Net Kyoto Position (continued)

The projected balance of Kyoto Protocol units (the net position) is compiled by the Ministry for the Environment using sectoral projection reports from across government. This includes reports on agriculture emissions and net removals from eligible forests from the Ministry of Agriculture and Forestry; energy emissions (including transport) and industrial processes emissions from the Ministry of Economic Development, and emissions from the waste sector from the Ministry for the Environment. Details of the net position can be found on the Ministry for the Environment's website: www.mfe.govt.nz. The sectoral reports from other departments can also be found by following links on this website. The projections use the latest information from the national inventory of greenhouse gas emissions and removals submitted to the United Nations Framework Convention on Climate Change secretariat on 15 April 2012.

No liability for periods beyond 2012 has been recognised, as New Zealand currently has no specific obligations beyond the first commitment period. However, a view about the outcome of negotiations for future periods is intrinsic to the market price for carbon that has been used to measure the position.

Beyond 2012, the financial impact of New Zealand's climate change response will depend on the global stabilisation goal, the global cap/emission reducing strategy, the rules regarding which activities can be used to achieve emission reductions and the target that New Zealand signs up to.

Within New Zealand, the Emissions Trading Scheme (ETS) will transfer a price of carbon through the economy. Determinations as to when sectors are covered under the ETS and how much free allocation is made to these sectors will therefore also impact the financial statements of government. Foresters opt-in to the ETS and are allocated units. Because units are allocated free-of-charge, the Crown incurs an expense. The outstanding balance of these units is reported as the provision for ETS credits in note 27 of these financial statements. When the forests are harvested, the foresters may use the units to meet their carbon obligations.

During the first commitment period, the Ministry for the Environment estimate that 92.2 million tonnes of credits will be generated by carbon removals via forests (2011: 89.3 million tonnes). Of this amount, 30.9 million tonnes has been allocated to foresters through the ETS as at 30 June 2012 (2011: 14.4 million tonnes). To the extent that these forests are harvested (in subsequent commitment periods), and a future international agreement is negotiated, there will be an associated liability generated that will need to be repaid. As the forestry credits have been incorporated when calculating the current position for the first commitment period, the associated obligation of the Crown in respect of future commitment periods has been reported as a separate contingent liability (refer note 32). Using the carbon price for measuring the net Kyoto position as at 30 June 2012, this contingent liability can be measured at $NZ349 million (ie, 61.3 million tonnes x $NZ5.70) (2011: $997 million). This contingent liability is also subject to the overall costs imposed by any commitment taken by New Zealand and the associated rules for calculating emissions including for forestry.

The measurement of the Kyoto position is, by its nature, more uncertain than a number of other items in the statement of financial position. Fluctuations in the value of the estimate may occur through changes in the assumptions underlying the quantum, movements in the price of carbon, the exchange rate with the European currency unit, and government policy changes.

Goodwill in relation to Air New Zealand of $258 million (2011: $258 million) has been tested for impairment at June 2012 based on a value in use discounted cash flow valuation. Cash flow forecasts were prepared for five years using the Air New Zealand board reviewed business plans. Key assumptions include exchange rates, jet fuel costs, passenger load factors and route yields. These assumptions have been based on historical data and current market information. The cash flow forecasts are particularly sensitive to fluctuations in fuel prices and exchange rates and are extrapolated using an average nominal growth rate of approximately 1.5%. The cash flow projections are discounted using post-tax discount rate scenarios of 10 - 10.5%. The 2012 valuation confirmed that there was no impairment required to the goodwill asset.

During the year, New Zealand Post Group acquired Gareth Morgan Investments Limited, Express Couriers Limited and Couriers Please Holding Limited. The total goodwill arising from these acquisitions was $275 million. The amount for goodwill on these purchases is currently provisional as a detailed fair value analysis has not been performed.