28 NOVEMBER 2006 NEW ZEALAND GAZETTE, No. 154 4481

NGC Gas Wholesaling Activities

Statement of Accounting Policies

For the Year Ended 30 June 2006

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

a) Accounting Entity

The financial statements are presented for the 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. The NGC group of companies are wholly owned subsidiaries of Vector Limited (Vector).

b) Special Purpose Financial Statements

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

c) Measurement base

The financial statements are prepared on the basis of historical cost. For the purpose of cost allocation, NGC Gas Wholesaling Activities are treated as an incremental business. Businesses treated as incremental receive an allocation of the residual costs after costs have been allocated using the principles of Avoidable cost allocation methodology (ACAM) to businesses that are treated as standalone. ACAM is mandated for allocating revenues, costs, assets and liabilities between "lines" and "other" activities in the Electricity Information Disclosure Handbook 31 March 2004. Vector has chosen to apply ACAM to all of its standalone businesses. This approach was adopted for the first time for the 2006 financial period.

d) 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.

e) Specific Accounting Policies

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

i) Current Assets

Inventories are valued at the lower of cost and net realisable value. Cost is determined on a First in First Out (FIFO) or weighted average cost basis. All other current assets are disclosed at their estimated realisable value.

ii) Gas contracts and prepaid gas

Under the terms of certain gas supply contracts, there may be a requirement to pay for a minimum quantity of gas in each contract year whether or not delivery has been made. From time to time gas may be prepaid and these payments may give entitlement to the 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 is expected to be accessed over the term of the contract.

Contractually when a future obligation is recognised to provide gas at a later date, a liability is estimated and disclosed. 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.