Wellington, Sept 24 NZPA - New Zealand infrastructure investor Infratil is eyeing the privatisation of New South Wales electricity assets but is not optimistic that it will happen.

"Preparations are being made to enter the NSW market, but there is still doubt about its sustainable profitability because of its regulatory and ownership regime," Infratil said in its latest investor update.

Infratil Energy Australia (IEA) owns three power stations in Australia and 81.2 percent of Perth Energy, which is constructing the Kwinana power station in Western Australia.

The NSW Government has announced the sale of three Government-owned retailers and rights from Government owned generators , but wanted to maintain retail price caps until at least 2013.

Infratil said there was no certainty that the privatisation process would proceed.

"NSW electricity privatisation schemes have stalled before and there is doubt about the viability of the gentrader model."

The NSW Government had very low public confidence, there were rumours of a leadership challenge and had been a series of controversies surrounding individual ministers.

The latest diversion was a slowly emerging media story of links between state politicians and property developers, one of whom was recently assassinated.

"These problems reduce the likelihood of good decision making on a controversial issue," Infratil said.

The issue for IEA was whether retail prices were allowed some flexibility under regulatory caps and whether the market structure would support a liquid and competitive wholesale market.

"At present the state government proposals would not prevent the privatisation resulting in a vertically integrated oligopoly, which would not foster new entrant competition," Infratil said.

Infratil is also a shareholder in New Zealand energy company TrustPower.

Infratil said the state government in South Australia had denied TrustPower a planning permit change for the proposed Myponga wind farm.

The permit would have allowed a smaller number of slightly taller turbines to improve efficiency and financial viability.

"Rather than undertake the entire planning process again, TrustPower has withdrawn from the project to concentrate on other opportunities and the expansion of its existing wind farm at Snowtown," Infratil said.

The process involving Infratil's investment in Energy Developments in Australia was continuing with a second prospective bidder undertaking due diligence. Infratil owns 32.1 percent of Brisbane-based Energy Developments.