We believe in the importance of the sustainable distribution of the value we create.

(32 pages)

Message from our Managing Director

This year’s Sustainability Report marks the end of Origin’s first 5-Year Sustainability Objectives. Since 2007, the objectives and the accompanying strategies have helped Origin remain focused on the sustainable delivery of the commitments we made to each of our key stakeholders.

In this year’s Report, we take time to reflect on the achievements of the past five years. This reflection also helps us look forward. We have spent time thinking about what sustainability means for Origin today and in the context of our future direction. Our approach to the wide range of energy challenges faced by society continues to evolve and mature, and our sustainability path reflects this growth.

Throughout 2011 and the first half of 2012, we held discussions along the east coast of Australia with our customers, communities, employees and investors to increase our understanding of their perception of key sustainability issues in the energy sector. We have been considering this information in the light of our operations and development activities. In next year’s Sustainability Report we will communicate a new set of goals and use them as the basis from which we report Origin’s performance.

We encourage you to read this report in conjunction with our Shareholder Review, which focuses on the financial performance of the Company.

Sustainability at Origin

We believe in the importance of the sustainable distribution of the value we create.

In the 2012 financial year, we delivered a significant increase in the value we created for our stakeholders, $2,244 million up from $1,124 million in the prior year. Of this value, $941 million was distributed to capital providers through interest and dividend payments, compared with $750 million in the prior year.

Consistent with a growing workforce, labour related payments to our employees increased from $540 million in the prior year to $708 million in the 2012 financial year. In addition we distributed $75 million to governments and communities through income taxes, royalties and community investments, again a significant increase on the $28 million distributed in the prior year.

A significant proportion of Origin’s community investment is awarded through the Origin Foundation, which continued its activities in the community throughout the year to support education-related initiatives that provide a pathway to employment and financial stability. Funded by Origin through an initial investment of $50 million in 2010, since its inception the Foundation has provided grants totaling $7.3 million to 24 not-for-profit community organisations.

We also reinvested to continue growing our business, with capital expenditure for the year of $1,561 million.

We seek to operate our business in a way that strikes a balance between the differing needs of each of our stakeholder groups in both the short and long term.

This year, two issues challenged our ability to strike that balance. First, the impact of the rising cost of energy on the Australian community and second, the sustainable development of lower carbon fuels, in particular coal seam gas (CSG) and renewable energy.

Energy for our customers

As the debate around the rising cost of energy intensified, we sought to improve communication with our own customers on the issue of energy pricing and to offer improved solutions to help them manage their energy consumption and bills.

During the 2012 financial year, our Energy Markets business successfully completed the implementation of a major new SAP billing and customer relationship management system – the Retail Transformation program – to increase the efficiency of our operations, improve competitiveness and allow us to respond more effectively to customer needs. While this is a significant achievement, as is normal following such a significant system implementation, a dedicated team has been formed to identify and address any residual issues that may impact on timeliness or accuracy of billing.

We are cognisant of customer and community concerns about cost of living pressures and continue to invest in helping customers understand more about their energy usage as well as develop tools to provide them with greater control over their energy use. In Victoria, we recently launched Australia’s first large-scale roll out of a smart energy management solution – Origin Smart – which provides visibility of energy use via an online portal. Origin Smart enables customers to predict future bills, providing more control over energy use and costs than ever before.

We continue to focus on providing consumers with choices, so that they can choose the products that best suit their individual needs. We have one of Australia’s leading rooftop solar photovoltaic (PV) businesses, remain the leading green energy retailer with more than 594,000 GreenPower and green gas customers, and we now provide charging equipment to support the expected growth in electric vehicles.

There are also customers who are in financial hardship and find it difficult to pay their energy bills and require our support. We support these customers through the industry-leading Power On program, which this year provided more than $3.1 million to customers in payment support, through a combination of tailored payment plans, energy audits and energy efficiency programs.

Co-existing with communities

In Australia and internationally, the nature of our operations and development opportunities brings us into direct contact with many local communities and landholders. We seek to listen to and learn from our engagement with communities surrounding our operations, which include power stations and gas plants as well as the gas and renewable energy projects we are seeking to develop. We take a long term approach to developing and nurturing these relationships.

Responding to some concerns in the community about CSG, we have strengthened our education program, to explain the process we undertake to produce CSG as Upstream operator for Australia Pacific LNG. In Australia, CSG’s social and environmental impacts are managed in one of the most highly regulated settings in the world, allowing the economic and environmental benefits of developing this source of energy to be safely realised. As upstream operator of Australia Pacific LNG’s project, the leading CSGproducer in Australia, we are uniquely positioned to take on the role of demonstrating the responsible production of CSG to liquefied natural gas (LNG).

One of our most innovative CSG programs is Working Together which will provide farmers with the opportunity to gain formal recognition for their knowledge and skills in environment and land management, enabling them to earn additional income by carrying out related activities supporting the gas infrastructure located on their properties. We discuss this program in detail in a case study and hope it will be another way to demonstrate how communities and the CSG industry can, and already do, successfully co-exist.

Delivering energy today, and investing in solutions for tomorrow

Origin has Australia’s largest and one of the most flexible power generation portfolios1, with approximately 5,900 MW of power generation capacity, which is diverse across geographies and fuels including gas, coal and wind.

We also continue to progress a number of our development opportunities which will ensure we can provide the energy solutions for tomorrow. Through Australia Pacific LNG, the Queensland CSGto LNG company in which we have a 37.5 per cent interest, we continued to support cleaner energy in the form of natural gas in Australia, and signed long-term LNG supply deals with China and Japan, which will see cleaner energy being delivered to these economies from 2015.

While natural gas is not, by itself, a solution to our global carbon challenges, it plays an important role. Natural gas is ideal for addressing the intermittency of many renewable energy technologies through peaking power generation plants, and also provides a cleaner form of baseload power generation. Through being exported in the form of LNG, natural gas also has the potential to supersede other, potentially less environmentally attractive fuel choices in other countries, while bringing economic benefits to Australia.

These benefits come with social and environmental challenges, and we continue our commitment to better understand and address these challenges. Recognising the significant environmental, social and economic advantages that gas might hold for our collective energy future, we continued during the year to identify other conventional and unconventional gas resources in Australia, New Zealand, Kenya, Vietnam and Botswana.

We are evaluating a number of renewable energy opportunities in overseas markets. In Chile, a new OECD economy with rapidly increasing energy demand2, we are pursuing geothermal interests and a potential large-scale hydro opportunity. We are also pursuing a potential hydro project in Papua New Guinea which, should it proceed, has the potential to contribute Australia’s first genuine baseload renewable energy, thereby playing a significant role in delivering cleaner energy supply. We are also pursuing geothermal exploration in Indonesia.

This year we also took decisions to reduce our interest in a number of development opportunities, including the Transform Solar joint venture, and certain wind farms and geothermal activities in Australia, because at this time we are unable to strike the right balance between delivering an appropriate return on investment for our shareholders and ensuring a sustainable supply of energy for the community at an affordable cost.

Safety underpins sustainability

At Origin, the foundation of sustainability is working safely. To that end, we have continued to focus on improving safety, and implemented a new program of observations to encourage our people to highlight unsafe behaviours, reinforce safe behaviours and prevent unsafe actions before incidents happen.

Regrettably, we continue to be reminded of the risks faced by our people and those who do work on our behalf. In February 2012, an employee was killed in a road accident while on a work-related trip in the Papua New Guinea highlands. In August 2012, two employees of Stena Drilling, a contractor operating the Stena Clyde drilling rig, which was drilling a well for Origin in the Bass Strait, died as a result of an incident on the rig. We continue to target a zero harm workplace for our employees and contractors, and we recognise that we have more work to do to drive meaningful improvements in our safety performance.

In closing, I would like to reflect on the importance of energy in society today. Energy is central to the quality and standard of living we enjoy in Australia. Our challenge at Origin is to ensure we find the right balance between the differing needs of our stakeholders, as we seek to ensure the sustainable delivery of energy today, and for the long term. Our Compass remains the constant that guides our decisions and helps us make good choices that we know will stand up to scrutiny today, and well into the future.

Grant King
Managing Director

  1. Through owned and contracted rights.
  2. The Chilean Energy Ministry’s National Energy Strategy (2012-2030) forecasts six to seven per cent growth in electricity consumption through to 2020.