Maui problems raise fears of Government intervention

By CHRIS DANIELS

The end of cheap Maui gas is no reason for a new round of Government restructuring of the electricity sector, says Contact chairman Phil Pryke.

Contact, the only one of the big four power companies not owned by the state, held its annual meeting in Christchurch yesterday, and the future of Maui gas dominated proceedings.

Contact uses gas from the Maui field to fuel its Otahuhu and New Plymouth power stations.

Recent breakdowns at the field, including one yesterday morning, have sent prices on the wholesale electricity market soaring, forcing big users to cut back power consumption.

The expected drying up of Maui gas in 2007 means electricity prices will increase in the next few years. Fuels used while new fields are brought into production will be more expensive.

Pryke said there was no need for further change in the electricity market, as the problems were with the gas side of the business.

"While I acknowledge that there is scepticism in some quarters about New Zealand's electricity market arrangements, the fact is that they are working well - giving clear signals to and prompting action by all parties on both the short and long-term trends in electricity supply and demand."

Such problems that did exist were concentrated in the gas market, said Pryke. It was essential that any regulatory focus was directed there, and left the electricity market alone.

"There is no option here just to 'muddle through'," he said. A failure to act decisively not only increased the chance of underinvestment, but also the likelihood of pressure for a political solution.

Chief executive Steve Barrett told the annual meeting that the recent $500 million purchase of NGC's power station at Stratford was a significant investment.

While saying it was still too early to predict the impact of such an investment, Barrett dampened shareholder expectations of another increase in dividend payout.

The Stratford station would only moderately dilute earnings for this year, but would be "earnings positive" by year two.

Barrett later said that Contact would be issuing $550 million in bonds in the United States bond market to raise money for the purchase, and there would be no need for new equity.

A recent analyst report by sharebroker ABN Amro recommends its clients buy Contact shares, saying they are trading at a more than 14 per cent discount to its valuation of $4.96 each.

It said Contact was "in an ideal position to harvest abnormal returns" until a new gas-fired power station planned by Genesis was built in 2004-2005.

Contact shares closed up 19c yesterday, finishing the day at $4.45.