VECTOR LIMITED & SUBSIDIARIES

GAS DISTRIBUTION ACTIVITIES

STATEMENT OF ACCOUNTING POLICIES

FOR THE YEAR ENDED 30 JUNE 2007

ENTITIES REPORTING

These consolidated financial information disclosure statements comprise the gas distribution business activities of Vector Limited and its subsidiaries. The gas distribution activities involve the ownership and supply of pipeline function services for the distribution of gas.

Vector Limited is a company registered under the Companies Act 1993. Vector Limited is an issuer for the purpose of the Financial Reporting Act 1993 and its financial statements comply with that Act. Vector Limited is yet to adopt New Zealand International Financial Reporting Standards, as such these consolidated financial information disclosure statements follow the same accounting policies as that of Vector Limited and comply with New Zealand Generally Accepted Accounting Practice. The accounting policies as they relate to the gas distribution business are detailed below.

These consolidated financial information disclosure statements for the gas distribution business activities of the Vector group are Special Purpose Financial Reports as defined in the New Zealand Institute of Chartered Accountants' "framework for differential reporting"

In accordance with the Gas (Information Disclosure) Regulation 1997, these consolidated financial information disclosure statements have been prepared on the basis that the initial acquisition of 67.21% of NGC gas distribution business occurred at 1st July 2004 and subsequent balance acquisition of 32.79% occurred at the beginning of the financial year 1st July 2005. The actual dates of initial and subsequent acquisition were 14th December 2004 and 10th August 2005 respectively.

STATUTORY BASE

The consolidated financial information disclosure statements have been prepared in accordance with the requirements of the Gas (Information Disclosure) Regulations 1997.

MEASUREMENT BASE

The consolidated financial information disclosure statements are prepared on the basis of historical cost modified by the revaluation of certain items of property, plant and equipment as identified in specific accounting policies below.

The Vector group has adopted a policy to apply the avoidable cost allocation methodology (ACAM) described in the Electricity Information Disclosure Handbook 31 March 2004, for the allocation of revenues, costs, assets and liabilities between the regulated businesses and other activities of the company. Under the Gas (Information Disclosure) Regulation 1997, there is no specific guidance provided on the cost allocation method to apply, thus Vector group has followed the Electricity Information Disclosure Handbook in allocating costs to the regulated business.

The NGC gas distribution business and the Vector gas distribution business are treated as separate regulated standalone businesses and then consolidated for presentation in these information disclosure statements. Vector group has adopted this approach as the Vector Auckland Gas Distribution business is subject to a provisional price control authorisation issued by the Commerce Commission (Commerce Act (Natural Gas Services) Provisional Authorisation 2005).

The costs have been allocated on the following basis:

• Direct allocation of all components of financial statement items which are directly attributable to the specific businesses.
• For any components of financial statement items that are not directly attributable to a specific business:
  • By assessing the proportions of those components which are avoidable and non-avoidable; and
  • Allocating those components amongst the businesses on the basis of those proportions using an appropriate cost allocator.

The two main allocators used are the number of employees and the book value of property, plant and equipment. Some costs like integration costs, IT costs and non-system asset depreciation are separately analysed and are allocated using allocators specific to those costs.

All costs not allocated to the standalone gas distribution business, are allocated to other businesses within the Vector group. Other businesses are not disclosed within these consolidated financial information disclosure statements.

Allocators are also utilised to allocate balance sheet assets and liabilities that are not directly attributable to the standalone business.

GOING CONCERN

The financial statements have been prepared on a going concern basis which the directors believe is appropriate.