26 NOVEMBER
NEW ZEALAND GAZETTE
4427

10. Financial Instruments

Interest Rate Risk
There is no interest rate risk as NGC – Transmission Activities does not hold any interest bearing assets or liabilities.

Credit Risk
Financial instruments potentially subject to credit risk are cash deposits and trade debtors. Cash deposits are placed with a small number of trading banks and the amount deposited per bank is limited. The counter parties and the credit limits are approved by the Board of Directors. NGC completes credit evaluations on customers where possible and requires a bond to be paid when customers cannot demonstrate an adequate credit history. There are no significant concentrations of credit risk

Foreign Currency Risk
Transactions denominated in foreign currencies are undertaken from time to time and resulting from these activities exposures in foreign currencies arise, these exposures are managed by other NGC Group companies.

Fair Values
Cash at bank, other investments, trade creditors and amounts due to subsidiaries - the carrying value of these items is equivalent to their fair value.

11. Avoidable Cost Allocation methodology

In November 2002 the Cabinet reaffirmed its May 2000 decision to mandate the use of the avoidable cost allocation methodology (ACAM) in the Gas (Information Disclosure) Regulations 1997. The Gas Control Inquiry being conducted by the Commerce Commission has provided a further driver as it will not be possible for the Commission to accurately assess NGC’s returns unless the gas transportation businesses are modelled as stand alone entities. Recently, NGC has initiated a project to develop ACAM for the financial information disclosed in the Transmission and Distribution businesses Gas (Information Disclosure) financial statements. The completion of this project will likely result in future presentation of these Gas (Information Disclosure) financial statements to be under an ACAM methodology which may produce results different to those presented in these financial statements.

12. Related Parties Transactions

NGC Management Limited provides management services in respect of the gas transmission activities. Management fees were paid to NGC Management Limited of $5.6 million (30 June 2002: $8.1 million).

Sales to NGC Wholesale for transmission and maintenance services were $1.7 million (30 June 2002: $3 million).

Purchases of fuel gas from NGC Retail were $4.4 million (30 June 2002: $3.2 million).

Sales to NGC Retail for transmission services were $28.2 million (30 June 2002: $35.9 million).

Sales of maintenance services to NGC Distribution were $0 (June 2002: $0.1 million).

Sales of maintenance services to Kapuni Gas Treatment Plant were $0.2 million (30 June 2002: $0.1 million).

Amounts outstanding from related parties as at 30 June 2003 totalled $0 million (30 June 2002: $0.4 million).

Purchases of mechanical services from Kapuni Gas Treatment Plant were $0.5 million (30 June 2002: $0.5 million)

Amounts owing to related parties as at 30 June 2003 totalled $0 million (30 June 2002: $4.7 million).

Transactions with related parties are settled in the ordinary course of business. No amounts have been written off or forgiven during the year ended 30 June 2003 (2002: $nil).