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S&P warns NZ energy companies

27 February 2003 – Credit ratings agency Standard & Poor’s says several of New Zealand’s electricity generation and gas companies will have to implement strategies within the next couple of years to avoid a fall in their credit ratings.

The prospect of New Zealand’s biggest gas field, Maui, closing two years earlier than expected posed a credit risk for gas-dependent energy companies, S&P said.

However, it was not an immediate threat to NGC Holdings, Contact Energy and Genesis Power as they had about four years of existing gas contracts or access to alternative fuel.

“… the recent announcement that the Pohokura gas field may have significantly less reserves than initially estimated has heightened the need for electricity and gas companies to implement plans to adapt to lower and more expensive gas reserves,” S&P associated director Mark Legge said.

“The unpredictability of gas exploration and long lead time for development mean that companies relying purely on new gas finds to replace Maui gas will be pursuing a high-risk strategy,” he added.

However, initial indications were that this would not be the case with the three aforementioned companies. Contact intends to convert its New Plymouth (gas) power station to dual fuel and NGC plans to restore its Kapuni Gas Treatment plant to full capacity.

Similar concerns were echoed earlier this month by another credit ratings agency, Fitch.

It said the industry’s overall creditworthiness had improved after a shake-up of companies’ retail and generation portfolios, but it stressed market stability really hinged on more generation capacity.

NGC Holdings has an A-minus rating, while Contact Energy and Genesis both have triple B ratings, all with stable outlooks.