Contact Energy system overhaul could cost more than $105 million

BY CLAIRE MCENTEE
Last updated 05:00 26/07/2010

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Contact Energy's major systems overhaul could cost more than $105 million – almost double previous estimates.

The company has confirmed it has outsourced 60 jobs to supplier Indian IT firm Wipro.

Contact is installing SAP software to replace its ageing finance, asset management and retail systems.

Spokesman Jason Dykes says about 60 back-office processing roles, such as bill processing, have been picked up by Wipro and affected staff will either be redeployed or leave Contact over the next nine months.

Wipro will carry out the software development in India and Wellington, using a mix of its own staff, Contact Energy employees and local contractors.

Contact will pay majority shareholder and Australian firm Origin Energy, which has also contracted Wipro to revamp its systems, to host its infrastructure supporting the new systems in datacentres in Adelaide.

Under New Zealand Exchange rules Contact would normally have been required to get shareholder approval for the three-year SAP project, given it is entering into a material transaction with Origin – a related party.

But the NZX decided this would not be necessary, on the grounds that the cost of Origin's hosting services is a fraction of the project's total cost.

There was "an element of uncertainty" about the total costs of the project, but the highest estimated cost of the project in any financial year could exceed 1 per cent of Contact's average market capitalisation of $3.54 billion, or $35 million, according to statement by the NZX.

The highest estimated cost of Origin's hosting services in any financial year was $2.5m, and as such Origin was unlikely to have influenced Contact to go ahead with the project, it said.

Mr Dykes says it does not wish to comment on the project's costs, due to commercial sensitivity.

Wipro will have replaced its finance system by late this year, and the new asset management and retail software will be in place in 2011 and 2012 respectively.

The programme will enable new business processes and customer services, he says.

Computer Society chief executive Paul Matthews previously said it was disappointing the project had been outsourced to a supplier outside New Zealand.

Contact said in July 2008 that IBM would replace its billing, finance and operational systems but backtracked in February 2009, saying no contract had been finalised and it would go back to market.

Contact's board was understood to have approved spending $60m to replace its core systems, plus $20m to cover any cost overruns.

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- BusinessDay.co.nz

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