5344 NEW ZEALAND GAZETTE, No. 184 28 NOVEMBER 2011

TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS

23. Contingencies

The Transpower group has the following contingencies. The lines business is an integral part of the Transpower group, and as such the following group information applies to the lines business.

(i) Guarantees

Debt
Transpower, and in some cases certain subsidiaries, have provided guarantees in respect of loan arrangements for the bonds, euro medium term notes (EMTN), Australian medium term notes and the US private placement.

The likelihood of losses in respect of these matters is considered to be remote.

Note 17 Debt, financial instruments and risk management includes the limits of the facilities and the outstanding amounts issued at balance date.

Bonds
Bonds are issued under a Trust Deed dated 6 April 1995 between Transpower, the initial Guarantoring Subsidiaries (including Transpower Finance) and The New Zealand Guardian Trust Company Limited. The Trust Deed has been amended on various occasions to incorporate (and remove) new subsidiaries into (and from) the Guaranteeing Group.

Pursuant to the Trust Deed, Transpower and its subsidiaries excluding RRL and d-cyphaTrade Limited (the "Guaranteeing Group") have given a negative pledge that, while any of the stock issued under the Trust Deed remains outstanding they will not, subject to certain exceptions, create or permit to exist any charge or lien over any of their respective assets. Each member of the Guaranteeing Group has guaranteed all amounts payable on redemption or repayment of the bonds and the payment of interest during the term of the bonds.

Euro medium term notes
Under the euro medium term note (EMTN) programme Transpower Finance may from time to time issue notes guaranteed by Transpower. The Guarantor (Transpower) and Transpower Finance have given a negative pledge covenant that while any of the notes issued under the EMTN programme remain outstanding they will not (and their subsidiaries will not), subject to certain exceptions, create or permit to exist any charge or lien over any of their respective assets to secure payment of certain indebtedness. The Guarantor (Transpower) and Transpower Finance guarantee payment of all principal and interest amounts in respect of notes issued under the EMTN programme.

Australian medium term notes
Under the Australian medium term note programme, Transpower Finance may issue notes guaranteed by Transpower. There were no notes issued at balance date (2010: none).

US private placement
Bonds are issued by Transpower Finance under a note and guarantee agreement dated 27 September 2004. The Bonds are guaranteed by Transpower (the "Guarantor"), Halfway Bush Finance Limited and TB and T Limited (the "Subsidiary Guarantors"). The Guarantor and Subsidiary Guarantors have unconditionally guaranteed payment of the principal, interest and other amounts owing under the Agreement.

(ii) Economic gain (loss) account

Transpower operates its revenue setting methodology within an economic value ("EV") framework that analyses economic gains and losses between those attributable to shareholders and those attributable to customers. The balance of the accumulated gain (loss) from monopoly activities attributable to customers ("the EV balance") has been passed on to or claimed from customers over time.

The net balance of the EV account at 30 June 2011 was $24.3 million to the credit of customers. This balance is comprised of an AC customer debit balance of $82.4 million and an HVDC customer credit balance of $106.7 million.