Meridian earnings to be hit by accounting charge on Rio contracts

Thursday 12th March 2009

Meridian Energy is expecting its earnings profile to become volatile over coming years because of the impact of International Financial Reporting Standards on the way it treats the value of its Rio Tinto smelter contracts.

SOE half-year reports are due out tomorrow, and Meridian executives told the commerce select committee this morning that IFRS accounting rules would create "significant unrealises losses" on the smelter contracts, which account for 40% of Meridian's total electricity production.

The Tiwai Point smelter, formerly owned by Comalco, uses 14% of total New Zealand electricity produced when running at full capacity.

The contract had changed from a physical contract to a financial instrument and the there would be "a reasonably steep impact on our performance because of the IFRS for that contract," said Meridian's chairman, Wayne Boyd.

The IFRS rules would create a volatile earnings profile in future, but Meridian had no intention of reporting to standards other than IFRS, despite international debate about their appropriateness for earnings reporting.

"There's no doubt it causes us grey hairs caused by accounting changes which are not real," said Boyd. "You will have to read the notes to understand the result."

By Jonathan Underhill

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