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Statement from Geotherm Group Ltd

17 January 2006

Statement from Geotherm Group Ltd

Contact Energy Ltd was today challenged by Geotherm Group Ltd, a new entrant to the geothermal generation industry, to justify its anti-competitive and secretive behaviour relating to a potential land purchase in the Wairakei-Taupo area.

The challenge was issued by Alistair McLachlan, Managing Director of the Geotherm Group.

“I have decided to bring this into the public arena because there are important concerns of public interest at stake and because I am aware that Contact Energy has sought confidentiality for its bid,” Mr McLachlan said.

“I am convinced that this is nothing more than a spoiling tactic on Contact Energy’s behalf, designed to frustrate a commercial competitor. If that is the case, the end loser will be the consumer who will have to pay higher power prices.”

After a closed tender process, McLachlan Lands entered an agreement with Landcorp in August last year to buy five lots of farmland totalling 2500 acres north west of Taupo and adjacent to land on which Geotherm Group is developing a geothermal power station. Geotherm plans to use some of the land for underground extraction and reinjection of geothermal fluids, but not Lot D, which is in clear sight of Taupo township.

“Significantly, Contact is seeking to buy only Lot D. This is immediately upstream of our generation project and would have significant adverse effects on the viability of that project,” Mr McLachlan said.

“Significantly also; our expert advice is that - even if Contact somehow managed to get the requisite resource consents - it would be uneconomic for them to develop the site for geothermal purposes and, despite many opportunities over the years, they have never until now identified it as a potential area for geothermal development,” he said.

“In 2004 Contact sought unsuccessfully to prevent us from building our geothermal plant by contesting our resource application for the necessary water rights. Having failed there, it is now resorting to rights deriving from when it was within the Electricity Corporation of New Zealand and when ECNZ ran all electricity generation.

“But things are now very different: government policy is for a competitive electricity market, and Contact is no longer government-owned or even New Zealand-owned. It was sold into majority foreign ownership in 1999 and is now controlled by Origin Energy Ltd, an Australian company.

“The rights Contact inherited from its ECNZ days were intended to ensure that the government could develop geothermal facilities as demand required and include a right of first refusal to land within the Wairakei and Tauhara energy fields should Landcorp wish to sell.

“We would argue that Contact Energy is now trying to use these rights in ways which are not only inconsistent with but are actually in conflict with the original intention,” Mr McLachlan said. “Rather than ensuring a steady supply of renewable energy to the market, its actions are designed to inhibit competition.

“Because the land in question is farmland and exceeds five hectares, it comes within the Overseas Investment Act 2005. And because Contact is deemed an ’overseas person’ for the purposes of the Act, there is a requirement that the property be advertised before sale to give New Zealand residents a first opportunity to buy.

“Geotherm Group has already recorded its interest by offering to buy through McLachlan Lands all five lots but Contact is trying to negate this by seeking an exemption from this provision in the Act.

“If McLachlan Lands was successful in buying the land, we would continue to farm it and are well-placed to do this as I and my family have more than 40 years experience farming in this district.

“In the meantime, there are a number of questions to which Contact Energy should provide answers,” Mr McLachlan said.

These include:

- Why as a foreign-owned company Contact Energy should be exempted from the protections of the Overseas Investment Act 2005 and the Act’s objective that New Zealanders should have first rights to farmland and to other sensitive assets;
- Why it is going for only one lot of the five on offer, especially when that lot is uneconomic for geothermal use;
- Why when it set out its future development plans in the area in submissions against our 2004 resort application for water rights, it failed to mention Lot D.


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