KING COUNTRY ENERGY LIMITED AND SUBSIDIARY

NOTES TO THE ANNUAL FINANCIAL STATEMENTS PREPARED IN ACCORDANCE

WITH THE ELECTRICITY INFORMATION DISCLOSURE REGULATIONS 1994

FOR THE YEAR ENDED 31 MARCH 1998

King Country Energy Limited has entered into electricity hedge contracts with ECNZ, Contact N.Z. Ltd and Mangahao Joint Venture in order to minimise the risk of price fluctuations on the electricity spot market. It is the Company’s current policy to hedge at least 95% of its estimated electricity purchases, however it is hedged for about 130%. It is endeavouring to sell off its surplus hedges.

Under these contracts King Country Energy Limited agrees a fixed price (hedge price) for its estimated electricity needs with ECNZ, Contact N.Z. Ltd, or Mangahao Joint Venture. On maturity of these agreements any difference between the hedge price and the spot market price is settled between the parties. Settlement occurs irrespective of the amount of electricity actually supplied. If the spot market price is greater than the hedge price, ECNZ, Contact N.Z. Ltd, and Mangahao Joint Venture must settle the difference with King Country Energy Limited. Conversely if the spot market price is less than the hedge price, King Country Energy Limited must settle the difference with ECNZ, Contact N.Z. Ltd, and Mangahao Joint Venture respectively.

15. RELATED PARTY TRANSACTIONS

The only related parties of the Company are the King Country Electric Power Trust, KCE Mangahao Limited and Mangahao Joint Venture. All transactions with related parties are made on normal Terms and Conditions.

No related party debts were forgiven or written off during the period.

There have been no related party transactions of a material nature other than the payment of dividends to the Trust of $80,000 and the entering into a Joint Venture Contract with Todd Mangahao Ltd and KCE Mangahao Ltd for the Mangahao Joint Venture purchase amounting to $21,400,000 and the contingent liability noted below.

16. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES

At 31 March 1998 the Company has not entered into any contracts to purchase and install Capital Equipment of a major nature.

King Country Energy Limited has guaranteed in full the borrowings of KCE Mangahao Limited amounting to $21,400,000.

17. OPTIMISED DEPRIVAL VALUE

An Optimised Deprival Valuation (ODV) of the Network Business of the Company was carried out as at 31 March 1997, during the 1996/97 Financial Year. This valuation was carried out for information disclosure purposes under the Energy Companies Act 1992, Electricity Act 1992 and The Electricity (Information Disclosure) Regulations 1994. Under the ODV Methodology the value of the Network Assets as at 31 March 1997 was $27.3 million. This has not yet been updated by the purchase of Distribution Assets and Depreciation for the year to the 31st March 1998.

18. NETWORK, ENERGY TRADING AND GENERATION BUSINESS VALUATIONS

At the same time as the ODV was carried out on the network assets a valuation of the Network, Energy Trading and Generation businesses was prepared. This valued the overall business at $45 million. This value has not been taken into account in the financial records of the Company and has not at this stage been updated for the acquisition of Mangahao.

THE NEW ZEALAND GAZETTE

No. 123