Channel Infrastructure NZ Limited (CHI) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Refining NZ Full Year Conference Call. [Operator Instructions] I would now like to hand the conference over to Naomi James, Chief Executive Officer of Refining NZ. Go ahead.

Good morning, everyone, and welcome to Refining NZ's 2021 Financial Results Briefing. I'm Naomi James, CEO of Refining NZ, and I'm joined by our current CFO, Denise Jensen, and Jarek Dobrowolski, who will step into the CFO role of channel infrastructure when Denise leaves Refining NZ at the end of March. Before getting started, I draw your attention to the disclaimer upfront in the presentation on Slide 2. Turning now to Slide 3, and let me start by giving you a summary of the key messages in today's presentation. In terms of 2021, we have had another excellent year of safety and operational performance, while, at the same time, delivering the long-term plan to unlock the value of the infrastructure we own. Our transition to a terminal business model is now imminent, with only a few weeks of refiner's operations left, and we have, today, reconfirmed our previous cost estimates for the conversion. With the transition to channel infrastructure from 1 April, we will have a fundamental reset in our asset base, providing earnings stability and be focused on the return to payment of dividends to our shareholders. And we, today, also confirm we have contracted additional private storage, providing positive early traction with our focused growth strategy. Please turn to Slide 4. The briefing today will effectively be divided into 3 parts. The first part will cover our 2021 performance, reflecting the results of our last full year of refining, before we transition to an import terminal. And this will include taking you through the balance sheet changes resulting from the conversion to import terminal operations. We'll then provide an update on the transition to channel infrastructure and finish with a full year 2022 look ahead. Please turn to Slide 5. Beginning with 2021, on this slide, we have the key priorities we set for 2021 that I communicated to you at this time last year. And I'm pleased to report today that we have achieved what we set out to do. We will go through the details as we walk through the pack. But in summary, our personal safety performance in 2021 was excellent for the second year in a row. We completed our planned maintenance turnaround, including the first statutory inspection of the platform safely, on time and below budget. We successfully implemented the simplified refinery model from the start of the year to enable us to operate the refinery cash neutral at the fee floor. We concluded our import terminal negotiations with all 3 customers, and we successfully progressed other elements of our strategic review process to conclusion, obtaining the approval of our lenders and shareholders with 99% of shareholders voting in favor of the conversion and took the final investment decision in November to shift to import terminal operations from April this year. In summary, we operated the refinery safely and to plan, reported a disciplined financial results in challenging business environment and delivered a long-term plan to unlock the value of our infrastructure for shareholders. I want to upfront recognize the whole team at Marsden Point for what we have been able to achieve over the past year. Our staff has maintained their commitment to operating safely and to delivering to plan throughout the last 2 years in the times of uncertainty and change created by our strategic review. These results are a credit to all of our team. Turning now to Slide 6. I am starting with safety, as we always do. I'm pleased to note that we achieved a significant milestone of no recordable personal safety incidents for the second consecutive year. This is an outstanding result, particularly given we conducted a turnaround of the platform and crude distiller during the year, and is a testament to the quality of people we have working at Marsden Point. 2 Tier 1 process safety incidents were recorded and were responded to it quickly. These events did not result in significant plant damage, and following the events we took action to further strengthen our safety controls and procedures. An independent assessment has confirmed that there is a low risk of harm to the environment from the unauthorized release of noncompliant firefighting foam during firefighting training exercises, which we reported in the first half of the year. And during the year, we received a renewed site resource consent for further 35 years, which demonstrates our commitment to Marsden Point. We are committed to continuing to ensure the site maintains high levels of environmental standards and are working with local airways on projects to improve the coastal environment in the vicinity of Marsden Point. Turning now to Slide 7. Refinery and RAP throughput continued to be impacted by COVID-related restrictions in 2021. Compared to 2020, pipeline volumes were overall similar at 13.4 million barrels. However, this is around 35% lower than 2019, the last year in which there weren't travel restrictions. As you can see from the RAP deliveries, outside of lockdown periods, we observed a strong recovery in demand for gasoline and diesel. The diesel recovery was particularly strong, recovering above pre-COVID levels outside of lockdown periods. Demand for jet fuel remained low as a result of the ongoing international border restrictions. In the refinery, throughput reflected the reduced capacity of the simplified refinery and product exports kept inventory balanced through COVID lockdowns, with no temporary shutdowns of the refinery being required as occurred in 2020. Please turn to Slide 8. Whilst improving from 2020 levels, refining margins remained below the fee floor. Over the course of the past 2 years, this has meant -- our customers have paid fees flow subsidies amounting to NZD 127 million or USD 3 per barrel. The Singapore complex margin averaged USD 120 per barrel. Excess refinery capacity and COVID-19-related impacts continued to be the key reasons for this. The lower price for crude oil processed relative to Dubai meant the company was able to achieve an uplift of USD 493 per barrel, which supported an overall GRM outcome of USD 3.73 per barrel. I will now hand over to Denise, who will take us through the 2021 financials.

Thank you, Naomi, and good morning, everybody. Let's pick up on Slide 9 of the presentation and start with a snapshot of the financial results. As Naomi mentioned, we operated at the fee floor throughout all of 2021. Refining revenue was down 7% compared to 2020, which reflects lower gas usage and no wage subsidy in 2021 and lower carbon unit sales, while infrastructure revenue was relatively flat. As you can see, reported EBITDA is up 44% relative to 2020. The cost savings from implementing the simplified refining model are the key driver of this, and I'll talk to this more on the next slide. CapEx is flat year-on-year, which is a very good result given that 2021 included the cost of the crude distiller and CCR maintenance turnaround. And this meant that free cash flow was positive, achieving our aim of cash neutral performance at the free floor. We report a net loss after tax of $553 million, which really reflects the write-off of the refining assets and provisions for costs associated with the import terminal conversion. A revaluation of the import terminal assets has also occurred and offset this, but that is not processed through the profit and loss statement. We'll step through these changes in a bit more detail shortly. And our net debt closed the year $47 million lower, reflecting our successful equity raise towards the end of 2021, which is to fund the cost of private storage. We now turn to Slide 10. This slide provides a waterfall between EBITDA for the year ended 31 December 2021, compared to 2020. And despite operating at the fee floor, you can see the measures we've taken to improve EBITDA. As I noted earlier, we significantly reduced the cost base through the refinery simplification that was implemented from the start of 2021. Noncash releases associated with the cash out offers made to pensioners and medical retirees, the release of employee provisions and gains on electricity hedges offset both by the increased cost of the strategic review and conversion project and also the absence of any COVID wage subsidies in 2021. So now we'll turn to Slide 11 and look at the 2021 cash flow. And keeping with our past 3 financial years, we were able to, once again, reduce net debt in 2021. Operating cash flow funded $32 million of maintenance CapEx, including the cost of the crude distiller and CCR maintenance turnaround, which was delivered below budget as well as costs related to the strategic review and import terminal conversion project. Within the chart, you can also see the capital raise we conducted in November, and that has had an impact on our net debt position. These proceeds of the equity raise will be used to fund the cost of -- associated with our private storage growth initiative as they're incurred. And the reduction in net debt in 2021 sets us up well ahead of 2022, where net debt will increase as we found the cost of conversion. Now to Slide 12. And I wanted to present a summarized balance sheet as our impending terminal conclusion has hit a number of financial reporting impacts. I thought it was simpler to stick through some of the notable conversion-related accounting entries, of which there are 3 main adjustments. First, the impairment of refining assets. So we have recorded a noncash impairment of refining assets amounting to around $567 million, leaving a net residual value of around $34 million for scrap and other assets with residual value. Secondly, where appropriate, we have recognized through the income statement around $176 million of provisions in relation to conversion costs. These include workforce transition costs, shutdown and decommissioning costs and future demolition costs. It does not include capital costs for terminal upgrading projects, which, of course, will be capitalized as they are incurred. Thirdly, we have revalued the terminal assets to fair value, resulting in a net carrying value for property, plant and equipment of $869 million. This followed a change in our accounting policy for the measurement of PP&E from historical cost to see value in order to provide more relevant financial information to readers of our financial statements. The valuation of the import terminal assets was conducted by an independent third party. There is a fuel demand forecast presented to the market last year, import terminal fees that we've negotiated with our customers and forecast operating and capital costs together with a post-tax WACC of 6.7%. The revaluation uplift was recognized in the revaluation reserve, reflecting the tax adjusted uplift of the import terminal assets. The final aspect to note is that following condition, we expect to recognize $350 million to $400 million in tax losses, which will be reported as a transfer from property, plant and equipment deferred tax liability to the deferred tax asset associated with the losses and [indiscernible]. These tax losses, together with our existing tax losses of around $70 million, will be available for future subject to the business continuity test or if the shareholder continuity test were to be breached at in time. The net result of these changes is net assets of $495 million as at the end of December 2021, which is equivalent to $1.33 per share. I'll now hand back to Naomi, and she will take you through our transition to channel infrastructure.

Thanks, Denise. Now before I talk to channel infrastructure, I would like to take a moment to acknowledge Denise as this is not only refining NZ's last results, but also Denise's last results with us. Denise played a central role at Refining NZ for many, many years. And for me, over the last 2 years, has been a huge support and central to our success in resetting the refinery cost base and securing the support of our lenders and shareholders for what is a significant change in our business. Thank you so much, Denise, for your very significant contribution. It has been huge. Turning now to the future and our imminent transition to channel infrastructure. I know we have a number of new investors and wanted to start with a recap on the strong investment proposition we have. The company owns critical infrastructure, supplying the Northland and Auckland markets, which make up 40% of New Zealand fuel demand, and all of the jet fuel to Auckland's International Airport, underpinning long-term asset utilization. We have long-term contracts in place with our customers, with fixed and minimum fee components, which incentivize utilization of the infrastructure. The higher take-or-pay commitments over the first 6 years of these contracts, which are between $90 million and $100 million per annum, will support the funding of conversion costs and allow time for a recovery in jet demand from COVID impacts to occur. These contracts, together with the $400 million to $450 million of tax losses we expect to have following conversion, provide our business with projected stable earnings and cash flow. And we have reconfirmed today our expectation that we will recommence the payment of dividends within 1 to 2 years of conversion. Our business will deliver a significant carbon reduction for New Zealand through the conversion, around 1/3 of New Zealand's first emission production budget, and our infrastructure will remain relevant as New Zealand's fuel requirements shift to lower carbon fuels in the future, with jet fuel demand underpinning long-term asset utilization and our pipeline delivering fuel to Auckland at 1/10 of the emissions compared to transport by road. And finally, a focused growth strategy, which we are already delivering on with the additional private storage contracts we have announced today and opportunities for re-purposing of the Marsden Point site and for future growth in other terminals. Please turn to Slide 15. The fee structure provided for in the terminal services agreement will commence from 1 April this year, and the TSAs, together with the private storage contracts we have signed, provide us with significant revenue certainty. Over the initial 10-year contract term, we expect TSA fees from the shared terminal facilities to average $95 million per annum in real terms. These fees are a combination of fixed and throughput-based fees and are structured in a manner that incentivizes use of the terminal assets. And the higher take-or-pay fees over the first 6 years will support the company's debt funding of conversion costs and down return to dividends. Private storage adds incremental revenue to this, and I'll talk to that further shortly. And both the TSAs and private storage fees are subject to PPI-based indexation, providing strong protection for our earnings in an inflationary environment. Turning now to Slide 16. In November last year, we raised capital to fund additional private storage sought by our customers. As signaled at the time of our equity raise, we have been working on contracting additional private storage. And I am pleased to announce today that we have now contracted around 100 million liters of private storage capacity in total, adding an extra $50 million of incremental revenue over the next 10 years to what we announced in November. This capacity and revenue adds to the 180 million liters of shared capacity that is provided under the TSAs. Similar to the initial TSA period, the private storage agreements will initially last for a period of 10 years. They are structured as fixed rental agreements, providing further incentive for customers to utilize our terminal facility in order to lower their cost per liter. The incremental OpEx and CapEx associated with this capacity is relatively modest, meaning they have a high conversion of revenue to both EBITDA and cash. Looking across all of the private stores we now have contracted, we estimate incremental revenue in real terms of $90 million over the initial 10-year term and upfront capital costs of $45 million to $50 million, which can be fully funded by $47 million equity raise last year. The private storage capacity will be progressively made available as upgrade works are undertaken over the next 18 months, as you will have seen from the fee chart in the previous slide. And we expect there may be further [ activities ] in the private storage space following the New Zealand government's announcement in January that it is proposing to introduce inventory stockholding requirements, similar to those introduced in Australia. These measures are going through consultation at present, so are still at an early stage, but our initial estimates are that there could be potential for a further 50 million to 70 million leases of storage at Marsden Point which our existing crude tanks could deliver. Turning now to Slide 17, and turning our attention to timing. And as advised earlier on this call, we remain on track to begin operating as an import terminal from 1 April. This is only 5 weeks away now and getting closer by the day. At the start of March, we will receive our final crude shipment at Marsden Point, and we'll be shutting down the refinery in the second half of March. We will have an intensive period of decommissioning in April and May as we decontaminate facilities and make them safe, followed by around a year of day works decommissioning activity. This means the most significant workforce changes will occur midyear. I once again want to reiterate how proud I am of our workforce and the commitment they have shown through the strategic review over the last 2 years. As I said before, we have some of the best talent in New Zealand working at our site. And through these coming months, we'll be working closely with all our staff to support them with their transition and plans for the future. Like everyone in New Zealand, the key risks we are managing through this time is COVID. We have introduced additional COVID protocols on site and have accelerated the supply of key materials required for conversion works. We are seeing COVID related pressure on costs, which we are actively managing, and currently remain well within our project budget contingencies. As we have previously announced, through the year, we will be providing quarterly reports to the market to keep you updated on the conversion project, with the first report in April. At the same time that the new terminal services agreement commenced on 1 April, we will formally re-brand as channel infrastructure, which includes a change to our NZX ticker code. We are also planning to release our first sustainability report in April, which is being prepared to TCFD standards. And looking forward to 2023, we look forward to a return to dividends. I will now hand over to Jarek, who we really pleased to welcome to the leadership team as channel's incoming CFO, who will talk about conversion costs and funding.

Thanks, Naomi, and good morning, everyone. I'm really pleased to be joining you today to talk in some more detail to the floor looking financial position of channel infrastructure, starting on Slide 18, and beginning with our cost expectations. As you can see on the slide, we are reconfirming today our previous expectation that conversion costs will total between $200 million and $220 million over the next 5 to 6 years. We are now much further progressed with our planning and contracting of this spend, and many aspects of the work are now underway. So it is pleasing to be able to confirm we remain in line with the cost estimates that we originally provided in July last year, and that we retain contingency in our plants, which is especially important now given we will be implementing this work through a COVID-impacted period of time. Our terminal conversion costs comprise terminal upgrade works, shutdown and decommissioning costs as well as workforce contract termination and other transition costs. And as reflected in our cost estimate range, we have allowed for contingency in our project budget. We still expect demolition, will cost around $50 million and are not intending to complete this within the next 10 years. In the year to 31 December 2021, we incurred around $15 million of conversion costs. And in the year-end balance sheet, we have provided for $176 million of conversion and demolition costs as well. The balance of the conversion project and private storage expenditure will be capitalized as they are incurred. Now please turn to Slide 19. In 2021, we secured the consent of our bank lenders to the conversion, which enabled us to keep our existing facilities on foot as well as raising new facilities to bank's conversion. I wanted to acknowledge our bank lenders for the support they have provided to us throughout the year and the strategic review process. The additional liquidity means the company currently has committed facilities totaling $410 million in place. Of this amount, $155 million is liquidity headroom that matures outside of the next 12 months, providing financing certainty. We expect our reported debt levels to increase over 2022 as we draw down our committed liquidity headroom to fund the conversion. As the terminal commences, cash flow from the terminal will also support funding of these costs in what will be the year of highest spend. Prior to the recent increases we have observed in wholesale interest rates, we were able to put in place interest rate hedging, which means 75% of drawn debt is currently fixed, and we have further hedging in place with 4 start dates to provide additional cover as our debt levels increase. These hedges provide strong protection against future interest rate movements and increase our cash flow certainty. A key priority for us this year will be our financing program. This is aimed at ensuring our financing arrangements are suitable for our infrastructure business. And as part of our financing strategy, we will be looking to extend the term of our financing arrangements and diversify our financing sources to a [ DCM ] offer. We will also be working through the refinancing of our bank facilities through the course of the year. So collectively, all these financing activities are expected to optimize our cost of debt, capturing the benefit of our long-term customer agreements and the improvement in our credit delivered by the transition. With the equity raise last year, our peak leverage has reduced, and as agreed with our bank lenders we will be able to recommend the payment of dividends after the end of this year when net debt-to-EBITDA falls below 4.5x. And with confirmation of the timing and cost of conversion today, again, we are pleased to reconfirm our previous expectation that dividend payment should be commenced within 1 to 2 years of the conversion. And as previously advised, the proposed dividend policy is based on a payout ratio of between 60% to 70% of adjusted free cash flow. I will now turn back to Naomi.

Thanks, Jarek. Now moving on to the outlook for FY '22 and starting on Page -- Slide 21 with our priorities for this year. For the next 5 weeks, we are very much focused on running the refinery safely and then shutting down safely, particularly with the impacts COVID is having. And that strong focus on safety will continue throughout this year, with increased activity on site, with the terminal conversion works and decommissioning of the refinery as well as the significant workforce changes that will occur through the year. Delivering the conversion activity safely on time and on budget is our next key priority for the year. As we do this, we will derisk this transition and move forward as a strong and stable infrastructure business. We will have a strong focus on our organizational capability through this year, both to retain the key skills we need for the terminal business and decommissioning activity and to set up the new organization with the skills, systems and culture it needs to be successful long term, which is very different from that needed for our refinery business. We are also putting a lot of effort into supporting our people impacted by the transition to find new jobs when they are leaving our organization. We are really launching a new company this year, and we will be actively engaging with both investors and lenders through the year to ensure there is a strong understanding of the new business. A key part of this will be our refinancing strategy where we will be focused on delivering the benefits of the significant improvement in our credit profile post conversion. And finally, we have a range of near-term growth priorities that we plan to progress, which I will talk further on the next slide. Turning to Slide 22. Whilst our immediate focus is on successfully converting to an import terminal basically on time and within budget, we are also excited by the potential opportunities that await us on the other side as channel infrastructure. Last year, we completed an initial assessment of the full range of repurposing opportunities for the Marsden Point site. And that has given us a good basis on which to prioritize our work on the opportunities going forward. In the short term as well as providing the additional private storage services to our customers and supporting the government with its full security measures, we are exploring our options to ensure we have a resilient supply of low-cost energy, with electricity making up 1/3 of the terminal's cost base. This includes evaluating the Maranga Ra project and the potential to develop solar and battery capacity in the region in partnership with others. Looking slightly further ahead, we are looking at the import and supply of biofuels, and how we can use the Marsden Point infrastructure to support the biofuels mandates as biofuels infrastructure requirements become more known. And longer term, we want to maintain optionality across the range of types of fuel and energy Marsden Point can support in the future. The previously announced Fortescue Future Industries study of potential hydrogen production at Marsden Point is now underway, and findings from this study are expected later in the year. Please turn to Slide 23. Finally, I wanted to finish up by providing some guidance on certain financial measures for the year. With January '22 now in the books, we are pleased to announce we were able to operate above the fee floor, which represents a strong achievement and satisfying way to end our refinery operations. Our long-term refining margin outlook is unchanged, but we are expecting GRM above the fee floor in the first quarter. From 1 April, the TSA fees will commence, including the take-or-pay commitments, which equates to $75 million for 2022. With the transition to import terminal operations, we expect a significant change in our operating and capital expenditure, and expect normalized OpEx in FY '22 to be circa $70 million and reducing further in future periods. Our borrowings will increase over the course of the year as we draw down to fund conversion costs. We expect an average level of borrowing for the year of around $250 million and financing costs to be circa $14 million based on our current cost of debt and hedging positions. That concludes our formal presentation for today. And I will now hand back to the operator for questions.

[Operator Instructions] Your first question comes from Cameron Parker with Craigs Investment Partners.

Congratulations on closing the last year NZ refining. Could you just give me a bit more color around the conversion cost risk that's going to unfold through FY '22? What you're seeing in that environment at the moment, and how that risk may be mitigated over the year?

Thanks, Cameron. So you'll see in the pack that we have a bit of a breakdown of the overall conversion spend, both from a timing perspective as well as the nature of the spend. The workforce and contract bucket is fairly well known. So we don't see a lot of risk in that part of the conversion budget in terms of execution. The decommissioning costs, we have the most intensive period of that through the first half of this year and then a less intensive period through the second half, where we will have more flexibility around timing of work. And so COVID is really the key thing we are managing there and access to resourcing. We are currently continuing to be able to access the resourcing that we're needing through the first part of the year, but I'm certainly looking forward to the borders opening in the second half of the year with the amount of activity, not just that we're doing, but that really is happening across New Zealand. And then the final part of the conversion cost spend is the terminal upgrade works. Both works occur over about 5 to 6 years. So there is some flex in some of the work in terms of when we are executing it, and it is not all being spent in the first year. So some exposure there, but probably, we're expecting that much of that work will hopefully fall outside of the period where we've had the most significant impact from Omicron.

Okay, great. Just wondering that you continue to -- I'm not too sure if you're willing to sort of divulge that at all or if you can give us more color around that?

No, we haven't put out that specific number, and I'm sure you'll understand why. When you're contracting works and that sort of thing, it doesn't seem to be what you look to disclose. But, look, we are very actively managing that. We have a good level of contingency in the budget. We continue to assess it against what we see as the potential risks around Omicron. And we are really, today, confirming that currently, we remain comfortable with the cost estimates we have provided.

Your next question comes from [indiscernible].

can you hear me?

I can hear...

Just I've got 2 here. Firstly, on the fee floor for the first quarter, you mentioned refinery operations are going to cease kind of mid-March. Just wondering if that fee floor is payable for the whole period? and what the fee for actually is for the first quarter?

Yes. So the agreement with customers is that the processing agreement, which are our current refinery agreements, will continue to run to the end of March and come to an end at that point. So the fee floor continues to be payable floor fee. We have also, I think, but probably in a very small footnote disclosed the fee floor for 2022, just looking Slide 23. So it's $147 million for the full year. So if you divide that by Slide 4, you'll get pretty accurate figures for Q1.

Awesome. And just my second question. I'm just wondering how volumes have tracked since the introduction of the red light system across the whole country. Is it comparable to any sort of alert level we saw last year or cleared last year?

Yes. We've seen a similar decline in terms of what's going down the RAP to what we've seen when Auckland has gone into lockdown previously, but it hasn't declined to quite the same level that it has fallen to in the previous lockdowns, and you'll probably see from the chart, we've included, Mark, that what's tended to happen in the previous lockdowns is you have a quite significant initial drop and then it tends to rise back up if you have a look on Slide 7 of the pack. So early days. We've certainly seen that drop happen through February, not quite as far as where it went to in previous Auckland lockdowns and probably too early to tell sort of what the recovery profile looks like.

Yes, understand...

One important -- sorry, I was just going to add one important thing for us, I guess, in the current year is that with both the fee floor in the first quarter and then those take-or-pay commitments, we are relatively protected from a volume perspective in terms of the timing of the recovery from COVID.

Your next question comes from Nevill Gluyas with Jarden.

Several for me. First one is just to understand in terms of how EBITDA will be reported this year FY '22? You're saying refining operations between discontinued activities. Does that mean they appear below the EBITDA line? If so, I guess, we've been some splits of those operating costs, et cetera, to be able to take live line to isolate the terminal services?

Yes. So Nevill, thanks for the question. Yes, in the financial statements, I think in the segmental note there, we have outlined potential impacts of the conversion on the 2022 year, indicating that refining operations would likely be reported as discontinued operations. And I think that, that would be effectively meaning that -- in the P&L that you will see in 2022, those would be presented as a one line whether it's profit or loss position, sort of result from those continued operations. And the terminal financial results will be obviously presented as they are in the format, consistent with the current existing one in 2021.

Right. So in terms of -- if we're picking FY '22 EBITDA targets, we should treat it as if it's not discontinued for those purposes?

Yes.

Right. Okay. Okay. Just moving on. madam Naomi, any idea on sort of timing? I think you've indicated sort of a decision over the course of this year in the time frame commentary. Would we -- should we expect capital raise? Or would you look at project financing or potential partnership I just sort of generated in the area. Obviously, we're looking at radiant right on the doorstep. Any color you could add around timing and how that might be financed?

Yes, sure. Nevill, so I think we think about electricity a little bit different to things like private storage because, for us, it's really about locking in long-term electricity supply rather than we're not an electricity business and don't see our investors as investors in that. So whatever structure is the best option to deliver that outcome, we will be open to. I wouldn't anticipate a structure that has us wholly funding it on our balance sheet is likely to be the answer we get to. But we do need to be a bit further progressed before we can probably talk more around exactly what it might look like. From a timing perspective, and you'll be across this is obviously a fair bit going on around us from a solar and battery perspective right next door. So we're very keen to understand what those plants look like and how our plants might connect with them. We are also closely watching and inputting into finalization of the TPM changes, which are relevant to what we do. And so the -- they're probably going to drive sort of exactly when we get to sort of a clearer view on how we take that forward in this first quarter, really trying to make sure we're not distracted by other things and are focused on the terminal conversion. But once we are through that, we'll certainly be putting some more time into those discussions.

Very clear. Okay. So last question for me. Just in terms of the tax depreciation guidance, obviously, with the revaluation, et cetera, they're going to be some accounting depreciation figures. I guess it would be very useful to get some idea of how the tax authority will count depreciation once conversion is complete. What level that will be?

So thanks, Nevill, it's Denise here. Look, I think we -- in the expenditure book that we just give a view around -- forward-looking view around what the tax depreciation charge was likely to be. Obviously, when we're going through a transformation like this, you don't actually reset that the tax base. So the revaluation that we've done is purely for accounting purposes. And so the tech space that we've got reported, I think it was -- just trying to remember back, I think it was $10 million to $15 million tax depreciation charge per year, that's right.

And if that continues. There's no change in that as a result of sort of finalizing the write-offs from a tax perspective because I get to an implied tax write-off and all?

Yes, that's right. So, Nevill, the guidance that we gave in the explanatory booklet was solely focused on those assets that would be retained for the import terminal. So that guidance is still relevant today.

Perfect.

It's an ongoing tax depreciation shield.

Yes, I understand. That's [indiscernible] way. I guess there will be some small increment to that for us to think about as well, which is from the private storage investment on top of 10, 15?

That's correct. You will able to love the money that we're investing in those capital projects is available for a further tax depreciation [indiscernible], if you like.

[Operator Instructions] Your next question comes from Andrew Harvey-Green with Forsyth Barr.

Quick question just around the dividend from me and the timing of it. And are you likely to recommence dividends once you meet the banking requirements? I guess key one being the 4.5x net debt to EBITDA? Or is current thinking maybe given a little bit more conservative and pay off a little bit more debt first?

No, I think we've tried to be clear on that, that once we are able to pay dividends, we will look to pay dividends, Andrew. So -- as you say, the key requirement for us to do that is to go below that 4.5x level of leverage. And then the thing that we will look at as we get further through the conversion work is that payout ratio. We've set it, but we've indicated the dividend policy of 60% to 70%, which does allow for deleveraging over the next few years. And so I think that will be the bit that we give some more attention to once we further progress through the conversion.

Great. And I'd just like to just wish Denise [indiscernible] , going forward. I think -- thanks for all your help over the last 12, 13 years, Jen, you've been CFO, well I've been covering the refinery. So all the best.

Andrew. I've seasonally enjoyed it, and I will be watching the development of channel infrastructure and the great things that will come for the company. So thank you very much.

[Operator Instructions] There are no further questions at this time. I'll now hand back to Naomi James for closing remarks.

Thank you. Denise, Jarek and I would just like to thank you all for your time this morning. And we look forward to providing you with further updates through the year as we make the transition to channel infrastructure. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.