2024 are going to be very low tax paying years and then it will come back to normalization in FY 2025.
Dale Koenders
Perfect. And then just a second question I might have missed it. Can you provide some guidance I guess on the discontinued operations from GPP sales sort of what earnings were made in ’22?
Rob Wheals
So, it’s actually in our presentation. So 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. Again, that line item is effectively the earnings of Orbost for that period. So, we’ve also then backed that out so you could see what our underlying EBITDA would be excluding that line item. So, Slide 18 gives you that detail.
Dale Koenders
Okay. Maybe sneak one other one in. 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?
Rob Wheals
No it’s something that we develop based on the pipeline at the time. And 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.
And 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 straightaway to fund our pipeline.
So, we’re trying to get that balance right. The 60% to 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. But if we are going to ramp up that development pipeline over time or if it went the other way which is unlikely.
So, we would only expect it to go one way, but then we would have to assess our payout ratio at that time. So 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.
Dale Koenders
Okay. So not signaling a change in terms of time.
Rob Wheals
Or we can provide you with guidance for the FY ’23 distribution I’m sorry.
Operator
[Operator Instructions] We have one more question from Nathan Lead of Morgans. Please go ahead.
Nathan Lead
Guys I 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 get underway?
Rob Wheals
Thanks Nathan. I was waiting for somebody to ask that question. Look I think I’ve largely covered off the East Coast question in terms of my comments earlier where we’ve got strong demand for that those services. You just have to look at what’s happening in the East Coast market. In fact, it had the expansion for Stage one being available in the winter just gone. Then I’ve got certainty we would have contracted in a short-term basis a lion’s share of that there and then.
So, East Coast very confident based on the dynamics in the markets on where we’re going to 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 delayed start construction. But importantly construction is well on its way. And 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 going to go into individual customers but 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 excluded our first agreements.
We’re in final stages for the second. And what I’d also say and I think we might have said this that at Investor Day in May that our longer-term outlook in case has improved since we made our original investment decisions, so very confident about the future for that pipeline.
Nathan Lead
Okay. That’s great to hear. Look my final question is I mean I suppose you’ve 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 the trade-off between having a firm forward haul type contract versus what a peaking power station once 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.
RobWheals
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. But in essence power stations need to have capacity available when they’re needed. So you can infer from that 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 carry-carry pace with the Hunter Power project in New South Wales.
So over and above that customers always like to take more flexible services that they can layer on top that from a – when you’re thinking about committing to a financial investment decision to run – to build a power station and you want to run it when you need it you need that gas available when you need it and that’s not just the transport of the gas to the power station but it’s gas stored close by.
Rob Wheals
I think I’m just looking around. I think that’s the last of our questions. So I just wanted to thank everybody and looking forward to catching up with you over the rest of the results period. Thank you very much.
Operator
This concludes our conference for today. Thank you for participating. You may now disconnect.
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