NGC – Gas Wholesaling Activities

Statement of Accounting Policies

For the Year Ended 30 June 2005

For the purposes of the Gas (Information Disclosure) Regulations 1997

a) Accounting Entity

The financial statements are those of NGC – Gas Wholesaling Activities (NGC). Gas Wholesaling Activities involves the sale of gas to persons for the purpose of resupply by the other person (other than those wholesaling activities involving the supply of gas to retailers). These financial statements apply solely to the activities of NGC New Zealand Limited but are published in the names of both NGC New Zealand Limited and Vector Limited because of Vector’s ownership of the NGC Group.

b) Special Purpose Financial Statements

The financial statements have been prepared in accordance with the Gas (Information Disclosure) Regulations 1997.

c) General Accounting Policies

The general accounting policies as recommended by the New Zealand Institute of Chartered Accountants for the measurement and reporting of financial performance and financial position, under the historical cost method, as modified by the revaluation of certain assets, have been followed in the preparation of these financial statements.

d) Particular Accounting Policies

The following particular accounting policies, which materially affect the measurement of financial performance and financial position have been adopted:

i) Current Assets

Accounts receivable are valued at their estimated realisable value. Inventories are valued at the lower of cost and net realisable value. Cost is determined on a FIFO or weighted average cost basis. All other current assets are valued at their estimated realisable value.

ii) Gas Entitlements and Advances

Under the terms of certain gas supply contracts, NGC may be required to pay for a minimum quantity of gas in each contract year whether or not delivery has been made. NGC may from time to time, prepay for gas and these payments may entitle NGC to delivery of gas in subsequent years without further payment. The prepayments are capitalised as an asset and are amortised to earnings as the prepaid gas is utilised. The amortisation rate per unit of gas is based on the amount of prepaid gas which NGC expects to access over the term of the contract.

NGC recognises an estimated liability for future obligations to provide gas at a later date. Fees associated with gas advances are realised as a component of gas cost in the Statement of Financial Performance over the expected life of the contract.

iii) Taxation

NGC recognises deferred taxation using the liability method and on a comprehensive basis. Income tax expense is recognised on the surplus before taxation. It is then adjusted for permanent differences between taxable and accounting income. The tax effect of all differences, which arise from items being brought to account in different periods for income tax and accounting purposes, is recognised in the Statement of Financial Position as a future tax benefit or as deferred tax. The future tax benefit or deferred tax is stated at the income tax rates prevailing at balance date. Future tax benefits are not recognised unless realisation of the asset is virtually certain. Future tax benefits and deferred tax are offset.