Contact Energy today announced it had entered into an agreement with NGC Holdings Ltd to acquire the Taranaki Combined Cycle power station and related interests for $NZ500 million, conditional on Contact gaining clearance for the purchase from the Commerce Commission.

Industry commentators were not surprised at the successful Contact bid and that it had beaten fellow electricity player Genesis Power in what had effectively become a two-horse race for TCC. Both Contact and Genesis had earlier sought Commerce Commission approval to buy the TCC plant.

However, commentators said they were concerned that an existing player had been successful, yet again, in buying Kiwi energy industry assets and not a foreign firm, bringing with its fresh ideas and capital. Early rumours had one or two Aussie power companies being interested in TCC.

"This is another 'box of birds' reorganisation," said one commentator. "You may shake the box hard, get some feathers and rattle the birds, but you end up with the same old birds."

Wellington-headquartered Contact Energy said the purchase price was made up of consideration for the shares in Stratford Power Limited ("SPL", the NGC subsidiary that owns the station), repayment of existing SPL debt, and the associated forward electricity sale contracts (hedges).

The agreement is also conditional on NGC shareholder approval and the termination of the cross border leveraged lease currently in existence. NGC's majority shareholder, The Australian Gas Light Company, has indicated it intends to support the sale to Contact. Subject to the satisfaction of these conditions, settlement date for the transaction is expected to be next February.

Contact chairman Phil Pryke said the acquisition of TCC would provide a number of important strategic benefits to Contact; broadening its generation base, and allowing Contact to pursue further growth in the downstream electricity business, especially in the sale of contracts to large customers and to the mass retail market.

"Contact has been a major contributor to creating a competitive retail electricity market, achieving 50% growth in our retail customer sales volume in the last three years. More recently, we have put priority on identifying mechanisms to expand our generation capacity, to underpin and enhance our capacity to remain a strong retail competitor", Pryke said.

"This acquisition is key to our achieving this and underlines Contact's commitment to and confidence in the New Zealand energy sector."

Contact chief executive Steve Barrett said that, unlike some of its competitors, Contact did not have a sizeable 'green field' generation development that could be progressed in the near term. "For that reason, we are extremely pleased that a conditional agreement has been reached with NGC to acquire the TCC station."

Commentators say one of the attractions of the 354MW TCC plant for Contact is that it is already involved in supplying gas to the Stratford station. Contractually Contact supplies Maui gas to the station, through selling to Fletcher Challenge Gas Investments Ltd, though an "internal" gas swap means the gas delivered actually comes from the nearby Tariki, Ahuroa, Waihapa, Ngaere (Tawn) fields. Contact used to supplement its Maui gas entitlement to its New Plymouth power station with Tawn gas but no longer needs to do so as it is progressively shutting down that aging station.

Contact earlier this year deferred its proposed third gas-fired station at Otahuhu, Auckland, citing uncertainty of future gas supplies. So buying the TCC package will largely eliminate that problem for Contact as present FGCIL owner Shell New Zealand, or any new owner subsequent to Shell's divestment, will be responsible for supplying gas to TCC until June, 2010.

Contact may also be able to buy gas for the TCC plant in the future from such nearby presently undeveloped discoveries as Kahili, Tabla, Surrey and Windsor.

Pryke said SPL achieved earnings before interest, tax and depreciation (EBITDA) of $NZ58.2 million in the June, 2002, year. The purchase price represented 8.6 times that figure.

In a separate deal, NGC announced it had conditionally agreed to sell the small (34MW) Cobb Power station in the Tasman Mountains northwest of Nelson to TrustPower for $NZ92.5 million.