Presented by: Ian Little, Managing Director Laura Reed, Finance Manager Envestra Limited 22 March 2004 An introduction to Australia’s largest natural gas distribution company and a review of first-half results

2 Agenda An introduction to Envestra Our performance since listing Five year financial comparisons Predictable performance Market topics: –Gearing –Interest rate management –Natural gas infrastructure –Our relationship with Origin Energy Why are we looking at transmission pipelines? Conclusion – a reliable, high yielding investment

3 An introduction to Envestra

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5 Where we operate

6 Our performance since listing The operational scorecard:

7 Our performance since listing The financial scorecard:

Our performance since listing $MCents Operating profit before financing and income taxDistributions

9 Five year financial performance Summary of cash flows ($M)

10 Five year financial performance Statement of financial performance ($M)

11 Predictable performance 90% of revenue from domestic market (920,000) consumers) – once connected, minimal switching to electric appliances Minimal movement in demand per consumer Weather impact +/- 5% on revenue Add about 20,000 new domestic consumers each year Victorian footprint covers two key growth corridors (Mornington Peninsula and Whittlesea) Regulated business – building block approach to revenue delivers considerable certainty

12 Regulation increases predictability Revenue and cash flow determined by regulation Asset base: Opening asset base +CPI adjustment +Capex -Depreciation =Closing asset base Revenue: Asset base x WACC +Depreciation +Operating costs =Operating Revenue Revenue  volume of gas = tariffs 5 years of relative certainty in each regulatory jurisdiction

13 Regulation increases predictability National Access Code being reviewed Productivity Commission findings support change Envestra is taking an active role in the debate

14 Market Topics: Gearing Aim to minimise cost of capital Regulators assume 60/40 debt to equity Debt of $1.8 billion – Assets of $2.3 billion Loan notes excluded from debt Assets at acquisition values (1997 and 1999) Ernst & Young revaluation report: –$386 million to $535 million –If adopted, gearing reduces to around 66%

15 Market topics: Gearing Stable earnings performance since listing – results in line with or better than forecast US lenders comfortable – 12 to 30 years tenors Commercial Paper program backed 100% by undrawn committed bank facilities Outperform key credit ratio covenants Consolidated interest cover ratio (EBITDA: net interest) = 1.6 Envestra ISCR is 1.8 and rising – well above bank covenants Standard & Poors’ BBB stable rating since 1998

16 Market topics: Interest rate management Prevailing interest rate used by Regulators to set WACC at 5 year intervals (regulatory re-sets) Envestra’s Treasury Policy to: Limit exposure through hedging or fixing interest rates Co-ordinate hedging program with regulatory re-set dates (i.e. hedge as soon as WACC announced) About 90% of floating interest rate debt hedged Interest rate risk management matches investors’ appetite for minimal risk (share register weighted to retail investors)

17 Market topics: Re-financing strategy Wide diversity of lenders and products Long duration < 1 year (CP) to 30 years (US bonds) Balanced maturities, generally < $100 million $165 million revolving bank lines and $95 million liquidity support facilities CP program fully backed by revolving bank and standby lines

18 Market topics: Re-financing strategy Debt duration and balanced maturities Interest rate hedging – currently about 90% hedged through to 2006

19 Market topics: Natural Gas Infrastructure Advances in security of supply Lessons from Longford (1998) and Moomba (2004) Greater connectivity of basins and pipelines in Eastern Australia (EGP,SWP, SEAGas) Underground storage developed (Iona and Moomba) New basins/reserves (Yolla, Minerva, coal seam methane) No major incidents/damage to pipelines in Australia Likely damage from third parties (graders/drilling equipment) – but minimal

20 Market topics: Our relationship with Origin Energy Relationship Agreement : –Jointly pursue distribution assets and retail businesses –Distribution assets to Envestra –Retail business to Origin Energy –OEAM has first right to operate and manage O&M Agreement –Operate and manage assets –Plan, design and extend networks –Financial reporting and analysis –FRC implementation and operation –Meter reading –Promotion of natural gas

21 Market topics: Our relationship with Origin Energy O&M Agreement (cont) –Incentive based:operating costs capital expenditure volume and consumers –Opex/capex – 1/3 of savings per year –Incentives paid each year since listing (<$1m p.a.) –Operating ‘margin’ = 3% of Envestra’s revenue, for which we get: Economies of scale with IT systems Access to extensive energy industry knowledge Cost benefits of large scale corporate purchasing Synergies from shared corporate services A win/win for Envestra and Origin Energy

22 Why are we looking at transmission pipelines? Major opportunity to grow business Diversity of assets Further geographical diversity Some pipelines have potential volume increases and long- term contracts Growth sector of natural gas supply chain To underpin current distributions – with potential to grow payments

23 Conclusion Envestra offers shareholders: Attractive returns (9.5 cents in 2003/04) ≏ 9% tax effective yield Strong/reliable cash flows (from which distributions are paid) generated by a natural monopoly business A business strategy focussed on energy infrastructure ownership Assets that can reliably supply gas to consumers for 100 years or more Steady growth in an expanding natural gas market