3 DECEMBER 2010 NEW ZEALAND GAZETTE, No. 165 4133

GAS DIVISION

4. Interest rate swap contracts

   Under interest rate swaps, the Division agrees to exchange the differing interest rates on agreed notional principal amounts. Such contracts enable the Division to mitigate the risk of changing interest rates whilst still obtaining floating rate cash flows using the borrowing base as the notional principal amount. The fair value of interest rate swaps is determined by discounting future cash flows using the zero coupon rate at the valuation date. The following tables outline the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at reporting date:

   a) Interest rate swaps

                           30 June 2010                                    30 June 2009
                           Notional Principal                              Notional Principal
                           Amount      Fair value                      Amount      Fair value
                           NZ$000      NZ$000                      NZ$000      NZ$000

   Cash flow swaps
   Less than one year
   Due in one to five years
   Due after five years
   — —
   8,517 (683) —
   60,026 (2,338) —
   — 807 (487)

                                                               NZ$000                              NZ$000

   Fair value swaps
   Less than one year
   Due in one to five years
   Due after five years
   — —
   — 373 2,982
   21,437 (15,039) —
   — —

   Total cash flow interest rate swaps
   29,953 (18,060)

   Total fair value interest rate swaps
   21,810 (12,057)

   b) Average interest rates

                           30 June 2010                                        30 June 2009
                           Average contracted                          Average contracted
                           fixed interest rate                         fixed interest rate
                           %                               %

   Cash flow swaps
   Less than one year
   Due in one to five years
   Due after five years
   6.75% —
   6.77% 8.22%
   — 8.54%

   Fair value swaps
   Less than one year
   Due in one to five years
   Due after five years
   — 3.90%
   8.22% 5.60%
   — —

   Total cash flow interest rate swaps
   6.77%

   Total fair value interest rate swaps
   8.22%

   c) Foreign currency exchange contracts

   The Division has entered into a series of currency swaps to hedge the exchange rate and interest rate arising from the US private placement notes:

                                               2009                                                                    2010
                                               Dr / (Cr)                                   Dr / (Cr)
                                               NZ$000                                  NZ$000

   Contract value
   2009
   Dr / (Cr) 2009
   NZ$000 NZ$000

   Foreign currency
   Dr / (Cr)
   (63,082) (63,082)

   Average exchange rate
   2009 2010
   Dr / (Cr) Dr / (Cr)

   2010
   Dr / (Cr)
   NZ$000
   0.5647 0.7023

   Two to five years
   Free value pairs
   (64,581) (62,581)
   (1,303) (1,303)

   d) Hedge movements recognised in the profit or loss component of the Statement of Comprehensive Income

                                               30 June 2009                                        30 June 2010
                                               NZ$000                                      NZ$000

   Fair value adjustments on derivatives in a designated fair value hedge relationship
   (19,689) (1,745)

   Net effect on profit for the period
   — —

   No items have been recognised as ineffectiveness of a designated fair value hedge accounting relationship.