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NEW ZEALAND GAZETTE, No. 191

9 DECEMBER 2008

Notes to and Forming Part of the Financial Statements
For the year ended 30 June 2008

POWERCO

GAS DIVISION

9 CONTINGENT LIABILITIES AND COMMITMENTS

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

Contracts

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

Fonterra

Fonterra has raised an issue with Powerco about their charges for the 2008/2009 year. The total amount in dispute is approximately $1.7 million. No legal proceedings have been issued and the companies continue to explore the issue.

Commitments

10 RELATED PARTY TRANSACTIONS

Trading Transactions

For the year ended 30 June 2008, the Powerco gas division was charged management service fees of $0.398 million (2007: $0.342 million) from BBI Networks (New Zealand) Limited. The payment terms are: "payment is required when an invoice is provided from BBINNZ and the amount is set in recognition of the following services being provided: executive strategic management, corporate development and asset management operational advice and direction, corporate financial advice, strategic treasury management advice, corporate revenue and risk management advice and other corporate policy formulation and advice".

The Powerco gas division has inter-company accounts with the other divisions of Powerco Limited. The inter-company accounts are unsecured and no interest has been charged in the current period.

No expense has been recognised during the period in respect of bad or doubtful debts.

A notional charge for the cost of insurance has been made from the corporate division to the gas division of $894,554 (2007: $784,991).

In 2007 Powerco gas division acquired $6.893 million of non network assets from one of the other divisions of Powerco Limited of which $0.673 million was made up of intangible assets. Of the assets acquired $2.322 million was funded by equity and $4.571 million by debt.

Compensation of key management personnel

The remuneration of directors and key executives is determined by the remuneration committee having regard to the performance of individuals and market trends.

11 SUBSEQUENT EVENTS

In August 2008, BBI announced that it was undertaking a formal price discovery process on a number of its assets; this included seeking a 50% co-investor in Powerco. After a competitive bidding process, Queensland Investment Corporation (QIC) has agreed to acquire a 50% interest in Powerco New Zealand. The agreement was signed on the 3 November 2008. Completion is expected to occur in late February 2009 following receipt of various consents and a new Board of directors will be formed at the same time.

Powerco and Vector Limited had their application for a judicial review of the Commerce Commission and Government's decision to impose control over both companies' gas distribution businesses was declined in December 2007. Costs have been awarded against Powerco and Vector. Powerco's share of costs has not been quantified and is not expected to exceed $1 million. Powerco's appeal of this decision was not allowed.

The Commerce Commission issued a final Authorisation controlling the gas distribution services of Powerco and Vector on 31 October 2008. This decision requires Powerco to reduce its average charges by 11.1% from 1 January 2009 and increase them by no more than CPI per annum, until 30 June 2012.

Powerco Limited declared a dividend in November of $15.02 million. Under the current allocation, the gas divisions portion is $2.40 million.