27 NOVEMBER NEW ZEALAND GAZETTE 4585

NOTES TO THE FINANCIAL STATEMENTS

20. FINANCIAL INSTRUMENTS (continued)

The following methods were used to estimate the fair values of these classes of financial instrument:

Term liabilities and short term loans

The fair value of ECNZ’s term liabilities and short term loans is estimated based on current market rates available to ECNZ for debt of a similar maturity. ECNZ anticipates that these liabilities will be held to maturity and that settlement at fair value is unlikely.

Currency and interest rate swaps, foreign exchange contracts, interest rate swaps, forward rate agreements, interest rate options and interest rate futures

The fair value of these instruments is estimated based on their quoted market prices.

(iii) Concentration of credit risk

In the normal course of its business ECNZ incurs credit risk from trade debtors and from transactions with financial institutions.

ECNZ has a credit policy that is used to manage its exposure to credit risk. As part of this policy, limits on exposures with counterparties have been set and approved by ECNZ’s Board of Directors and are monitored on a regular basis.

ECNZ does not have any significant concentrations of credit risk. ECNZ does not require collateral or security to support financial instruments, due to the high credit rating of the financial institutions dealt with. ECNZ further minimises its credit exposure by limiting the amount of funds placed with any one financial institution at any one time. ECNZ does not anticipate the non-performance of any obligations that existed at balance date.

21. RESOURCE CONSENTS

ECNZ requires water and air consents, obtained under the Resource Management Act 1991, to enable it to operate its thermal and hydro power stations. The duration of consents vary and are up to thirty-five years. The number of significant consents and their respective renewable dates are summarised below:

The renewable dates are fixed either by the expiry date of the consent or, where there is no expiry date, by the renewal date of 1 October 2001 set by the Resource Management Act. Most consents are or will be subject to periodic reviews.

22. DEBT DEFEASANCE

Leased Asset

In the year ended 31 March 1993 a payment of $216.4 million was made to a third party which extinguished financial obligations of $233 million arising under a new finance lease for high voltage electricity equipment (part of the HVDC asset). ECNZ has a purchase option under the finance lease to acquire all of the leased equipment on 31 March 2008. Under a separate lease agreement with ECNZ, Haywards Limited (a fully owned subsidiary of Trans Power New Zealand Limited) has an option to acquire the same leased assets from ECNZ on 31 March 2008.

Sale of Trans Power New Zealand Limited

On the 1 July 1994 ECNZ sold its shares in Trans Power New Zealand Limited to the Crown. As part of that arrangement $1.588 billion of debt was extinguished through an in-substance defeasance with the Crown.

23. LAND CLAIMS

Under the Treaty of Waitangi Act 1975, the Waitangi Tribunal has the power to recommend, in appropriate circumstances, that land purchased by ECNZ under the State-Owned Enterprises Act 1986 be resumed by the Crown in order that it be returned to the Maori claimants. In the event that the Tribunal’s initial recommendation is confirmed and the land is to be returned, compensation will be paid to ECNZ under the provisions of the Public Works Act 1981. If this is insufficient to cover the loss, certain additional compensation is payable under the sale and purchase agreement between ECNZ and the Crown.