12 DECEMBER 2006

NEW ZEALAND GAZETTE, No. 170

Notes to and Forming Part of the Financial Statements
For the year ended 30 June 2006

POWERCO

GAS DIVISION

7 DISCLOSURE OF PERFORMANCE MEASURES PURSUANT TO REGULATION 15 AND PART II OF THE FIRST SCHEDULE OF THE GAS (INFORMATION DISCLOSURE) REGULATIONS 1997

8 CONTINGENT LIABILITIES AND COMMITMENTS

As Powerco is an integrated business, this disclosure relates to the business as a whole.

Legal claim

Powerco Limited has been named as a second defendant in a claim issued by Todd Energy Limited against Transpower Limited. The plaintiffs allege various breaches of the Commerce Act 1986 and claim various declarations and injunctions together with damages. The damages amount is presently unquantified. The claim is being defended by Powerco, which contends that it is not in breach of any of its obligations. No provision for the claim has been included in the financial statements.

Powerco Energy Services Pty Limited is the respondent in an arbitration commenced by KT Pty Limited, a sub-contractor who was performing work on the Gas Distribution Network in Tasmania. The plaintiffs allege variations to the contract, delay costs and claim damages. The claim is currently being defended by Powerco Energy Services Pty Limited, which contends that it is not in breach of the contract and has brought a counter claim against the plaintiffs for the cost of defective work. The damages amount is presently unquantified and no provision for the claim has been included in the financial statements.

Contracts

Powerco Limited has a contract with Tanix Alliance New Zealand Limited (Tanix), who provide electricity and gas field services. There is a condition in the contract that states that a payment is made to Tanix for performing better than budgeted and a payment is made by Powerco if performance does not meet budget. The amount of the payment is determined by a predetermined calculation in the contract. At this time, any payment to or from Powerco cannot be quantified.

Contribution from Tasmanian government

In January 2004, prior to the acquisition, Powerco received a contribution from the State Government of Tasmania amounting to AUD $8 million, for the building of a gas distribution network in Tasmania. This payment, known as an establishment contribution, is consideration for taking all necessary steps to incorporate a gas distribution entity and procuring that the gas distribution entity is established with access to the necessary expertise, assets and financial capability to undertake the Stage 1 Development Agreement with the Crown in Right of the State Government of Tasmania dated 30 April 2003. There is a refund mechanism on sale of assets or the shares in the gas distribution entity whereby Powerco must repay the State an amount equal to the lesser of the establishment contribution and the asset/equity profit.

In May 2005, Powerco Limited received a contribution from the State Government of Tasmania amounting to NZD $20.6 million (AUD $18.4 million), as an advance on the commencement of stage II of the gas distribution network built in Tasmania. An amount of NZD $72,000 (AUD $64,000) has been recognised as revenue in this financial period, based on calculating a set percentage of the depreciation charge of the capitalised project costs. There is a refund mechanism whereby Powerco Limited must repay the State if Powerco fails to perform certain obligations under the agreement. If this occurs Powerco is required to refund a pro rata amount based on uncompleted construction at the time of termination. Refer to notes 11 and 15 for income in advance.