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Powerco Signs Major Tasmanian Gas Network Contract

Powerco Signs Major Tasmanian Gas Network Contract

Leading New Zealand gas and electricity network company, Powerco, and the State Government of Tasmania, today signed a development agreement, which provides Powerco with the approval to distribute natural gas to Tasmania’s major industrial and commercial customers. This agreement follows negotiations on the first stage of the Government-initiated project.

Duke Energy International has already installed the gas transmission pipeline from Victoria, across Bass Strait and into Tasmania and down through the main population centres of the state through to Hobart. Powerco’s gas network will tee-off this transmission pipeline.

Tasmania state premier, Mr Jim Bacon, said, "the first stage of the project will be the construction of gas distribution networks which will connect off the main Duke backbone gas pipeline to a number of major industrial and commercial users. This work will be completed over an 18-month period from the commencement date, expected to be July 2003. Negotiations with Powerco, for the second stage of construction, which will provide connections to residential consumers, will commence immediately,” he said.
Powerco chief executive Steven Boulton said he was delighted that Powerco and the State Government had brought the negotiations for stage one to a successful conclusion. He said the State Government’s endorsement of its relationship with the company acknowledged Powerco’s expertise in the development of energy networks in New Zealand.
"We have been able to directly leverage our experience because of the many geographical and operating similarities between New Zealand and Tasmania. This is an opportunity to apply our experience of lengthy and successful involvement in gas distribution in New Zealand for the benefit of the people of Tasmania,” said Mr Boulton.

“Some 100km of gas pipe will be laid in the urban areas of Hobart, Launceston, Devonport, Burnie and Bell Bay; and backbone networks may also be constructed in the Wynyard, Westbury, Wesley Vale, Longford, and Ulverstone areas subject to Powerco entering into commercial contracts with major industrial entities in those localities,” he said.
”While Powerco has preferred routes for the backbone networks, the first stage of the project will involve consultation with the relevant local councils and other government agencies, and industry briefings for those local contractors and suppliers interested in supplying services for the build.

”Design work for the network reticulation has already commenced.

“In this first stage of the project there are expected to be approximately 17-24 major customer connections. Powerco will maintain focus on its core business attributes by simply owning and operating the gas network, with other parties becoming involved in the retailing of gas,” Mr Boulton said.

The development agreement (and hence the first stage of the project) is conditional upon certain regulatory approvals and licences being obtained and certain legislative amendments being made.
Powerco will be reinforcing its existing Hobart-based project team with specialist planning, contract management, and procurement personnel, and as part of this expansion, will commence the recruitment of staff for the ongoing operations functions that will follow as the construction phase is concluded.

“It is anticipated that some of the construction work will initially be contracted out by Powerco and opportunities will be available to local firms either as direct contractors to Powerco or subcontractors to full-service providers.
”Powerco is already New Zealand’s largest gas distribution utility with more than 50% of the gas customer connections spread throughout the North Island. Further growth opportunities in our current geographical area remain limited at the present time,” said Mr Boulton.

“This investment decision represents a positive step forward in Powerco’s strategy of expanding its gas network ownership and gas management business in an area where there is an abundance of long-term gas and a focus on infrastructure investment and sustainable economic growth,” he said.

Mr Boulton said, “Greenfield investments of this type are another source of revenue to further diversify our existing base, providing additional earnings growth for our shareholders in the future. “The total initial investment for stage one, over the next 18 months, will be approximately NZ$38million. The Tasmanian Government has agreed to contribute approximately NZ$9million to Powerco to develop the backbone network. The balance will be funded by Powerco’s cash retentions. The investment will be made incrementally as each customer is connected during this period.

“Revenue flows from this investment for the 2003/04 year will be offset by one-off costs during the initial construction period and therefore should have a neutral effect on the profit forecasts for this year. As a result, the investment will impact on Powerco’s forecast unimputed dividend for the 2003/04 financial year, which currently stands at 16 cents per share,” said Mr Boulton.
Powerco is New Zealand’s largest gas and electricity distributor in terms of network length and largest gas distributor and second largest electricity distributor in terms of connections with approximately 400,000 consumer connections across the North Island. Powerco is a publicly listed company and was included in the NZSE40 from December 2, 2002.

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