Chairman’s Speech Contact Energy Annual Meeting

Chairman’s Speech Contact Energy Annual Meeting Of Shareholders Dunedin,

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(Slide: Contact logo 2004 Annual General Meeting)

Ladies and gentlemen – welcome to Contact Energy’s fifth Annual Meeting.

May I say what a pleasure it is for us to hold this meeting in Dunedin.

We are a national company, but our operations in this city and in the Otago region are a very substantial part of our business.

In this city, we employ around 150 staff – that’s about a quarter of our total staff, and growing – in the state-of-the-art call centre we recently opened on top of the old Speight’s building. Along with its counterpart in Levin, our Dunedin call centre is at the heart of the service we provide to our more than 600,000 gas and electricity customers nationwide.

And of course, we are the major electricity retailer for Dunedin and Southland.

On top of that, up the road, on the Clutha, we are generating something like a third of Contact’s total annual electricity output through our dams at Clyde and Roxburgh.

And in the Otago and Southland region, we have a shareholder base numbering close to 8,000.

So it’s good to be here.

I have some housekeeping matters to attend to first, before giving you a sense of the big issues that we expect to deal with in the year ahead.

There are present in person and by proxy or representative more than five shareholders holding shares carrying at least 5% of the voting rights entitled to be exercised. As Chairman of the meeting and in my own right I hold 3905 proxies carrying 85,282,504 votes. A quorum is present, and I declare the meeting to be open for business.

I would like to introduce my fellow Directors. Seated from my right, they are the Chief Executive and Managing Director, Mr Steve Barrett, the Deputy Chairman Mr Bob Edgell, Dr Patrick Strange, Mr John Milne, Mr Ray Vickers, and Mr Tim Saunders. Also present on the stage is Mr Ross O’Neill, Contact’s General Counsel.

This Annual Meeting is a particularly important one.

We have a number of important formal business items to consider, including a comprehensive package of reforms to directors’ remuneration. I will deal with those fully in that part of the meeting.

We have this morning announced Contact’s results for the 3 months to 31 December 2003, which show that the company has made a strong start to the new financial year, and we will be taking this opportunity to brief you on those results and on the major energy challenges facing New Zealand over the next few years.

We will also be outlining an important new initiative in Australia, taking our retail market know-how – some of it developed right here at the Dunedin call centre – across the Tasman.

And finally, you will all be aware of our majority shareholder, Edison Mission Energy’s, intention to sell some or all of its international assets, including possibly its 51 per cent holding in Contact.

EME’s Senior Vice-President and Contact’s deputy chairman, Bob Edgell, has kindly agreed to address the meeting on this issue, and I will also make some comments on behalf of the independent directors.

(Slide: Meeting agenda)

Immediately after my presentation, our Chief Executive Steve Barrett will present a more detailed overview of the results from last year and the first quarter of this financial year.

At that point, I will ask Mr Edgell to make his comments.

We will then turn to consider the formal resolutions before shareholders.

We will then move on to the resolutions outlined in the Notice of Meeting. I will introduce each resolution and give a brief statement about the Board’s position. The floor will then be opened for discussion on each of the resolutions before a poll is taken.

At the end of shareholders’ discussion, the proposed resolutions as set out in the notice of meeting will be put to the meeting one by one. The only exception to this is that it is no longer necessary to deal with the agenda item for the proposed re-election of Tom McDaniel.

As announced on January 30, Mr McDaniel has resigned from the Board of Contact. In tendering his resignation, Mr McDaniel noted that, as Chief Executive of Edison Mission Energy, it is now necessary for him to devote a significant portion of his time to implementation of Edison’s international restructuring plans announced late last year, and subsequent to his joining the Contact board.

In view of these responsibilities, he did not feel that he could devote the time and effort he deemed appropriate for his role as a Contact director. As a consequence, the resolution, which proposes the re-election of Mr McDaniel to the Board, has been withdrawn

Shareholders will have an opportunity to discuss each of the other resolutions in turn. I would appreciate it if shareholders held over questions relating to each resolution until the relevant resolution is put. In respect of the voting on the matters set out in the notice of meeting, I have determined that we will be using a poll because of the number of people here today and the fact that many shareholders are represented by representative or proxy. (Slide: Voting Paper) You should all have one of these («hold up») voting papers which deals with the resolutions on the agenda. Each of the resolutions will be put to the meeting and you will be asked to mark your voting paper in accordance with your views. At the conclusion of the meeting, you should put your voting papers in the boxes provided at each exit.

As was indicated on the proxy form sent to shareholders with the notice of meeting in January, I intend to vote undirected proxies in favour of the resolutions before the meeting, other than in the case of resolutions 6 to 10 which deal with Board remuneration matters. I will abstain from voting undirected proxies on these issues. Contact’s constitution requires that our auditors act as scrutineers, so they will oversee the counting of votes. We will announce the results of the resolutions as soon as possible after the meeting both to the New Zealand Exchange and by placing public notices in major metropolitan newspapers. After dealing with the resolutions in the notice of meeting, we will move on to discuss general business. You will have the opportunity to raise any new matters you wish to have discussed at that point.

(Slide: Contact logo)

There are two microphones, situated at the connecting points for the main aisles (point). When matters arise for discussion, shareholders who wish to speak should queue behind these microphones and wait to be introduced by our attendants.

I will rotate the speaking rights around each of the microphones. I am conscious that a number of you may wish to speak. I do not want to restrict you, but as a matter of courtesy to others who may also want to speak, please keep your comments brief and to the point.

At the conclusion of the formal business, we will provide refreshments in the Glenroy Room. Please feel free during this time to talk with directors or members of Contact’s senior management – we will all be wearing name badges. I have always enjoyed our annual meetings as they provide an opportunity to listen to shareholders' views. While we might not always agree on every issue, I respect the points made and value the feedback. We believe that robust discussion (while not always enjoyable) is an absolute necessity to the ongoing development of the company. Our job, as directors, is to represent you, the owners of the business and Contact holds these meetings in different locations to enable as many shareholders as possible to attend. However, we've also become increasingly conscious that an annual meeting is not enough on its own to create the level of dialogue that we would like with our shareholders. If we want to stay in touch with shareholder sentiment, we need to meet with investors more often. While we may have more contact with the company's management day-to-day, we are always mindful of the need to remain in touch with your opinions and sentiments. For this reason, my fellow directors and I have spent considerable time meeting with investors throughout the country this year. This consultation prompted us to develop the share top-up scheme. It has also helped shape a number of proposals we will ask you to vote on today. (Slide: Financial Highlights)

I would now like to turn to a brief review of the past year and a look at some of the challenges we face in the future.

Contact produced a tax paid profit of $118.3 million for 2003, about $11 million ahead of the prior year.

Significantly, this result was achieved in a year of volatility, with big fluctuations in the wholesale electricity price and a threatened power shortage in winter.

The year also marked significant growth in both our generation and retail bases with the acquisition of the Taranaki Combined Cycle power station, and 65,000 new retail customers.

This parallel growth is a clear illustration of our business strategy – namely, to ensure that our generation and retail businesses grow in a balanced manner.

I am pleased to report that this trend has continued into the first quarter of this year, with a net surplus of $27.5 million, achieved on the back of a strong performance in the retail business and firm prices for our generation.

(Slide: Dividend Performance 99-03)

However, when it comes down to it, profits are just numbers.

The important measure for you, as shareholders, is whether we’re actually returning you any more on your investment in Contact than you could earn if you put your money into any number of other investments.

I want to suggest we are passing that test, too.

Our total dividend of 23 cents per share this year continues a history of progressive dividend growth since the company’s formation. And by every conventional measure, Contact’s solid performance over the past five years has created value for shareholders.

For every dollar invested at the time we listed in 1999, investors who consistently reinvested all dividends would today have two dollars in pre-tax terms. That’s a return of more than 100 per cent in less than five years.

As a board, we’re proud of that and we’re working on the next instalment.

This performance was recognised last year, when the international financial consultants, Stern Stewart, named Contact as New Zealand’s Wealth Creator of the year. We have been recognised for our strong performance again this year: last week Stern Stewart announced that Contact has been ranked as Number 3 among the top performers this year.

Naturally, it’s nice to get a pat on the back from international quarters.

But what is even more gratifying is the feedback we’ve had from shareholders who have voiced a desire to own more shares in the company.

(Slide: Share Top-up Scheme)

This feedback was the reason we developed a unique share top-up scheme for our shareholders, many of whom were first-time investors in the share market. The scheme allows shareholders with 5,000 or fewer shares to convert their dividends into increased share holdings without incurring broker fees.

We hope the scheme will encourage shareholders to continue to support the company.

The scheme has proved very popular. A total of 45,000 shareholders – close to half the total shareholder base - have registered for the scheme, indicating they want to increase their level of investment in the business.

To me, that is a solid and welcome vote of confidence.

(Slide: Future Challenges)

Looking forward, our task is to maintain this performance. And we face considerable challenges in doing so.

While Contact has worked hard to deliver greater certainty of earnings, the whole power sector faces some big uncertainties. These go well beyond the occasional dry winter. They involve some fundamental and difficult choices that New Zealand will have to make over the next three to five years about where it gets its energy from in the future. As the economy grows and New Zealand confronts the need for new generation plant, the great unanswered question remains: what fuel will be used to run such plant?

At the core of this issue is the need for certainty around the level and structure of carbon tax to be imposed by the government. This will fundamentally influence the choice of technology and fuel usage into the future. Timely decisions are required from government on this issue to enable rational investment decisions to be made over the next couple of years without the risk of uninformed choices leading to waste of corporate and national resources.

Contact is in the thick of this problem. We are pursuing a range of options to ensure we continue to meet our obligations to our customers, our shareholders, and to New Zealand as a whole.

There is certainly no easy answer. But, I can tell you straight that there is no way that we can continue to have secure electricity supplies, at low prices, and without impacts on the environment of some kind. Anyone who suggests they can deliver that trifecta of low prices, clean energy and reliable supply is either lying or dreaming. Frankly, I can only think of as snake oil salesmen.

The proposition that, somehow, security of supply can be achieved without significantly higher output prices is absurd. Even if we could avoid higher input fuel costs by pursuing renewable energy options, such as wind, hydro or solar, such renewable options all promise more costly electricity than we have had in the past. The same is true for thermal fuels like gas and coal. With these latter options, we must ensure that as much pressure as possible is kept on the upstream industry to minimise cost and thus price impacts.

Likewise, while demand side management, conservation and energy efficiency will all be important contributors to our energy solutions, it is idle to hope that they will be enough in themselves to reduce substantially the growing demand for energy from a growing economy. You need only look to the growth of demand in the South Island created by the dairy industry boom to see the evidence of that.

I put this bluntly because Contact will not soft-pedal this issue. It’s too important.

Let me lay out a few home truths: electricity prices will have to rise significantly over the next few years, and will be influenced in part by factors such as carbon taxes and the cost and timeliness of development approvals.

Why? Because no matter what fuel option the industry chooses, it will be more expensive than the relatively cheap and abundant Maui gas that has set the benchmark for New Zealand’s internationally low electricity prices over the past three decades. New sources of natural gas, coal, Liquefied Natural Gas or renewable sources like wind will all cost considerably more.

(Slide – Renewable Energy)

Take wind power, for example.

We fully expect wind to become an important part of the New Zealand electricity system over time and are actively examining our wind generation options.

However, surprising as it may seem, current wind technology struggles to compete with gas, coal or many hydro options. That gap will probably close over the next few years, but it hasn’t happened yet.

Nor is wind suitable as a day in, day out source of generation. If the wind isn’t blowing or is blowing too hard – our headquarters in Wellington experiences both extremes regularly – wind generation is no longer an option. There is no equivalent to a hydro storage lake for wind.

Hydro options, too, are not what they were. Most of the best sites are already in use. Many of the others would be costly to develop – assuming anyone could ever get a resource consent for them. You need only look north of here to the Waitaki to see that many New Zealanders no longer view hydro as kind to the environment.

Another issue that must be confronted with hydro is the fact that any likely new hydro sites are a long way from the load base. Any new hydro development must take into account the cost of transmission upgrades to get the power to market. I am not at all convinced that this is currently the case. It would be farcical, not to mention hugely costly, if the country as a whole were to subsidise particular projects simply because their project economics do not reflect the full cost of development.

(Slide – Natural Gas)

Likewise, replacements for Maui gas – whether imported or discovered in New Zealand – will cost more than in the past.

One relatively cheap and plentiful option is coal. But it comes at a cost to the environment and will probably attract a carbon tax that will increase the cost of any electricity it produces.

Another option is imported Liquefied Natural Gas, or LNG, which we are exploring. But LNG comes at a world price considerably higher than the historical Maui price of gas.

In other words, whichever way you look at it, energy costs are on the rise, and that is leading to higher electricity prices for consumers.

That might be unpopular, but it is a simple truth. All the political posturing and market tinkering in the world will not make gas or coal come out of the ground or over a wharf any cheaper. Nor will itreduce the cost of wind technology, or create an easily dammed river.

There is another simple truth: there is no appetite in this country for the lights to start going out.

Higher energy prices and carefully weighed compromises on the environmental impacts of power generation will be unavoidable in the next few years if we are to continue to have reliable, First World electricity supplies.

The alternative is unreliable supply – with all the social, economic and political fallout that would occur as a result.

I can’t see that happening. There are solutions and we’re working through a menu of available options.

The last home truth I will leave you with today is that we are running out of time.

Investment decisions involving hundreds of millions of dollars will be needed within the next 18 months to two years for the next major power station to be built in time to meet growing demand.

And over the next eight years, we estimate that investment of around $5 billion in new fuel and power generation capacity will be necessary.

Achieving that is going to challenge us as a nation. New generation requires trade-offs between three key factors: first the environmental impacts, second the reliability of electricity supply and thirdly the price.

At present, there is plenty of public focus on environmental issues and on price. There is far less, however, on what we would argue is the critical issue – security of supply.

Yet surely the key lesson of the power crises in the winters of 2001 and 2003 is that, when faced with the real prospect of blackouts, there is no issue more important to households and industry than secure electricity supply.

Most of us lose sight of that most of the time. At Contact, this is the issue that keeps us awake at night. We know that the country could face serious electricity shortages before the end of this decade. We know how long it takes to build the power plants that will prevent that happening, and we are clear-sighted about the barriers that exist to getting that plant built in a timely fashion.

And one of our key tasks over coming months is to convey to you and to the rest of the country, the sense of urgency that we bring to this question of secure, reliable electricity supply – to ensure that security of supply is firmly in our minds as we decide on how we will make the inevitable trade-offs.

(Slide: Contact logo)

In closing, I want to say something about the people who make Contact Energy the successful company it is. Steve Barrett is an outstanding chief executive, leading an outstanding team. Without wanting to over-egg the pudding, I can say to you that this company is a privilege and a pleasure to work with.

Throughout the company, I find a level of skill, commitment, enthusiasm and decency that makes me proud.

And despite testing times, we have a company that is performing strongly and is well positioned for the future.

Contact is meeting its obligations to its customers and its shareholders. This is some balancing act.

As we look to the future, I have every confidence that the company will continue to meet the challenges in the energy sector, while remaining one of New Zealand’s leading companies.

I now invite Steve Barrett to address the meeting.

Thank you Steve. <> As I indicated earlier, at this point I will invite Bob Edgell to address the meeting to talk about Edison Mission Energy’s ownership review of its international operations. <> Thank you Bob. I would now like to make a few brief comments on this issue from Contact’s perspective. The first point I want to emphasise is that Contact does not have any position on whether EME should sell its stake.

We have been very comfortable with EME as majority owner, but we also respect the right of any shareholder to deal with their shares as they wish. Indeed, we are grateful for the strong, positive contribution that EME has made to the development of this company.

Having said that, if EME decides to sell its stake, we recognise that it could raise issues for Contact.

At the most general level, it is likely to be in the interests of all existing shareholders to ensure that any sales process occurs in a smooth and orderly manner, and Contact could play a constructive role in this area.

We also recognise that any sale would take place in the framework of New Zealand’s laws and the Stock Market Listing Rules. In some situations Contact might be required to undertake certain actions to discharge its responsibilities under this framework.

Whilst public attention has tended to focus on EME’s stake in Contact, I would also observe that EME has other assets in this part of the world.

We see a prospect that EME’s wider divestment process may create an opportunity to further Contact’s goal of building an integrated energy business in Australasia.

We recognise of course that any major acquisition of EME assets would require approval by minority shareholders, and we would want to ensure the necessary support at an early stage.

I want to stress also the highly disciplined approach that we have taken to investment in Australia. We have put a lot of time and effort into understanding a number of other Australian opportunities that have arisen over the last three years or so.

However, we have had no hesitation in backing away when those opportunities failed to meet our rigorous investment criteria. Our approach to EME’s Australian assets, should we go down that route, would be no different.

While it is too early to judge whether any of these issues will arise, I want to assure shareholders that Contact is taking a responsible and proactive stance on these matters. The Board has resolved to establish a Committee of Independent Directors to oversee these issues, and we are monitoring them closely.

Finally, I want to emphasise that while these issues are important, they will not distract us from our overriding responsibilities. Despite some uncertainties on the ownership front, we will continue to strive for excellence in our day to day operations, and ensure that the company is well placed to meet the commercial challenges of the future.

<> We now come to the more formal part of the meeting. The financial statements for the company for the year ended 30 September 2003 were set out in Contact’s annual report sent to all shareholders in December. I now lay those Financial Statements (together with the auditor’s report on them) before the annual meeting and formally record their receipt by the company. <> Ladies and gentlemen, I now invite shareholders to raise any questions, comments or points for discussion, whether relating to the presentations, the financial statements or concerning the management of the Company. Anyone wishing to speak should move to one of the microphones [<>] and give their card to the microphone attendant. I am conscious that a number of you may wish to speak. I do not want to restrict you, but as a matter of courtesy to others who may also want to speak, please keep your comments brief and to the point. Can I also just remind you that if you have questions relating to the proposed resolutions in the notice of meeting, it would be appreciated if you could wait until the relevant resolution is put. I will invite discussion individually on each resolution as the resolution is put, so there will be plenty of time to discuss each resolution and ask questions. «discussion» Thank you for your comments. Resolutions Ladies and gentlemen, we come now to the matters requiring resolutions. These are outlined in the notice of meeting sent to all shareholders in January. As a poll has been called, votes are to be exercised by marking your voting papers. The polls will be taken at the end of the formal business. Accordingly, once all the resolutions have been considered and the formal business has concluded, please drop your voting papers in the boxes provided at each exit as you leave. Resolution 1: Authorisation to Fix Auditor’s Remuneration The first resolution to be considered by the meeting is: That the Board be authorised to fix the auditor’s remuneration. Can someone please move the resolution? «moved» Can someone please second the resolution? «seconded» The Companies Act sets out a procedure for appointment of auditors which causes them to be automatically reappointed except in certain limited circumstances, which do not apply here. Accordingly, the auditors are automatically reappointed in accordance with the Companies Act. The resolution proposes that the board be authorised to fix the remuneration of the auditors. This is the conventional practice for New Zealand listed companies. It reflects the fact that the level of auditor workload and therefore fee can need to change part way through a year to take account of changes in a company’s size or complexity. It is therefore not practical for shareholders to fix the auditor’s remuneration once a year at the Annual Meeting. Contact’s current auditors are Ernst & Young, and they have senior staff present at the meeting should shareholders have any questions of them concerning this resolution. I now invite discussion on the resolution. «discussion concludes» I now ask you to record your vote on this resolution. You may vote for or against this, or abstain, by ticking the appropriate box on your voting paper. At this stage we are dealing only with resolution 1. I would remind you that when we have dealt with all the other resolutions, and the formal business has concluded, you should deposit your voting papers in the boxes by each exit as you leave. Resolutions 2 and 3: Re-election of Directors Retiring by Rotation Now we move on to the re-election of directors. As required by the Constitution, two directors retire by rotation at the conclusion of this meeting. They are Mr Edgell and Mr Milne, and both have offered themselves for re-election. Biographies of both of these directors were set out on the notice of meeting. Accordingly, resolution 2 is: That John Milne be re-elected as a director of Contact. Can someone please move the resolution? «moved» Can someone please second the resolution? «seconded» I now invite John to say a few words before we proceed to discussion on the resolution. [John’s comments] I now invite discussion on the resolution. «discussion concludes» I would now ask shareholders to vote on this resolution by marking your voting papers. Resolution 3 is: That Bob Edgell be re-elected as a director of Contact. Can someone please move the resolution? «moved» Can someone please second the resolution? «seconded» I now invite Bob to say a few words before we proceed to discussion on the resolution. [Bob’s comments] I now invite discussion on the resolution. «discussion concludes» I now ask you to vote on this resolution by marking your voting papers. Resolutions 4 and 5: Re-election of directors under clause 72.2 of Contact’s Constitution The next resolution concerns the re-election of Dr Patrick Strange. In mid-2003 the Board carried out a review of its composition in light of the recent growth in the company’s operations, and the changing business environment. We concluded that it was time to expand the Board’s membership to reflect Contact’s emergence as New Zealand’s largest integrated energy company, and also to recognise the increasing challenges in the fuel supply and regulatory arenas. The Board decided to appoint two additional directors, as allowed by Contact’s constitution. Dr Strange was one of the directors appointed. The other was Tom McDaniel. I have already outlined the position regarding Mr McDaniel. A brief biography of Dr Strange is included in the notice of meeting. He is a long-standing energy industry executive and was the co-ordinator of the 2003 Winter Power Taskforce. Accordingly, resolution 4 is: That Patrick Strange be re-elected as a director of the company Can someone please move the resolution? «moved» Can someone please second the resolution? «seconded» I now invite Patrick to say a few words before proceeding to discussion on the resolution. [Patrick’s comments] I now invite discussion on the resolution. «discussion concludes» I now ask you to vote on this resolution by marking your voting papers. As I said in my introduction, it is no longer necessary to deal with the next agenda item, which concerns the proposed re-election of Tom McDaniel. (Slide: Board Remuneration) Resolutions 6-10 on Board Remuneration Issues The remaining resolutions are interrelated and concern the board’s proposals to restructure directors’ remuneration. These proposals are detailed in the notice of meeting but I will give an overview of them at this stage. I want to stress at this point that none of the directors who may benefit from these arrangements – that is, John Milne, Tim Saunders, Patrick Strange and myself – are permitted to vote on these resolutions. Nor are we permitted to vote any undirected proxies, although if proxies are directed, they will be voted as instructed. Directors’ remuneration is a thorny topic and we have grappled with the issue on several occasions. It’s fair to say that, in the past, we probably haven’t handled the matter as well as we could have.

As a result, the remuneration of the Board of one of New Zealand’s most strongly performing companies lags behind where it should be.

This view has been confirmed by the international advisory firm, John V. Egan Associates, which found that payments to Contact directors were well below the market norm for New Zealand and Australia.

Few New Zealand companies have provided the same level of returns to shareholders as Contact has. Clear thinking and strong leadership have been key to this success.

If we want to continue to attract and retain high calibre directors, they need to be paid properly, in line with remuneration for other large, successful, growing companies. At the same time, we need to ensure that the interests of directors are as closely aligned to the interests of our shareholders as possible.

We have also recognised early the trend away from retirement payments to a focus on remuneration that rewards results, rather time served.

(Slide: Contact logo)

For this reason, we will be asking you to approve today a balanced package of proposals to deal – I hope in an even-handed and long-term way – with these issues.

If accepted by you, the three-point package of proposals will: Bring payments to directors into line with comparable companies Restructure directors’ payments so that around half of independent directors’ post-tax remuneration is paid in the form of restricted shares. In other words, our remuneration is now tied to share price performance; and Abolish future entitlements to retirement benefits for directors.

This proposal has been developed in close consultation with our shareholder base – including large institutional investors and the New Zealand Shareholders Association.

I want to spend a minute on the relationship with the Shareholders Association, because I know it has raised a few eyebrows. I can’t speak for Bruce Sheppard or the association, but I can tell you that my willingness to engage and consult with the Association has been far from popular with some of my counterparts on the boards of other public companies.

Working with the Shareholders Association has also been something of a steep learning curve, and has involved a certain amount of courage on both sides. Our capacity to find some common ground today on these proposals should not be read as meaning that we will agree on everything from now on.

In fact, I would be rather staggered if that were to be the case. Given Bruce and my respective personalities and styles that is unlikely. What it does denote, I hope, is a new maturity in shareholder relations involving greater transparency, a higher level of debate and a move away from relying solely on the AGM as the forum for the relationship between your Board and you as shareholders.

Input from the Shareholders Association significantly altered and, in our view, improved this package of proposals. In some respects, the Association has tempered our ambitions. But perhaps their most important contribution has been to encourage us to present a transparent and comprehensive package of measures to shareholders for their consideration.

Most importantly, the proposed changes more closely align the interests of directors and shareholders.

The key to this is the payment of restricted shares as well as cash. Once directors have met their tax liabilities for the cash component of the remuneration, most of the proposed increase will take the form of restricted shares that cannot be traded for at least three years, or until a director steps down from the Board.

That will leave us exposed to both punishment and reward through movement in the share price, and will strengthen the incentive for your board to continue to grow the value of the company.

I fully acknowledge that the proposed increases are substantial but I am also satisfied that they are warranted. This view has been confirmed by Egan Associates, which concluded the increase was appropriate.

Egan Associates has also observed that the restricted shares component is in line with international standards and regional best practice.

Our proposal to close off retirement payments for directors responds to representations made by shareholders at previous annual meetings.

Consultation with the New Zealand Shareholders Association again helped us to refine the proposal. At the Association’s suggestion we have proposed closing off entitlements to retirement fees on a once and for all basis.

In future there will be no allowance for the payment of retirement benefits at all – if passed, Contact will be the only major New Zealand company with this policy. However, while it is proposed that future allowances will be abolished, the package includes a payment to recognise the service that sitting directors have already built up.

You may ask why there should be any acknowledgement of past service at all.

Let me at least make the case.

Three of Contact’s directors – myself included – have more than 20 years of combined service. We have served throughout that time on the understanding that there was a trade-off between our annual fees and our entitlement to a retirement benefit.

Accordingly, the proposal provides for this past service to be recognised in a lump sum payment that will be used to purchase restricted shares in the company. These shares will be held in trust until the director retires – again ensuring an alignment of interests.

A sub-committee of directors, who are not entitled to this compensation, recommended the level at which it should be set. Should this resolution be approved today, no retirement payments will be made to Contact directors in the future.

In conclusion, I believe the package of measures before you today is balanced, improves our performance incentives, and is all the stronger for the shareholder consultation that has helped shape it. Most significantly, it drives a close alignment between the interests of Contact’s directors and owners.

Turning now to the resolutions, each of Resolutions 6 through 10 is set out in full in the Notice of Meeting and they are conditional on one another. In other words, each of these resolutions will only be effective if all of Resolutions 6 through 10 are passed.

Resolution 6: Director’s Fees Turning then to resolution 6, this proposes: That the total directors’ remuneration payable annually to all directors taken together for their services as directors of Contact be increased by $405,000 to $770,000 and that such increase take effect from 1 October 2003. Can someone please move the resolution? «moved» Can someone please second the resolution? «seconded» I will briefly comment on this resolution before inviting discussion. If shareholders approve this increase, each independent director’s base remuneration would rise to $60,000 in fees and $30,000 in restricted shares. I, as Chair, would receive $120,000 in fees and $60,000 in restricted shares. On a post-tax basis, the cash component of remuneration of these directors will remain largely unchanged because most of the increase will take the form of restricted shares which cannot be sold for 3 years or until the director retires. EME has stated that it will continue to donate the director remuneration of its affiliated directors to a charitable cause in New Zealand. EME-affiliated directors’ fees will therefore continue to be paid in cash rather than put into restricted shares. The Chief Executive will continue not to receive any director remuneration. I will now invite Bob Edgell to comment on how Edison affiliated directors’ fees will be applied. <> Thank you Bob. I now invite discussion on the resolution. «discussion concludes» Can I ask that you now mark your voting papers. This is the resolution numbered 6 on those papers. Resolution 7: Director’s Restricted Share Scheme - Financial Assistance Resolution 7 is: That Contact be authorised to provide financial assistance in connection with the purchase of Contact shares, in particular to pay: (a) one third of the gross base independent directors’ remuneration to a trustee to acquire Contact shares; and (b) the costs of the share trust scheme. Can someone please move the resolution? Can someone please second the resolution? The New Zealand Stock Exchange listing rules provide that a company may only give financial assistance in connection with the purchase of its shares if shareholders give their approval. As detailed in the notice of meeting, Contact proposes to pay for the establishment and administration costs of the proposed share trust scheme that will hold restricted shares. This constitutes financial assistance to purchase Contact shares because it will facilitate purchase of shares by the trustee. The proposed payment of part of the directors’ remuneration to the trustee for the purpose of buying Contact shares may also constitute financial assistance. Accordingly, shareholders’ approval is sought to enable Contact to set up the share trust scheme and pay the trustee’s fees. An independent review by KPMG has determined that the proposed financial assistance is fair to all shareholders in that it supports an initiative that will more strongly align the interests of shareholders and directors, and better link directors’ interests to share price performance. A summary of the KPMG report is included as an appendix to the notice of meeting. I now invite discussion on this resolution. Can you now please mark your voting papers for resolution number 7. Resolution 8: Abolition of Retirement Allowances - Compensation Resolution 8 is: That Contact be authorised to pay the following amounts as compensation to certain independent directors for the abolition of retirement allowances: In respect of me, Phillip Pryke, $141,197 to a trustee for the purchase of restricted shares and $69,545 on account of tax; In respect of John Milne, $84,453 to a trustee for the purchase of restricted shares and $41,596 on account of tax; In respect of Tim Saunders, $68,403 to a trustee for the purchase of restricted shares and $33,691 on account of tax. Can someone please move the resolution? Can someone please second the resolution?

I now invite discussion on the resolution. Can I ask that you now mark your voting papers. Please mark your voting papers for resolution numbered 8 only. Resolution 9: Abolition of Retirement Allowances - Financial Assistance Resolution 9 is: That Contact be authorised to provide financial assistance in connection with the purchase of Contact shares, in particular to pay: the lump sum amounts referred to in the previous resolution to a trustee for the purpose of the trustee acquiring shares in Contact on trust; and the costs of the share trust scheme. Can someone please move the resolution? Can someone please second the resolution? This resolution is required for the same reasons as resolution 7. I now invite discussion on the resolution. Can you please mark your voting papers for resolution 9. Resolution 10: Abolition of Retirement allowances – Amendment of Constitution Finally we come to resolution 10, the proposed amendments to the company’s constitution. The proposed resolution is: That, if resolutions 6, 7, 8 and 9 are passed, Contact’s constitution be amended as set out in Appendix 1 of the notice of the 2004 annual meeting of shareholders to remove Contact’s ability to make payments by way of a lump sum or pension upon or in connection with the retirement of office of a director. Can someone please move the resolution? Can someone please second the resolution? The board has proposed the changes to Contact’s constitution in order to close off retirement allowances for all directors. After the passage of this resolution, Contact will no longer be able to pay any allowances to retiring directors. I now invite discussion on the resolution. Can I ask that you mark your voting papers. This is the final resolution, numbered 10 on those papers. (Slide: Contact logo) Shareholder Discussion We now move on to the final shareholder discussion section of the meeting where shareholders have a further opportunity to raise any matter or ask any questions they wish. In the interests of efficiency I would ask that speakers focus on issues that have not already been considered. «discussion» Conclusion of the Meeting Ladies and gentlemen, all resolutions to be considered by this meeting have been put and voted on. Please place your voting papers in the boxes by the exit doors on the way out to enable the polls to be taken. The final results will be advised immediately they are available to the Stock Exchange and will be published in the major metropolitan newspapers later this week. There being no other business before this meeting, I declare the meeting closed. I hope you will join us for refreshments before you leave today. My fellow directors and I together with the members of the senior management team will be available in the Glenroy Room, where will be meeting now for a late morning tea, to answer any of your questions. You will also find some of the representatives from our retail electricity team there if you wish to become a customer or have questions about your accounts. Thank you for your attendance and I wish you all a safe journey home.