King, who is also managing director of Contact’s major shareholder Origin Energy, told Contact’s annual meeting in Christchurch this morning that despite a good result for the June 2007 financial year, rising gas prices would be an ongoing problem for the company.

He said the 20% increase in wholesale gas costs over 2006-07 was likely to be repeated in the 2007-08 year with gas prices continuing to rise as Contact’s Maui 367 gas entitlements are fully used by June 2009.

Contact chief executive David Baldwin said last year that less and less of Contact's future contracted gas would be the relatively cheap and flexible "367" Maui gas, which is gas covered under the original Maui supply contract.

Only 367 gas was priced to include partial transmission costs and its supply has been flexible. Other gas supplies were dearer and less flexible.

Today, Baldwin said that with the Government’s focus on renewable energy, and its ban on new baseload gas-fired power stations for the next 10 years, Contact’s 400MW proposed gas-fired combined-cycle Otahuhu C station, remained on hold.

“However, by around 2012, New Zealand is going to need significant new electricity generation to ensure a secure supply for the country,” he said.

“If we are unable to get renewable energy projects consented in a timely fashion, then the country will need Otahuhu C and Contact will have little choice but to build it.”

Gas pushed Contact to a $NZ281 million ($A235 million) profit for the 2005-06 year, with the company’s Taranaki and Auckland gas-fired stations pumping out 41% more electricity to cover a significant shortfall in hydroelectricity generation.

This financial year Contact’s net profit was $NZ231.2 million ($A194.2 million), while earnings before net interest expense, income tax, depreciation, amortisation and financial instruments were $NZ543.7 million ($A456.7 million), 2% lower than for the preceding year.

Baldwin also said Contact’s aging 300MW New Plymouth gas-fired station – which was closed earlier this month after previously unknown asbestos was discovered under some insulation pipe lagging – could be back in operation by next May.

But the estimated cost of the remedial work associated with returning the plant to service was about $NZ10-15 million ($A8.4-12.6 million) and there was the possibility Contact could decide to permanently close the 30-year-old single-cycle plant.