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Tasmanian Natural Gas Network Stage 2 Announcement

30 September 2003

Tasmanian Natural Gas Network Stage Two Announcement

Leading gas and electricity network company Powerco today signed an agreement with the State of Tasmania for the first phase of the stage two natural gas network rollout in Tasmania.

Powerco Chief Executive Steven Boulton said this phase of the roll-out would make gas available to approximately 38,500 of the state’s smaller commercial and residential customers.

Mr Boulton said Powerco would commence construction work on this phase of stage two following the completion of stage one construction works in December 2004. The stage one network needs to be constructed to enable the connection of stage two.

In April this year, Powerco signed stage one agreements with the State of Tasmania to construct a natural gas network connecting large industrial users to the existing Duke transmission pipeline.

A number of conditions precedent for stage one have now been satisfied which means construction will commence within the next few months.

Powerco has established a project office in Launceston (in Tasmania’s north) with the design work on stage one having commenced in May.

The stage two construction is scheduled to start before February 2005 and will be completed by April 2007.

As was the case with the stage one agreement, before Powerco can commence construction work a number of conditions must be met, including obtaining a distribution licence for stage two from the Tasmanian Director of Gas, approval from the Australian Foreign Investment Review Board and the receipt of satisfactory tax rulings from the Australian and New Zealand tax authorities.

Mr Boulton said the capital cost of the 27-month stage two network rollout between February 2005 and April 2007 would be between A$40 million and A$50 million depending on the initial consumer connection take up.
With further investment in customer connections beyond the 27-month period, the total longer-term capital cost is anticipated to be around A$65 million to A$70 million being dependent on the level of ongoing customer take-up.

“The agreement with the State of Tasmania for stage two includes a funding contribution of around A$34 million. It is standard practice for funding contributions to be made to enable infrastructure developments to proceed,” he said.

“This State contribution was determined by a financial assessment based on a commercial outcome for Powerco that the company proposed during the selection process, reflecting the risk profile of a greenfields investment such as this.”

Mr Boulton said while Powerco was confident the project funding would not attract tax, if clearance was not forthcoming it was possible that the Tasmanian Government would contribute further funding to meet any tax liabilities.

Mr Boulton said he was pleased Powerco and the State of Tasmania had been able to sign the agreements for stage two after comprehensive and detailed negotiations.

“The successful conclusion of these discussions provides a further demonstration of Powerco’s long term commitment to Tasmania,” he said.

“The agreements are another positive step forward for Powerco’s strategy of expanding our gas network ownership and gas management business.

“This announcement is also good news for our shareholders and for the ongoing growth of the Company. The investment provides additional growth for Powerco with only incremental capital outlays over a period of years. The incremental cost of the network rollout will be funded by existing debt facilities.”

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 public listed company on the NZSX and included in the NZSX50 index.

ENDS

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