Carter Holt Harvey weighs in for court bout

By CHRIS DANIELS

Carter Holt Harvey says it has been sold a multimillion-dollar lemon by New Zealand's biggest power company, state-owned Genesis Power, and engine maker Rolls-Royce.

In court papers filed in the High Court at Auckland, Carter Holt Harvey says NZ's largest "co-generation plant", at Kinleith, which uses wood waste to make steam and electricity, is fundamentally flawed and does not work as promised.

Carter Holt Harvey, the third-biggest electricity user, is claiming that Genesis Power and Rolls-Royce breached contracts. It wants damages and costs, expected to run into the millions of dollars.

Genesis took over the Kinleith co-generation contract in 1999 after the breakup of ECNZ, which created Genesis, Meridian Energy and Mighty River Power.

Carter Holt was promised various performance characteristics of the plant when it was installed in 1997, including a 25-year design life, along with specifications of plant availability and operating hours.

But Carter Holt says the plant "fundamentally fails to perform" in accordance with its contract.

"The co-generation plant has never achieved, and is unable to achieve, 99.5 per cent availability," it says. "The co-generation plant was not designed for, and is unable to achieve, a design life of 25 years."

It goes on to list a further 19 separate failings of the Kinleith plant, including its being unable to process the amount of fuel promised, that its hydraulic systems are "inadequately designed, are generally unreliable and pose a serious fire risk".

Rolls-Royce, claims Carter Holt, did not know what it was doing when it came to building the Kinleith plant.

"ECNZ/Genesis selected Rolls-Royce as contractor despite Rolls-Royce being inexperienced in the requirements of the type and scale of co-generation plant at the mill, including without limitation the boiler, turbine generator, and woodwaste handling requirements for the co-generation plant, both on a quantitative and a qualitative basis."

It goes on to say that ECNZ/Genesis accepted faulty design work from Rolls-Royce, failed to monitor its performance and failed to ensure the plant was built in accordance with good engineering practice.

Nic Short, general counsel for Carter Holt Harvey, would not say how much money Carter Holt was hoping to get from Genesis and Rolls-Royce in damages and costs, other than it was "in the millions".

Rated at 40MW, Kinleith is New Zealand's largest "bio-mass generating plant". As a comparison, Genesis' Huntly power station, which has a 1000MW rating, is the biggest conventional thermal plant in the country.

The Kinleith plant uses wood scraps from the pulp and paper manufacturing process to generate heat and steam. The steam is used to drive a turbine, which makes electricity to help power the mill.

Genesis would not comment on the litigation, but said in its 2000 annual report that the Rolls-Royce plant had "delivered high reliability all year" and was "a showcase for this technology".

Its just-published 2002 annual report refers to the Carter Holt legal claim, but says it cannot reasonably estimate the adverse effect on Genesis of the litigation.

Because of a backlog of civil cases in the High Court, the case is unlikely to be heard before the middle of next year.

Co-generation plants are based where there is a heat "host". Hosts are industrial heat users such as dairy factories, pulp and paper mills, steel mills, hospitals and large building complexes.

Electricity generated can be exported to the national grid, as well as being used by the host. Most of the electricity generated at Kinleith is used on the site.

Recent technological improvements in turbine design mean that such plants are becoming cheaper to install. Proponents of "distributed generation" say co-generation plants are a way of reducing reliance on big power stations a long way from the load centres.

Parts of New Zealand a long way from the stations but close to a lot of wood, such as Northland and the East Cape, are seen as perfect locations for the plants.

Carter Holt Harvey has made no secret of its disappointment with the New Zealand electricity market and, last year, with Genesis Power.

During last year's cold, dry winter, power prices on the wholesale market surged, prompting the company to criticise thermal power generators such as Genesis for not increasing production when it became clear that South Island hydro storage lakes were running low.

Coincidentally, Carter Holt gave the name Genesis to its company-wide overhead reduction and cost-cutting exercise.