Contact cautious of new investment

By Phil Boeyen, ShareChat Business News Editor

Thursday 2nd May 2002

A decision on whether to build a new power station at Contact Energy's (NZSE: CEN) Otahuhu site has been put on hold because of a number of "outstanding areas of uncertainty", the company says.

CEO Steve Barrett says Contact has been considering building a 400 megawatt gas-fired station and firmly believes that a major new increment of generation capacity will be required in the near term.

"We would very much like to be the party that builds the new generation plant. However, there are a number of outstanding areas of uncertainty that mean Contact is not prepared to commit shareholders' funds to a new investment of this magnitude at this time."

Mr Barrett says key issues include ensuring the company has sufficient gas supplies to make a new gas-fired power station viable and clarifying the transmission regime to apply to new gas supplies.

A further issue is the delay the company has faced in securing a consent for the Otahuhu project.

"While Contact is confident of resolving an outstanding appeal to its consent, hearings have been delayed until later this month," Mr Barrett says.

The company also wants to do further evaluation of the economics of the project and to clarify some uncertainties over the future electricity market.

"If we can be sure that these issues can be resolved in a way which gives Contact confidence that the project will deliver an appropriate return on capital, and that risks can be properly addressed, activities can be scheduled to deliver the project in an appropriate timeframe.

Mr Barrett says the company is particularly concerned about the gas availability and regulatory issues and says recent proposals, such as mandatory hedge tendering, could seriously compromise any investor's capacity to earn an appropriate return on capital from new plant.

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