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Equity partner required to develop third geothermal plant

Editorial

Eastland Group’s ambition to develop a third geothermal power plant is a lot less advanced than was stated in Saturday’s editorial (see correction at end of editorial), but its generation arm has signed a project agreement to investigate building another plant and paid for geothermal development rights.

Notes to its owner’s financial statements also show the group has an 85 percent stake in the vehicle for this project, Te Roopu Whakarite Mahi Ltd Partnership.

That compares to a 94 percent holding in the $146 million, 25MW Te Ahi o Maui plant that the group began commissioning in late September 2018 — with Kawerau A8D Ahu Whenua Trust, which owns the land the station has been built on north-east of Kawerau, taking a 6 percent ownership interest as part of that development deal.

A complication for developing a third geothermal power plant is that Eastland Group would need to bring another equity partner on board, as it cannot afford to do this itself.

The group’s borrowings increased from $227m to $250m over the past year, with a further $55m available under existing arrangements with its banks. EGL also has major investment plans for a twin-berthing project at Eastland Port, which along with associated work has an estimated price tag of $100m.

Eastland Group did the rounds seeking new equity investment a few years ago and did not come up with a deal that was attractive enough.

This time around it would likely be looking to sell a stake in its generation arm, which also includes the 8MW Geothermal Developments Ltd plant at Kawerau and 5MW Waihi hydro scheme on the Waihi River, inland from Wairoa.

The added benefit of such a move is that it would release capital for its owner on our behalf, Trust Tairawhiti, at a time when it has plans to boost its community investments and Eastland Group faces significant headwinds in its electricity network business. As of April 1 this year Eastland Network has had to slash revenue by 18 percent, under new Commerce Commission regulations, which will take about $7m off the group’s bottom line.

In the year to March 31, 2020, Eastland Group’s generation sector contributed income of about $22.3m compared to $18m the previous year. Notes to the annual accounts say that while Te Ahi o Maui boosted revenue in its first full year of trading, “costs increased at a disproportionate rate due to higher-than-anticipated costs for plant consumables, emissions trading scheme, insurance and software”.

Correction

Eastland Group Ltd has not spent $53 million on the exploration and evaluation of a new geothermal field, as stated incorrectly in Saturday’s editorial. The $53m of well costs itemised in its owner’s financial statements relate to a revaluation of the group’s generation assets during the year, with the well costs from construction of the 25MW Te Ahi o Maui plant being categorised separately and excluded from the valuation of the business. The group is investigating the development of a new geothermal plant, though, to the extent that Te Roopu Whakarite Mahi Ltd Partnership has acquired geothermal development rights. Apologies for the error.