UNION NETWORKS - LINES BUSINESS

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

For The Year Ended 31 March 2003

9 TERM DEBT

Term borrowings
Payable within 1 - 2 years | 54,500 | -
Payable between 2 and 3 years| 40,000 | -
Payable between 3 and 4 years| 50,000 | -
Payable between 4 and 5 years| 50,000 | -
| 194,500 | -

Related party borrowings
Maturing within 1 year | 1,000 | -
Maturing 1 to 2 years | - | 1,000
| 1,000 | 1,000

Total borrowings | 195,500 | 1,000

All term borrowings are bank loans and interest rates for these borrowings are based on the bank bill plus a margin. The Company utilises a multi tranche bank facility arrangement for a total of $200m. Components of this facility will be routinely renewed on maturity date. For this reason all borrowings under this facility are reported as term borrowings.

These term borrowings are secured over the property, plant and equipment of the Company and are subject to lender covenants.

The related party loan is from the Hawke’s Bay Power Consumers Trust and is unsecured. This loan is renewable on 01 June 2003 and will be renewed for a further ten years on this date.

10 RELATED PARTY TRANSACTIONS

The establishment plan of the Company provided for the formation of the Hawke’s Bay Power Consumers Trust (the object of which is to hold the shares of the Company on behalf of the consumers in their capacity as owners) and the issue of a $1,000,000 debt security from the Company to the Trust. The debt security is repayable on 1 June, 2003 and carries an interest rate of 6% per pa. As reported in Note 9, this debt will be renewed for a further period of ten years.

A fully imputed dividend of $167,000 was paid to the Hawke’s Bay Power Consumers Trust during the year.

There were no other related party transactions.

11 COMMITMENTS

The value of contractual capital commitments as at 31 March 2003 is estimated at $1,750,000 (2002: $1,055,000).

The Company has entered into fixed term contracts with Siemens Limited for the provision of maintenance and non-customer general capital works over the electricity networks in the Taupo and Rotorua regions. These contracts are for a period of up to 6 years.

12 CONTINGENT LIABILITIES

A contingent liability exists for future customer service guarantee payments in relation to continuity of supply.

The Company has received notice that it will be prosecuted under Occupational Health and Safety regulations in relation to an incident that occurred on the electrical network in late January 2002. The maximum penalty is $14,000 inclusive of court costs.

On 6 June 2003 the Commerce Commission published the final gazette notice in relation to the regulation of electricity lines businesses. These draft regulations focus primarily on quality and pricing of services and will be fully effective by April 2004. In relation to the interim measures contained within these regulations, the Company has a potential revenue exposure in relation to price increases made in April 2002.

The Company is currently in discussions with Trustpower Limited of Tauranga in relation to the embedded generation contract covering the Rotokawa generation plant near Rotorua. Although there is the potential for damages to be claimed by Trustpower Limited during the negotiating period for this contract, the Company considers it highly unlikely that this will occur.

The Company is currently being audited by the Inland Revenue Department for the tax year ending 31 March 2001 and at balance date there was one remaining issue under discussion with the Department. The Company has not received any notification of intention to reassess the tax year under review.