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and to purchase a portfolio of assets and liabilities, or shares in a subsidiary company, from ECNZ for cash;

(c) ECNZ sells a portfolio of assets and liabilities, or shares in a subsidiary company, for cash to the new SOE, and uses all of the proceeds to reduce its capital and, if appropriate, make a loan to the Crown. The amount and terms of any loan of any debt finance the Crown supplies to the new SOE under paragraph (a) above would be identical to the amount and terms of the loan from ECNZ to the Crown;

(d) ECNZ may use a portion of any loan to the Crown as security for an in-substance debt defeasance transaction. Such a defeasance should enable ECNZ to reduce the size of its balance sheet without adversely affecting the rights of its creditors.

Target dates

25. The target date for completion of the matters referred to in paragraphs 2, 3, and 5 to 10 above is 31 January 1996.

Dispute resolution

26. If agreement cannot be reached for the purposes of paragraph 15 or 16 above by a date set by the shareholding Ministers, the matters not agreed will be determined by the shareholding Ministers.

27. If a difference arises between the ECNZ Board and the SOE Development Group which prevents agreement being reached between them on a matter referred to in this Appendix, they are encouraged to seek external mediation, but if the difference cannot be resolved by a date—

• to be agreed by ECNZ and the SOE Development Group; or
• to be set by the shareholding Ministers (where ECNZ and the SOE Development Group have failed to agree on a date by a time specified by the shareholding Ministers)—

then, unless the shareholding Ministers otherwise determine, ECNZ and the SOE Development Group will be bound by the decision of an independent expert. The independent expert will be appointed by agreement between ECNZ and the SOE Development Group, or, if agreement is not reached within 14 days of the date referred to above, by the shareholding Ministers.

APPENDIX 2

Proposed Taranaki Combined Cycle Gas Sale

Objective:

1. ECNZ is to conclude the current sales process in accordance with this Appendix, subject to resource consents and to the objective of maximising value.

Target completion date:

2. The date agreed between the ECNZ Board and the shareholding Ministers.

Linkage between gas and site:

3. ECNZ has not precluded bids for the gas only, or for use of the gas (delivered from any or all of the three ECNZ delivery points on the Maui pipeline) at sites other than at Stratford and/or at more than one site.

Explanatory note:

It is important that bidders for the project have flexibility as to the location and size of plant. This will help ensure that the best use is made of the relevant gas from the perspective of the economy as a whole.

Rebalancing no longer applies:

4. A condition of ECNZ’s initial invitation to bid was that bids would be evaluated in the context of an overall average increase in North Island energy prices of 0.4c/kWh. The measures agreed in this Memorandum mean that this condition no longer applies.

Explanatory note:

The condition in ECNZ’s invitation to bid was predicated on ECNZ continuing to hold its current capacity. The measures agreed in this Memorandum mean that this assumption is no longer valid.

APPENDIX 3

Sale of Small Hydro-Stations

Objective:

1. The Cobb, Coleridge, Highbank, Matahina, Mangahao, Tuai, Piripaua, and Kaitawa hydro-stations are to be sold by ECNZ in accordance with this Appendix, subject to appropriate consultations with Maori as to any Treaty of Waitangi issues.

Consultation with Maori:

2. The Government will consult with Maori as appropriate on any Treaty of Waitangi issues arising in regard to the sales.

Potential buyers:

3. Each hydro-station referred to above will be available for purchase on a proper commercial basis by—

• energy companies (formerly called electricity supply authorities) or Maori interests within the general region of the station (where the size of the region, to be determined by ECNZ in consultation with shareholding Ministers, is sufficient to provide a reasonable degree of contestability for the station); or
• any company or other person that is effectively controlled by any such energy company and/or Maori interests.

Target completion date:

4. 18 months after the date of transfer to the new SOE of effective control of the power stations referred to in Appendix 1 (or any later date agreed by the Government and ECNZ for the sale of a particular small hydro station, to be considered where there is a strong possibility of ECNZ completing a sale of that station within a reasonable period after that date of transfer).

Fallback if stations not sold by target date:

5. If any hydro-station is not sold by the target date, ECNZ will offer to sell it to the new SOE at its book value at the date of this Memorandum.

APPENDIX 4

Cap on ECNZ Providing Additional Generating Capacity

Objective:

1. For the period that ECNZ’s share of the total New Zealand generating capacity (measured in MW) is more than 45% of that total, at least 50 percent of additional generating capacity in New Zealand is to be built by parties fully independent of ECNZ. This mechanism (the “cap”) is intended to ensure—

• that the output prices of at least 50 percent of additional capacity reflect true costs; and
• that ECNZ’s market dominance is reduced over time; and
• the emergence of vigorous competitive pressure on costs and prices, and a diversity of views on the technology, size, location and timing of new stations;