CONSOLIDATED INCOME STATEMENT

for the period ended 31 December 2010

			Consolidated
	Note		Dec 2010 (6 months) $’000		June 2010 (12 months) $’000
Revenue	4		254,044		499,231
Other income	6(a	)	25,339		404,889
Total income			279,383		904,120
Share of losses from associates and jointly controlled entities accounted for using the equity method	13		(13,329	)	(185,055	)
Employee benefit expense			(39,993	)	(80,646	)
Transmission and direct costs			(79,717	)	(131,515	)
Depreciation, amortisation and impairment charge	6(b	)	(44,609	)	(128,818	)
Finance costs	5(a	)	(52,897	)	(164,207	)
Operating and management charges			(28,396	)	(58,368	)
Net hedge gain	5(b	)	12,020		19,650
Impairment of related party loans	6(b	)	(21,507	)	(95,658	)
Foreign exchange loss and other expense			(96,328	)	(46,267	)
Total expense			(364,756	)	(870,884	)
(Loss)/profit before income tax expense			(85,373	)	33,236
Income tax benefit/(expense)	7		12,210		(941	)
(Loss)/profit from continuing operations			(73,163	)	32,295
Loss from discontinued operations	33		(6,307	)	(980,892	)
Loss for the period			(79,470	)	(948,597	)
Attributable to:
Equity holders of the parent entity			(80,464	)	(959,457	)
Non-controlling interest			994		10,860
			(79,470	)	(948,597	)

Notes to the Consolidated Financial Statements are included on pages 10 to 77.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the period ended 31 December 2010

		Consolidated
	Note	Dec 2010 (6 months) $’000		June 2010 (12 months) $’000
Loss for the period		(79,470	)	(948,597	)
OTHER COMPREHENSIVE INCOME
Other comprehensive income reclassified from equity relating to assets held for sale		16,444		36,810
Exchange differences arising on translation of foreign operations		(69,149	)	26,024
Transfer of reserves to profit or loss on disposal of operations		—		(35,672	)
Gain/(loss) on cash flow hedges taken to equity		25,975		(23,033	)
Gain on cash flow hedges transferred to income		—		27,971
Other reserves recognised in the period		(349	)	24,035
Share of other comprehensive income of associates		28,324		(61,243	)
Income tax relating to components of other comprehensive income		(5,257	)	9,938
Other comprehensive (expense)/income for the period		(4,012	)	4,830
Total comprehensive expense for the period		(83,482	)	(943,767	)
Total comprehensive expense attributable to:
Owners of the parent		(84,476	)	(954,627	)
Non-controlling interests		994		10,860
		(83,482	)	(943,767	)

Notes to the Consolidated Financial Statements are included on pages 10 to 77.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 December 2010

			Consolidated
	Note		Dec 2010 $’000	June 2010 $’000
CURRENT ASSETS
Cash and cash equivalents	37(a	)	42,596	430,752
Trade and other receivables	8		54,712	82,130
Other financial assets	9		34,852	67,030
Inventories	10		13,156	14,713
Current tax receivables	7		10	10
Other	11		13,208	8,300
Non-current assets classified as held for sale	33		1,825,912	1,913,118
Total current assets			1,984,446	2,516,053
NON-CURRENT ASSETS
Trade and other receivables	8		4,017	4,917
Other financial assets	9		756,790	898,541
Debt service reserve deposit	12		26,361	29,853
Investments accounted for using the equity method	13		403,012	397,988
Property, plant and equipment	14		1,716,181	1,734,717
Investment property	15		—	—
Goodwill	16		139,767	160,893
Other intangible assets	17		5,102	6,565
Deferred tax assets	7		250,848	249,078
Other	11		76,284	77,144
Total non-current assets			3,378,362	3,559,696
Total assets			5,362,808	6,075,749
CURRENT LIABILITIES
Trade and other payables	18		125,611	160,095
Borrowings	19		11,884	721,650
Other financial liabilities	20		1,380	4,859
Current tax payable	7		2,020	847
Provisions	21		6,010	6,190
Other	22		36,441	34,088
Liabilities directly associated with non-current assets classified as held for sale	33		1,852,412	1,958,130
Total current liabilities			2,035,758	2,885,859

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 December 2010

		Consolidated
	Note	Dec 2010 $’000		June 2010 $’000
NON-CURRENT LIABILITIES
Trade and other payables	18	14,876		16,223
Borrowings	19	940,622		567,455
Other financial liabilities	20	81,649		152,001
Deferred tax liabilities	7	57,880		61,173
Provisions	21	3,789		4,315
Other	22	157,954		153,570
Total non-current liabilities		1,256,770		954,737
Total liabilities		3,292,528		3,840,596
Net assets		2,070,280		2,235,153
EQUITY
Issued capital	25	4,243,244		4,332,865
Reserves	26	(196,673	)	(177,617	)
Accumulated losses	27	(2,039,287	)	(1,958,823	)
Amounts recognised directly in equity in respect of non-current assets classified as held for sale		(2,148	)	(25,574	)
PARENT ENTITY INTEREST		2,005,136		2,170,851
Non-controlling interest		65,144		64,302
Total equity		2,070,280		2,235,153

Notes to the Consolidated Financial Statements are included on pages 10 to 77.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the period ended 31 December 2010

Consolidated	Issued capital $’000		Hedge reserve $’000		Foreign currency translation reserve $’000		Other reserve $’000		General reserve $’000		Accum losses $’000		Equity associated with assets held for sale $’000		Attributable to owners of the parent entity $’000		Non controlling interest $’000		Total $’000
Balance at 1 July 2010	4,332,865		(106,772	)	(69,230	)	26,159		(27,774	)	(1,958,823	)	(25,574	)	2,170,851		64,302		2,235,153
Loss for the period	—		—		—		—		—		(80,464	)	—		(80,464	)	994		(79,470	)
Amounts recognised in the current period	—		25,975		(69,149	)	(349	)	—		—		16,444		(27,079	)	—		(27,079	)
Income tax relating to components of other comprehensive income	—		(5,257	)	—		—		—		—		—		(5,257	)	—		(5,257	)
Share of reserves of associates	—		19,176		230		—		1,936		—		6,982		28,324		—		28,324
Total comprehensive income for the period	—		39,894		(68,919	)	(349	)	1,936		(80,464	)	23,426		(84,476	)	994		(83,482	)
Securities issued during the period	8,965		—		—		—		—		—		—		8,965		—		8,965
Equity component of PINNZ SPARCS	(1,848	)	—		—		—		—		—		—		(1,848	)	—		(1,848	)
Total	4,339,982		(66,878	)	(138,149	)	25,810		(25,838	)	(2,039,287	)	(2,148	)	2,093,492		65,296		2,158,788
Minority interests disposed of during the period	—		—		—		—		—		—		—		—		(152	)	(152	)
Amounts recognised in the current period	—		—		—		—		8,382		—		—		8,382		—		8,382
Distributions paid from capital	(96,738	)	—		—		—		—		—		—		(96,738	)	—		(96,738	)
Total equity at 31 December 2010	4,243,244		(66,878	)	(138,149	)	25,810		(17,456	)	(2,039,287	)	(2,148	)	2,005,136		65,144		2,070,280

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the period ended 31 December 2010

Consolidated	Issued capital $’000		Hedge reserve $’000		Foreign currency translation reserve $’000		Other reserve $’000	General reserve $’000		Accum losses $’000		Equity associated with assets held for sale $’000		Attributable to owners of the parent entity $’000		Non controlling interest $’000		Total $’000
Balance at 1 July 2009	2,811,318		(77,622	)	(82,112	)	2,124	—		(999,366	)	(36,810	)	1,617,532		102,841		1,720,373
Loss for the year	—		—		—		—	—		(959,457	)	—		(959,457	)	10,860		(948,597	)
Amounts recognised in the current period	—		(23,033	)	26,024		24,035	—		—		36,810		63,836		—		63,836
Income tax relating to components of other comprehensive income			9,938		—		—	—		—		—		9,938		—		9,938
Differences arising on disposal of subsidiary	—		(28,792	)	(15,752	)	—	8,872		—		—		(35,672	)	—		(35,672	)
Transferred to profit or loss	—		27,971		—		—	—		—		—		27,971		—		27,971
Share of reserves of associates	—		(39,135	)	937		—	(23,045	)	—		—		(61,243	)	—		(61,243	)
Total comprehensive income for the period	—		(53,051	)	11,209		24,035	(14,173	)	(959,457	)	36,810		(954,627	)	10,860		(943,767	)
Securities issued during the period	1,784,866		—		—		—	—		—		—		1,784,866		—		1,784,866
Issue costs (net of tax)	(106,882	)	—		—		—	—		—		—		(106,882	)	—		(106,882	)
Return of capital to stapled security holders	(103,671	)	—		—		—	—		—		—		(103,671	)	—		(103,671	)
Total	4,385,631		(130,673	)	(70,903	)	26,159	(14,173	)	(1,958,823	)	—		2,237,218		113,701		2,350,919
Minority interests disposed of or acquired during the period	—		—		—		—	(13,601	)	—		—		(13,601	)	(45,171	)	(58,772	)
Distributions paid from capital	(52,766	)	—		—		—	—		—		—		(52,766	)	—		(52,766	)
Dividends paid from retained earnings	—		—		—		—	—		—		—		—		(4,228	)	(4,228	)
Transferred to assets held for sale	—		23,901		1,673		—	—		—		(25,574	)	—		—		—
Total equity at 30 June 2010	4,332,865		(106,772	)	(69,230	)	26,159	(27,774	)	(1,958,823	)	(25,574	)	2,170,851		64,302		2,235,153

Notes to the Consolidated Financial Statements are included on pages 10 to 77.

CONSOLIDATED STATEMENT OF CASH FLOWS

for the financial period ended 31 December 2010

			Consolidated
	Note		Dec 2010 (6 months) $’000		June 2010 (12 months) $’000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers			381,711		1,085,374
Payments to suppliers and employees			(255,700	)	(678,648	)
Interest received			46,529		61,641
Interest and other costs of finance paid			(102,175	)	(448,746	)
Income tax received/(paid)			24,327		(13,633	)
Net stamp duty paid	11		—		(46,494	)
Net cash provided by/(used in) operating activities	37(f	)	94,692		(40,506	)
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for property, plant & equipment			(104,856	)	(214,220	)
Proceeds from sale of property, plant and equipment			295		3,036
Net proceeds from deposits			33,738		7,629
Payment in relation to consortium settlement			(42,279	)	—
Proceeds from sale of investments	37(b	)	—		129,371
Return on equity from equity accounted investments			—		10,703
Payment for investments			(11,760	)	(34,415	)
Proceeds from loans with associates			62,328		85,649
Repayment of loans to associate entities			(28,701	)	(39,960	)
Loan made to associates			(19,976	)	—
Dividends received			2,912		26,483
Net cash used in investing activities			(108,299	)	(25,724	)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to Stapled Securityholders	28		(95,050	)	(130,054	)
Dividends paid to minority interests			—		(4,228	)
Proceeds from issue of securities	25		—		1,500,000
Security issue costs paid	25		—		(109,207	)
Proceeds from borrowings			20,125		366,032
Loan establishment costs paid			(14,607	)	(16,537	)
Repayment of borrowings			(314,353	)	(1,352,117	)
Net cash (used in)/provided by financing activities			(403,885	)	253,889
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS			(417,492	)	187,659
Cash and cash equivalents at the beginning of the financial period			526,852		344,034
Effects of exchange rate changes on the balance of cash held in foreign currencies			(2,573	)	(4,841	)
Cash and cash equivalents at the end of the financial period(1)	37(a	)	106,787		526,852

(1) Cash and cash equivalents at the end of the financial period includes cash and cash equivalents from assets that are included within discontinued operations.

Notes to the Financial Statements are included on pages 10 to 77.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

Note		Contents

1		Significant accounting policies
2		Adoption of new and revised Accounting Standards
3		Critical accounting judgements and key sources of estimation uncertainty
4		Revenue
5		Finance costs
6		Loss for the period
7		Income taxes
8		Trade and other receivables
9		Other financial assets
10		Inventories
11		Other assets
12		Debt service reserve deposit
13		Investments in associates
14		Property, plant and equipment
15		Investment property
16		Goodwill
17		Other intangible assets
18		Trade and other payables
19		Borrowings
20		Other financial liabilities
21		Provisions
22		Other liabilities
23		Retirement benefit plans
24		Capitalised borrowing costs
25		Issued capital
26		Reserves
27		Accumulated losses
28		Distributions
29		Commitments for expenditure
30		Contingent assets and liabilities
31		Leases
32		Subsidiaries
33		Discontinued operations
34		Key Management Personnel remuneration
35		Related party disclosures
36		Subsequent events
37		Notes to the Statement of Cash Flows
38		Financial instruments
39		Additional Company information

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES

STATEMENT OF COMPLIANCE

These Financial Statements are General Purpose Financial Statements which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. and Interpretations.The Financial Statements comprise the consolidated Financial Statements of the Group.

The Financial Statements were authorised for issue by the Directors on 18 April 2011.

BASIS OF PREPARATION

The Financial Statements have been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted.

This Financial Report covers the period from 1 July 2010 to 31 December 2010. The comparative period covers the period from 1 July 2009 to 30 June 2010. As a result of the successful merge between Prime Infrastructure and Brookfield Infrastructure Partners, which closed on 8 December 2010, Brookfield Infrastructure Partners became the new ultimate parent. Brookfield Infrastructure Partners has a December year end and accordingly, each of the subsidiaries within the Prime Infrastructure Group has amended their financial year to align with the ultimate parent.

STAPLED SECURITY

The shares of Prime Infrastructure Holdings Limited and the units in Prime Infrastructure Trust and Prime Infrastructure Trust 2 (collectively ‘the Trusts’) are combined and issued as Tripled Stapled Securities in the Prime Infrastructure Group (‘the Group’). The shares in the Company and the units of the Trusts cannot be traded separately and can only be traded as Stapled Securities.

Prime Infrastructure Trust 2 joined the Stapled Group as part of the recapitalisation of Prime Infrastructure in November 2009. The equity and reserves of Prime Infrastructure 2 have been included as part of the total equity of the consolidated group rather than being disclosed as a minority interest in order to maintain consistency with the stapling treatment of the Company and the Trust.

GROUP FORMATION AND TERMINATION

On 29 April 2002, the Company was incorporated and Prime Infrastructure Trust was formed. On 18 June 2002, the units of the Trust and the shares of the Company were stapled (the Stapled Securities). On this date the Stapled Securities were issued to the public through an Initial Public Offering and were listed on the Australian Securities Exchange on 24 June 2002.

The shares in the Company and the units of the Trusts will remain stapled until the earlier of the Company ceasing to exist or being wound up, or the Trust being dissolved in accordance with the provisions of the Trust Constitution.

CURRENT ASSET DEFICIENCY

The Group has net current liabilities as at 31 December 2010 of $24.8 million excluding assets and liabilities that are classified as held for sale within current assets and current liabilities. In the financial period ended 31 December 2010, Prime Infrastructure generated $94.7 million in cash flow from operating activities. In addition, Prime Infrastructure has a $300.0 million corporate debt facility which remains undrawn as at balance date.

The Financial Report is prepared on a going concern basis which contemplates the continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.

(a) Consolidated accounts

As there is no IFRS that specifically applies to stapled securities, management have made reference to the pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with the requirements of IFRSs and the Framework.

Accordingly, management have used the guidance of Australian equivalents to International Financial Reporting Standards Interpretation 1013 ‘Consolidated Financial Reports in relation to Pre-Date-of-Transition Stapling Arrangements’, which requires one of the stapled entities of an existing stapled structure to be identified as the parent entity for the purpose of preparing consolidated financial reports. In accordance with this requirement, Prime Infrastructure Holdings Limited has been identified as the parent entity of the consolidated Group comprising Prime Infrastructure Holdings Limited and its controlled entities, Prime Infrastructure Trust and its controlled entities and Prime Infrastructure Trust 2 and its controlled entities.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(b) Principles of consolidation

The consolidated Financial Statements incorporate the assets and liabilities of all subsidiaries of the Prime Infrastructure Group as at 31 December 2010 and the results of all subsidiaries for the period then ended.

Subsidiaries are all those entities (including special purpose entities) controlled by the Company and the Trusts (its subsidiaries) (referred to as ‘the Group’ in these Financial Statements). Control is achieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the Income Statement and Statement of Comprehensive Income from the effective date of acquisition and up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. The interests of non-controlling shareholders may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement basis is made on an acquisition by acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity.

(c) Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration of each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in profit or loss as incurred.

Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant Standards. Changes in the fair value of contingent consideration classified as equity are not recognised.

Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date, that is, the date the Group attains control and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date. The measurement period is subject to a maximum of one year.

(d) Investment in associates

An associate is an entity over which the Group has significant influence that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(d) Investment in associates (continued)

The results and assets and liabilities of associates are incorporated in these Financial Statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost, adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of the acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of the acquisition, after reassessment, is recognised immediately in profit or loss.

Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

(e) Interests in joint ventures

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control such as when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control.

Interests in jointly controlled entities in which the Group is a venturer (and so has joint control) are accounted for under the equity method in the consolidated Financial Statements.

When a group entity transacts with a jointly controlled entity of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the joint venture.

(f) Property, plant and equipment

Land and buildings, plant and equipment, leasehold improvements and equipment under finance lease are stated at cost less accumulated depreciation and subsequent accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by discounting the amounts payable in the future to their present value as at the date of acquisition.

Depreciation is provided on property, plant and equipment, including freehold buildings but excluding land. Depreciation is calculated on a straight-line basis and diminishing value so as to write-off the net cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, with the effect of any changes recognised on a prospective basis.

Assets held under finance lease are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset carrying amount is written down immediately to its recoverable amount if the assets carrying amount is greater than its recoverable amount.

The gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

The following estimated useful lives are used in the calculation of depreciation:

- Buildings (straight-line)		2 to 50 years
- Leasehold improvements		6 to 49 years
- Plant and equipment		3 to 39 years
- Network systems		20 to 40 years
- Track lease premium		41 years

Lease premiums represent the initial amount paid for access to the rail infrastructure assets in Western Australia. These premiums are being amortised over the period of the leases to which they relate, being 41 years.

Subsequent acquisitions of leasehold assets are shown as leasehold improvements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(g) Intangible assets

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.

Concession arrangements acquired as part of a business combination are recognised at their fair value. These intangible assets relate to the right to control and use a specific port for a contractual length of time. These concession arrangements are amortised over the life of the contractual arrangement.

The conservancy right was acquired as part of the acquisition of PD Ports, (and subsequently disposed of on 20 November 2009) and was recorded at its fair value. The right is not amortised as it is a right in perpetuity issued by the Statutory Harbour Authority in the UK.

Intangible assets acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

(h) Impairment of long-lived assets excluding goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase.

(i) Goodwill

Goodwill arising from a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed.

If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the business combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually or more frequently when there is an indication that the unit may be impaired.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(i) Goodwill (continued)

If the recoverable amount of the cash-generating unit is less than the carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is recognised immediately in profit or loss and is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal of the operation.

The Group’s policy for goodwill arising on the acquisition of an associate is described in note 1(d) above.

(j) Cash and cash equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Bank overdrafts are shown within borrowings in current liabilities in the Statement of Financial Position.

(k) Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale.

(l) Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.

Non-current assets classified as held for sale and the assets of a disposal group are presented separately from other assets in the Statement of Financial Position. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the Statement of Financial Position.

The Group has classified its investment in AET&D and Cross Sound Cable as held for sale (refer note 33). A process is currently underway to dispose of these assets.

(m) Financial assets

All financial assets are recognised and derecognised on the trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Investments are recognised and derecognised on the trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as at fair value through profit or loss which are initially measured at fair value.

Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’, ‘held-to-maturity’ investments, ‘available-for-sale’ financial assets, and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the debt instrument, or where appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognised on an effective interest rate basis for debt instruments other than those financial assets classified as ‘at fair value through profit or loss’.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(m) Financial assets (continued)

Financial assets at fair value through profit or loss

Financial assets are classified as financial assets at fair value through profit or loss when the financial asset is either held for trading or it is designated as at fair value through profit or loss.

A financial asset is classified as held for trading if:

· it has been acquired principally for the purpose of selling in the near term; or

· on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit taking; or

· is a derivative that is not designated and effective as a hedging instrument.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset.

Held to maturity investments

Bills of exchange and term deposits with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity are classified as held to maturity investments. Held to maturity investments are measured at amortised cost using the effective interest method less any impairment, with revenue recognised on an effective yield basis.

Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment.

Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each reporting date. Financial assets are considered to be impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

The carrying amount of financial assets are reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay.

(n) Investment property

Investment property, which is property held to earn rental yields and/or capital appreciation, is measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment property is measured at fair value, based on active market prices. These valuations are reviewed annually by a qualified property valuer. Gains and losses arising from changes in the fair value of investment property are included in profit or loss in the period in which they arise.

(o) Leased assets

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. All other leases are classified as operating leases.

Group as lessee

Operating lease payments are recognised as an expense on a straight line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(o) Leased assets (continued)

Lease incentives

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefits of incentives are recognised as a reduction of rental expense on a straight line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

Group as lessor

Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease.

(p) Trade and other payables

Trade and other payables are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services.

(q) Borrowings

Borrowings are recorded initially at fair value, net of transaction costs.

Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the borrowing using the effective interest rate method. Fees paid on the establishment of loan facilities, which are not an incremental cost relating to the actual draw-down of the facility, are recognised as prepayments and amortised on a straight-line basis over the term of the facility.

After initial recognition for those interest bearing borrowings where fair value hedge accounting is applied, the borrowings are adjusted for gains and losses attributable to the risk being hedged.

Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The dividends on these preference shares are recognised in the profit or loss as finance costs.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

(r) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

(s) Employee benefits

A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required and they are capable of being measured reliably.

Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Liabilities recognised in respect of long-term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date.

Defined contribution plans

Contributions to defined contribution retirement benefit plans are recognised as an expense when employees have rendered service entitling them to the contributions.

Defined benefit plans

For defined benefit retirement plans, the cost of providing benefits is determined using the ‘Corridor Approach’, with valuations being carried out when there are significant changes to components of the plan. Gains and losses are recognised in full in the profit or loss in the period in which they occur to the extent the movement is outside the corridor.

Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight line basis over the average period until the benefits become vested.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(s) Employee benefits (continued)

Defined benefit plans (continued)

The retirement benefit obligation recognised in the Statement of Financial Position represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of the plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

The assets of the relevant schemes are held independently of the Group by trustee companies and are invested by professional fund managers.

(t) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Onerous contracts

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable cost of meeting the obligations under the contract exceed the economic benefits estimated to be received under it.

Contingent liabilities acquired in a business combination

Contingent liabilities acquired in a business combination are initially measured at fair value at the date of acquisition. At the end of subsequent reporting periods, such contingent liabilities are measured at the higher of the amount that would be recognised in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation recognised in accordance with IAS 18 Revenue.

Provision for restoration and rehabilitation

A provision for restoration and rehabilitation is recognised when there is a present obligation as a result of production activities undertaken, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the provision can be measured reliably. The estimated future obligations include the costs of removing the facilities and restoring the affected areas.

(u) Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts and interest rate swaps. Further details of derivative financial instruments are disclosed in note 38.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit and loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

The Group designates certain derivatives as either:

· hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedges);

· hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges); or

· hedges of net investments in foreign operations.

A derivative with a positive fair value is recognised as a financial asset; a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(u) Derivative financial instruments (continued)

Embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not measured at fair value through the profit or loss.

Hedge accounting

The Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.

Note 38 sets out details of the fair values or the derivative instruments used for hedging purposes.

Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss from that date.

Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss as part of expenses or income.

Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item is recognised in profit or loss, in the same line of the income statement as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are included in the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any gain or loss accumulated in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.

(v) Contributed equity and preference shares

Ordinary Stapled Securities are classified as equity. Mandatorily redeemable preference shares including Prime Infrastructure Networks (NZ) Subordinated Prime Adjusting Reset Convertible Securities (SPARCS) are classified as liabilities (refer note 19).

Incremental costs directly attributable to the issue of new Stapled Securities are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new Stapled Securities for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration.

Interest and distributions

Interest on preference shares and distributions are classified as expenses or as distributions consistent with the Statement of Financial Position classification of the related debt or equity instruments.

(w) Dividends and distributions

Provision is made for the amount of any dividend or distribution declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial period but not distributed at balance date. Accrued dividends and distributions are disclosed in note 18.

(x) Foreign currencies

The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated Financial Statements, the results and financial position of each group entity are expressed in Australian dollars ($), which is the functional currency of Prime Infrastructure Holdings Limited and the presentation currency for the consolidated Financial Statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(x) Foreign currencies (continued)

In preparing the Financial Statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At end of each reporting period, monetary items denominated in foreign currencies are re-translated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned or likely to occur, which forms part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve, and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.

For the purpose of presenting consolidated Financial Statements, the assets and liabilities of the Group’s foreign operations are expressed in Australian dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising are classified as recognised in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss. Any exchange differences that have previously been attributed to non-controlling interests are derecognised, but they are not reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.

(y) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of customer returns, trade allowances, rebates and other similar allowances.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below.

Rendering of services

Revenue from a contract to provide services is recognised as follows:

Distribution and transmission income

Energy distribution and transmission income is recognised when services are provided and are rendered based upon usage or volume throughput during that period. Gas energy distribution income is recognised on an accruals basis.

Freight services revenue

Freight services revenue comprises revenue earned (net of refunds, discounts and allowances) from the provision of services to entities outside the Group. Revenue is recognised at the time services are provided to customers.

Maintenance contracts

Revenue from time and material contracts is recognised at the contractual rates as labour hours are delivered and direct expenses incurred.

Interest revenue

Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Construction contracts

Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion.

Where the outcome of a construction contract cannot be reliably estimated, contract revenue is recognised to the extent of contract costs incurred that is probable will be recovered. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(y) Revenue recognition (continued)

Other revenue

Contributions for subdivisions/uneconomic lines (not received in the form of a Government contribution) received towards the costs of reticulating new sub-divisions and contributions received in constructing new lines are recognised as revenue.

Other income

Profit/loss on sale of goods and disposal of assets are recognised when the Group has passed control of the goods or other assets to the buyer.

(z) Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with the conditions.

Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate.

Government grants whose primary condition is that the Group should purchase, construct, or otherwise acquire non-current assets are recognised as deferred revenue in the statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Other government grants are recognised as revenue over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis.

(aa) Income tax

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the Income Statement because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of the each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the period

Current and deferred tax is recognised as an expense or income in profit or loss, except when they relate to items that are recognised outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit or loss, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is included in the accounting for the business combination.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(ab) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

· where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or

· for receivables and payables which are recognised inclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.

Cash flows are included in the Statement of Cash Flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.

2. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS

(a) Standards and Interpretations affecting amounts reported in the current period

No new and revised Standards and Interpretations have been adopted in the current period that have affected the amounts reported in these Financial Statements. Details of other Standards and Interpretations adopted in these Financial Statements but that have had no effect on the amounts reported are set out in note 2(b).

(b) Standards and Interpretations adopted with no effect on the Financial Statements

A number of new and revised Standards and Interpretations have also been adopted in these Financial Statements. Their adoption has not had any significant impact on the amounts reported in these Financial Statements but may affect the accounting for future transactions or arrangements.

(c) Standards and Interpretations in issue not yet adopted

Standard

Impact

Effective for annual
reporting periods
beginning on or after

IFRIC 14 Prepayments of a Minimum Funding Requirement

This amendment applies when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements, permitting the benefit of such an early payment to be recognised as an asset.

This is not expected to impact the Group, as Prime Infrastructure has not made any early payment of contributions.

1 January 2011

IFRS 9 Financial Instruments

This Standard introduces new requirements for classifying and measuring financial assets and liabilities as follows:

- debt instruments meeting both a ‘business model’ test and ‘cash flow characteristics’ test are measured at amortised cost (the use of fair value is optional in some limited circumstances);

- investments in equity instruments can be designated as ‘fair value through other comprehensive income’ with only dividends being recognised in profit or loss;

- all other instruments (including all derivatives) are measured at fair value with changes recognised in the profit or loss; and

- the concept of ‘embedded derivatives’ does not apply to financial assets within the scope of the Standard and the entire instrument must be classified and measured in accordance with the above guidelines.

- revised requirements for the classification and measurement of financial liabilities, and carrying over existing Derecognition requirements from IAS 39 Financial Instruments: Recognition and Measurement.

1 January 2013

Other than as noted above, the adoption of the various Accounting Standards and Interpretations in issue but not yet effective will not impact the Group’s accounting policies. However, the pronouncements will result in changes to information currently disclosed in the Financial Statements. The Group does not intend to adopt any of these pronouncements before their effective date.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In applying the Group’s accounting policies, as described in note 1, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Significant judgements, estimates and assumptions made by the Directors in the preparation of these Financial Statements are outlined below:

Impairment of goodwill and intangibles with indefinite lives

Goodwill is assessed for impairment on an annual basis, or more often if indicators of potential impairment exist. Determining whether goodwill and intangibles with indefinite lives are impaired requires an estimation of the value-in-use or fair value less costs to sell of the cash-generating units which have been allocated. The value-in-use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

The carrying amount of goodwill and intangibles with indefinite lives at the statement of financial position date was $139.8 million (June 2010: $160.9 million). No impairment loss was recognised in the current financial period from continuing operations (June 2010: $193.0 million). Details of the assumptions used in the estimate of recoverable amount are provided in notes 16 and 17.

Intangible assets with finite lives

Useful lives of intangible assets with finite lives are reviewed annually. Any reassessment of useful lives in a particular year will affect the amortisation expense (either increasing or decreasing) through to the end of the reassessed useful life for both the current and future years.

The carrying amount of intangible assets with finite lives at the statement of financial position date was $5.1 million (June 2010: $6.6 million). No impairment loss was recognised in the current financial period from continuing operations (June 2010: $16.0 million).

Classification of assets and liabilities as held for sale

The Group classifies assets and liabilities as held for sale when the carrying amount will be recovered through a sale transaction. The assets and liabilities must be available for immediate sale and the Group must be committed to selling the asset either through the entering into a contractual sale agreement or the activation and commitment to a program to locate a buyer and dispose of the assets and liabilities.

As part of the recapitalisation of Prime Infrastructure which was completed on 20 November 2009, Prime Infrastructure announced that it would classify its interests in AET&D and Cross Sound Cable as held for sale. Prime Infrastructure has issued an option to the BEPPA holders to receive any proceeds in relation to the disposal of the AET&D assets, whilst a twelve month option (with an option in favour of Brookfield for a further two periods of twelve months each) has been issued to Brookfield to acquire Cross Sound Cable for nominal proceeds.

Prime Infrastructure has written down its investment in AET&D to nil value (June 2010: nil). This resulted in an impairment charge of $40.3 million in the current financial period (June 2010: impairment charge of $662.6 million) being recognised. Further information is disclosed in note 33.

Recovery of deferred tax assets

Deferred tax assets are recognised for deductible temporary differences and carried forward tax losses as management considers that it is probable that future taxable profits will be available to utilise those temporary differences and tax losses.

Estimation of useful lives of assets of property, plant and equipment

The estimation of the useful lives of property, plant and equipment has been based on historical experience as well as manufacturers’ warranties (for plant and equipment) and lease terms (for leased equipment). In addition, the condition of assets is assessed throughout the year and considered against the remaining useful life. Adjustments to useful life are made when necessary.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED)

Asset retirement obligations

Provision is made for the anticipated costs of environmental restoration within Tasmania Gas Pipeline and future restoration of the sea bed at Cross Sound Cable (both held for sale). The provision includes future cost estimates associated with the rectification and remediation work. These future costs are discounted to their present value and are disclosed in note 33.

Allowance for impairment loss on trade receivables

Where receivables are outstanding beyond the normal trading terms, the likelihood of recovery of these receivables is assessed by management. Due to the large number of debtors, this assessment is based on supportable past collection history and historical write-offs of bad debts. The impairment loss is disclosed in note 8.

Defined benefit plans

Various actuarial assumptions underpin the determination of the Group’s pension obligations. A number of assumptions including but not limited to wage escalation rates, inflation, interest rates, mortality rates and investment returns are used by the actuaries. Details of the assumptions used by the actuaries are disclosed in note 23.

Discounting of intercompany loans

Prime Infrastructure has a number of loans with associates which are currently non-interest bearing. In determining the present value, a discount rate of between 5.86% and 6.94% has been used for a majority of the intercompany loans.

4. REVENUE

An analysis of the Group’s revenue for the period from continuing operations is as follows:

	Consolidated
	Dec 2010 (6 months) $’000	June 2010 (12 months) $’000
Continuing operations:
Revenue from rendering of services	175,112	387,598
Revenue from rendering of services — related parties	3,564	1,335
Other revenue	16,775	6,487
Interest revenue:
Bank deposits	7,100	12,733
Other related parties — associates	46,478	90,126
Other(1)	4,680	295
Unwinding of unrealised discount on receivables from associates	335	657
	58,593	103,811
	254,044	499,231

(1) Other interest in the current financial period relates to interest received in relation to the Australian Taxation Office (ATO) dispute that was settled. On 23 August 2010 Prime Infrastructure announced it had settled its dispute with the ATO regarding the deductibility of certain payments relating to Dalrymple Bay Coal Terminal (DBCT). The settlement relates to payments agreed in 2001 to be made over the term of the initial lease of DBCT (2002 to 2051). In 2007 Prime Inafrastructure entered into an arrangement with the ATO under which it paid 50% of the disputed amount of primary tax and interest. These payments totalled $60.6 million.

Under the agreed settlement, Prime Infrastructure has:

· received approximately $43.6 million in cash back from the ATO;

· recognised a reduction in deferred tax assets relating to carried forward tax losses of approximately $38.0 million; and

· recognised an immaterial reduction in potential future deductions for the payments to be made over the remaining initial lease term at DBCT.

The settlement agreement resolves all matters in dispute between Prime Infrastructure and the ATO in relation to DBCT.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

6. LOSS FOR THE PERIOD

	Consolidated
	Dec 2010 (6 months) $’000		June 2010 (12 months) $’000
(a) GAINS AND LOSSES
Loss for the period has been arrived at after crediting the following gains:
Continuing operations:
Gain on disposal of property, plant and equipment	62		62
Contributions from customers/developers	13,527		9,807
Government grants	585		1,169
Gain on conversion of BEPPA to Prime Infrastructure Stapled securities(1)	—		392,519
Other(2)	11,165		1,332
	25,339		404,889
Loss for the period has been arrived at after charging the following losses:
Continuing operations:
Net foreign exchange losses	(95,497	)	(46,490	)
Loss on disposal of property, plant and equipment	(104	)	(123	)
	(95,601	)	(46,613	)
(b) OTHER EXPENSES
Continuing operations:
Net bad and doubtful debts arising from other entities	32		647

Depreciation of non-current assets (note 14)	43,146		75,915
Amortisation of non-current assets (note 17)	1,463		1,222
Impairment of non-current assets	—		51,681
	44,609		128,818

Impairment of intercompany loans with associates	21,507		95,658

Operating lease rental expense:
Minimum lease payments	989		1,394

(1) The gain on conversion of BEPPA to Prime Infrastructure Stapled securities in the prior financial year was due to the BEPPA securities being recorded at $677.4 million prior to their conversion. The fair value of these liabilities upon conversion was $284.8 million resulting in a one-off gain of $392.5 million.

(2) Other includes the settlement of a legal claim resulting in a gain of $2.1 million and a non-cash gain of $9.0 million on the settlement of payables with consortium members in relation to the Alinta transaction.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

7. INCOME TAXES

	Consolidated
	Dec 2010 (6 months) $’000		June 2010 (12 months) $’000
(a) INCOME TAX RECOGNISED IN PROFIT OR LOSS
Tax (benefit)/expense comprises:
Current tax benefit	(12,432	)	(77,430	)
Adjustments recognised in the current period in relation to the current tax of prior periods	(1,911	)	44,777
Deferred tax expense relating to the origination and reversal of temporary differences	12,241		50,532
Adjustments to deferred tax benefit of prior periods	(2,783	)	(11,492	)
Total tax (benefit)/expense	(4,885	)	6,387
Attributable to:
Continuing operations	(12,210	)	941
Discontinued operations (note 33)	7,325		5,446
	(4,885	)	6,387
Income tax on pre-tax accounting profit reconciles to tax (benefit)/expense as follows:
(Loss)/profit from continuing operations	(85,373	)	33,236
Profit/(loss) from discontinued operations (note 33)	1,018		(975,447	)
	(84,355	)	(942,211	)
Income tax benefit calculated at 30%	(25,307	)	(282,663	)
Income not assessable (including trust income)	27,362		(10,199	)
Differences in overseas tax rates	(591	)	(19,808	)
Deferred tax assets not recognised	(3,094	)	35,810
Non-deductible expenditure	—		5,678
Impairment loss	6,452		206,377
Unwinding of unrealised discount on related party receivables/payables	—		(1,227	)
Equity accounted results	927		62,219
Other permanent differences	(5,941	)	(22,995	)
	(192	)	(26,808	)
(Over)/under provision of income tax in previous period	(4,693	)	33,195
Income tax (benefit)/expense recognised in profit or loss	(4,885	)	6,387

The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

7. INCOME TAXES (CONTINUED)

	Consolidated
	Dec 2010 $’000		June 2010 $’000
(b) INCOME TAX RECOGNISED DIRECTLY IN OTHER COMPREHENSIVE INCOME
Deferred tax:
Arising on income and expenses recognised in other comprehensive income:
Revaluation of financial instruments treated as cash flow hedges	(5,257	)	11,479
Translation of foreign operations	(10,531	)	(28,582	)
Other reserve	—		(2,325	)
Total income tax recognised directly in other comprehensive income	(15,788	)	(19,428	)
(c) CURRENT TAX ASSETS AND LIABILITIES
Current tax assets:
Tax refund receivable	10		10
Current tax payable:
Income tax payable attributable to:
Parent entity	—		—
Entities in the consolidated group	(2,020	)	(847	)
	(2,020	)	(847	)
	(2,010	)	(837	)

(d) DEFERRED TAX ASSETS

Total deferred tax assets attributable to temporary differences	147,069		166,977

Deferred tax assets attributable to tax losses carried forward in the following jurisdictions:
Australia	100,986		78,301
United Kingdom	1,113		1,230
Total deferred tax assets attributable to tax losses	102,099		79,531
Total deferred tax assets attributable to withholding tax	1,680		2,570
Total deferred tax assets	250,848		249,078

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

7. INCOME TAXES (CONTINUED)

	Consolidated
	Dec 2010 $’000		June 2010 $’000
(d) DEFERRED TAX ASSETS (CONTINUED)
The following movements in the balance of deferred tax assets were included in the calculation of income tax expense:
Opening balance of deferred tax assets	166,977		611,002
Amounts booked to foreign currency translation reserve	(10,531	)	—
Revaluation of hedges	(5,257	)	273
Equity raising costs and other	1,937		2,389
Acquisitions/disposals	87		(327,055	)
Less closing balance of deferred tax assets attributable to temporary differences	(147,069	)	(166,977	)
Change in deferred tax assets included in tax benefit	6,144		(119,632	)
(e) DEFERRED TAX LIABILITIES
Total deferred tax liabilities attributable to temporary differences	57,880		61,173
The following movements in the balance of deferred tax liabilities were included in the calculation of income tax expense:
Opening balance of deferred tax liabilities	61,173		945,399
Amounts booked to foreign currency translation reserve	—		(28,582	)
Acquisitions/disposals	21		(786,580	)
Revaluation of hedges	—		11,617
Less closing balance of deferred tax liabilities	(57,880	)	(61,173	)
Change in deferred tax liabilities included in tax benefit/(expense)	3,314		(80,681	)

RELEVANCE OF TAX CONSOLIDATION TO THE GROUP

The Company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect from 1 July 2002 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated group is Prime Infrastructure Holdings Limited. The members of the tax consolidated group are identified at note 32.

Tax expense/benefit, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate Financial Statements of the members of the tax-consolidated group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate Financial Statements of each entity and tax values applying under tax consolidation. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the tax-consolidated group are recognised by the Company (as head entity in the tax-consolidated group).

Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or receivable by the Company and each member of the Group in relation to the tax contribution amounts paid or payable between the parent entity and other members of the tax-consolidated group in accordance with the arrangement.

Tax expense/benefit, deferred tax assets and deferred tax liabilities for temporary differences for members of the tax consolidated group are reflected differently depending on whether the member is a controlled subsidiary, an associate or part of a disposal group classified as held for sale.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

7. INCOME TAXES (CONTINUED)

NATURE OF TAX FUNDING ARRANGEMENTS AND TAX SHARING AGREEMENTS

Entities within the tax-consolidated groups have entered into a tax funding arrangement and a tax sharing agreement with the relevant head entity. Under the terms of the tax funding arrangement, Prime Infrastructure Holdings Limited and each of the relevant entities in its tax-consolidated group have agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are reflected in amounts receivable from or payable to other entities in the tax-consolidated group. Similar arrangements exist between head entities and member entities of the other two tax-consolidated groups.

8. TRADE AND OTHER RECEIVABLES

	Consolidated
	Dec 2010 $’000		June 2010 $’000
CURRENT
Trade receivables(1)	38,147		43,479
Impairment provision	(1,198	)	(1,344	)
	36,949		42,135
GST and VAT receivables	808		1,765

Interest receivable from associates	9,070		26,015
Interest receivable – other entities	119		1,479
	9,189		27,494
Insurance claim receivable	—		2,097
Other	7,766		8,639
NON-CURRENT
Trade receivables	3,150		3,728
Other receivables	867		1,189
	58,729		87,047
Disclosed in the Financial Statements as:
Current trade and other receivables	54,712		82,130
Non-current trade and other receivables	4,017		4,917
	58,729		87,047

(1) The average credit period on sales of services is 30 to 45 days. No interest is charged on trade receivables. An allowance has been made for estimated irrecoverable amounts from the provision of services, determined by reference to past default experience.

Trade receivables disclosed above include amounts (see below for aged analysis) that are past due at the end of the reporting period but against which the Group has not recognised an allowance for doubtful receivables because there has not been a significant change in credit quality and the amounts are still considered to be fully recoverable. The Group does not hold any collateral or other credit enhancements over these balances nor does it have a legal right of offset against any amounts owed by the Group to the counterparty.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

8. TRADE AND OTHER RECEIVABLES (CONTINUED)

	Consolidated
	Dec 2010 $’000		June 2010 $’000
Ageing of past due but not impaired:
Not past due	28,762		37,814
Past due - 0 to 30 days	8,234		4,331
Past due - 30 to 60 days	858		1,503
Past due – 60 to 90 days	550		1,036
Past due – 90 to 120 days	393		859
Past due – 120 plus days	1,302		320
	40,099		45,863
Movement in the allowance for doubtful debts:
Balance at the beginning of the period	(1,344	)	(2,989	)
Impairment losses recognised on receivables	(172	)	(767	)
Amounts written off as uncollectible	23		(115	)
Amounts recovered during the year	15		156
Impairment losses reversed	125		60
Net difference due to foreign exchange	155		580
Derecognised on disposal of subsidiary	—		1,661
Transferred to held for sale	—		70
	(1,198	)	(1,344	)

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date the credit was initially granted up to the end of the reporting date. The concentration of risk to the Group is limited due to the customer base being large, diverse and unrelated.

	Consolidated
	Dec 2010 $’000		June 2010 $’000
Ageing of impaired trade receivables:
Not past due	—		—
Past due - 0 to 30 days	—		—
Past due - 30 to 60 days	—		—
Past due – 60 to 90 days	—		—
Past due – 90 to 120 days	(60	)	(853	)
Past due – 120 plus days	(1,138	)	(491	)
	(1,198	)	(1,344	)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

9. OTHER FINANCIAL ASSETS

	Consolidated
	Dec 2010 $’000		June 2010 $’000
DERIVATIVES
Current:
Foreign currency swaps	23		4,171

Non-current:
Foreign currency swaps	—		2,623
Interest rate swaps	3,414		—
	3,437		6,794
LOANS CARRIED AT AMORTISED COST
Current:
Non-interest bearing loan with associate(1)	34,829		34,829

Non-current:
Interest bearing loans with associate(2)	786,771		919,300
Provision for impairment of loans with associates	(53,401	)	(31,229	)
	733,370		888,071
Non-interest bearing loan with associate(3)	20,006		11,771

Provision for impairment of loan with associates	—		(3,924	)
	20,006		7,847
	788,205		930,747
OTHER FINANCIAL ASSETS
Current:
Deposit – Australian Taxation Office(4)	—		28,030

Disclosed in the Financial Statements as:
Other current financial assets	34,852		67,030
Other non-current financial assets	756,790		898,541
	791,642		965,571

(1) Current non-interest bearing loans with associates relate to loans with DBCT ($34.8 million). Refer note 35 for further information in relation to loans with related parties.

(2) Non-current interest bearing loans with associates consist of the following:

· $432.3 million (US $440.0 million) loan receivable from Myria Holdings Inc. in which Prime Infrastructure has a 33% equity interest. Subsequent to period end, these loan notes were transferred to BIP Bermuda Holdings IV Limited for US$451.6 million including accrued interest. Refer to note 36 for further information.

· $197.9 million (NZ $260.5 million) loan receivable from Powerco New Zealand in which Prime Infrastructure has a 42% equity interest.

· $67.4 million loan receivable from DBCT in which Prime Infrastructure has a 50.1% economic interest.

· $89.2 million (€67.9 million) loan receivable which has been impaired by $53.4 million (€41.6 million) from Euroports Holdings S.á.r.l in which Prime Infrastructure has a 60% equity interest. Refer note 35 for further information in relation to loans with related parties.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

9. OTHER FINANCIAL ASSETS (CONTINUED)

(3) Non-current non-interest bearing loans with associates include the following:

· loans receivable from Euroports Holdings S.á.r.l. totaling $176.6 million (€134.4 million) which have a carrying value of $11.1 million (€8.5 million). Refer note 35 for further information in relation to loans with related parties.

· Loan receivable from the equity accounted investments Long Bay Public Private Partnership and Melbourne Showgrounds Public Private Partnership of $8.9 million.

(4) Cash on deposit with the Australian Taxation Office related to a dispute regarding the deductibility of certain payments made in relation to the long-term lease of DBCT. This dispute was settled in the current financial period. Refer to note 4 for further information.

10. INVENTORIES

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Current:
Consumables	13,156	14,713

11. OTHER ASSETS

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Current:
Deposits	107	169
Prepayments	13,082	8,109
Other	19	22
	13,208	8,300
Non-current:		—
Stamp duty costs paid(1)	71,346	71,346
Defined benefit asset	4,728	5,542
Other	210	256
	76,284	77,144
Disclosed in the Financial Statements as:
Other current assets	13,208	8,300
Other non-current assets	76,284	77,144
	89,492	85,444

(1) On 6 January 2010, WestNet Rail Holdings No.1 Pty Limited, a wholly owned subsidiary of the Company received an assessment notice from the Western Australian Office of State Revenue in the amount of $71.3 million, being stamp duty assessed in respect of the 2006 acquisition of the ARG Group by WestNet WA Rail Pty Limited. Prime Infrastructure believes the assessment is incorrect at law and intends to vigorously challenge it. Notwithstanding Prime Infrastructure’s intention to object to the assessment, payment of $71.3 million ($46.4 million being Prime Infrastructure’s share) was made on 5 February 2010 in accordance with the assessment.

WestNet WA Rail Pty Limited, the immediate parent of WestNet Rail Holdings No.1 Pty Limited, and also wholly-owned by the Company, exercised its contractual rights of indemnity against Queensland Rail as acquirer of the above rail ARG Group business in 2006 to recover approximately $24.9 million and to use that amount to partially fund the potential liability of WestNet Rail Holdings No.1 Pty Limited under the assessment. Refer to note 22 for liability owing to Queensland Rail. Accordingly, if it is ultimately determined that WestNet Rail Holdings No.1 Pty Limited is liable for stamp duty, the net duty required to be funded by the Company would be $46.4 million. This amount has been included as a contingent liability (refer note 30).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

12. DEBT SERVICE RESERVE DEPOSIT

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Non-current:
Debt service reserve deposit(1)	26,361	29,853

(1) Debt Service Reserve deposit at bank is interest-bearing and comprises cash restricted as a reserve for the servicing of debt under the Group’s financing agreements, capex reserves and cash relating to cash backed bank guarantees.

13. INVESTMENTS IN ASSOCIATES

	Consolidated
	Dec 2010 $’000		June 2010 $’000
Non-current:
Investments in associates	402,655		397,602
Investments in joint venture entities	357		386
	403,012		397,988
Reconciliation of movement in investments accounted for using the equity method:
Balance at 1 July	397,988		650,509
Share of (loss)/profit for the period – continuing operations(5)	(13,329	)	(185,055	)
Share of profit for the period – discontinued operations (note 33)	10,878		10,388
Share of reserves for the period	28,324		(61,242	)
	423,861		414,600
Dividends	(2,912	)	(26,483	)
Additions(1)	44,971		330,064
Capital returns on equity investments(2)	—		(10,703	)
Impairment(3)	—		(74,763	)
Transferred to held for sale (note 33)(4)	(19,527	)	(260,000	)
Net foreign exchange differences	(43,381	)	25,273
	403,012		397,988

(1) The additions in the current financial period relate to the acquisition of a 50% equity interest in the Long Bay Public Private Partnership and 50% in the Melbourne Showgrounds Public Private Partnership ($13.0 million). These were acquired from BIP Bermuda Holdings IV Limited, the immediate parent entity of Prime Infrastructure. The balance of the additions relate to the capitalisation of accrued interest with Myria Holdings Inc ($20.2 million), equity contribution to Euroports ($8.1 million) and equity contributions by AET&D ($3.6 million) to its associate investments. The prior year additions relate to the acquisition of DBCT and Euroports. In the prior year, the results from these assets were consolidated as they were controlled subsidiaries of Prime Infrastructure.

(2) Capital returns on equity investments in the prior year relate to Myria Holdings Inc.

(3) In the prior financial year, the impairment charge of $74.8 million within equity accounted investments related to a write down in the Multinet Gas Holdings and Dampier to Bunbury Natural Gas Pipeline of $23.1 million, a write down in the investment in Myria Holdings Inc. of $36.2 million and a write down in the investment in Euroports of $15.5 million.

(4) Prime Infrastructure has classified its investment in AET&D as held for sale as at 31 December 2010 and 30 June 2010. Included within the portfolio of assets within AET&D is the equity accounted investments in Multinet Gas Holdings and Dampier to Bunbury Natural Gas Pipeline. Accordingly, these investments are no longer included within investments in associates, but rather as a current asset within non-current assets classified as held for sale.

(5) In the prior year, included within share of (loss)/profit for the period – continuing operations, is the settlement of the DBCT ATO dispute, accounted for as an adjusting subsequent event. Also included within the share of (loss)/profit for the year – continuing operations in the prior year is an impairment charge of $75.8 million in relation to Myria Holdings Inc’s underlying investment in Natural Gas Pipeline of America.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

13. INVESTMENTS IN ASSOCIATES (CONTINUED)

Name of entity	Principal activity	Country of incorporation	Economic interest Dec 2010 %	Economic interest June 2010 %
Dalrymple Bay Coal Terminal(1)	Coal terminal	Australia	50.1	50.1
Powerco New Zealand Holdings Limited(5)	Electricity and gas distribution	New Zealand	42	42
ARG Risk Management Limited	Captive insurer	Australia	50	50
Euroports S.á.r.l(2)	Ports operator	Luxembourg	60	66.1
Multinet Gas Holdings(3), (6)	Gas distribution	Australia	20.1	20.1
Dampier to Bunbury Natural Gas Pipeline(3), (6)	Gas transmission	Australia	20	20
Myria Holdings Inc.(7)	Natural gas transmission and storage	USA	33	33
Brookfield Infrastructure Long Bay Holdings Pty Limited(4)	Investment in the Long Bay Jail	Australia	50	—
Brookfield Infrastructure Showgrounds Holdings Pty Limited(4)	Investment in the Melbourne Showgrounds	Australia	50	—

(1) As part of the recapitalisation completed on 20 November 2009, Brookfield Infrastructure Australia Trust agreed to subscribe for Convertible Notes for $295.4 million and enter into a number of other agreements with Prime Infrastructure which confer on Brookfield Infrastructure Australia Trust a 49.9% economic interest in DBCT. As a result of this transaction, Prime Infrastructure no longer controls DBCT in accordance with Accounting Standards and equity accounts its investment.

(2) The sale of 33.89% of Euroports was completed on 28 July 2009. During the current period, Antin IP converted its convertible bond which decreased Prime Infrastructure’s investment in Euroports to 60%. Prime Infrastructure does not control Euroports in accordance with Accounting Standards as a result of the voting rights held by other shareholders

(3) These investments are part of the AET&D group of assets. As at 31 December 2010 and 30 June 2010, these investments have been classified as held for sale.

(4) In the current financial period, Prime Infrastructure acquired the 50% equity interest investment in the Long Bay Public Private Partnership and 50% in the Melbourne Showgrounds Public Private Partnership. These investments were acquired from BIP Bermuda Holdings IV Limited, the immediate parent entity of Prime Infrastructure.

(5) The financial year end date of Powerco New Zealand Holdings Limited is 30 June. This was the reporting date established when the company was incorporated. As Prime Infrastructure has a minority ownership, a change of reporting date is not possible. The interim results for the half year ended 31 December 2010 of Powerco New Zealand Limited have therefore been used for the purpose of accounting for the investment in associate.

(6) The financial year end date of Dampier to Bunbury Natural Gas Pipeline and Multinet Gas Holdings is 30 June. This was the reporting date established when the company was incorporated. As Prime Infrastructure has a minority ownership, a change of reporting date is not possible. The interim results for the half year ended 31 December 2010 of these entities have therefore been used for the purpose of accounting for the investment in associate.

(7) The financial year end date of Myria Holdings Inc. and its subsidiary, Natural Gas Pipeline of America is 30 June. This was the reporting date established when the company was incorporated. As Prime Infrastructure has a minority ownership, a change of reporting date is not possible. The interim results for the half year ended 31 December 2010 of these entities have therefore been used for the purpose of accounting for the investment in associate.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

13. INVESTMENTS IN ASSOCIATES (CONTINUED)

	Consolidated
	Dec 2010 $’000		June 2010 $’000
SUMMARISED FINANCIAL INFORMATION OF ASSOCIATE ENTITIES
Financial position:
Total assets	14,541,298		16,356,921
Total liabilities	(13,543,332	)	(15,331,876	)
Net assets	997,966		1,025,045
Group’s share of associates’ net assets	402,655		397,602
Financial performance:
Total revenue	1,390,796		3,019,935
Total (loss)/profit for the period	(15,242	)	(388,564	)
Group’s share of associates’ loss	(2,421	)	(174,741	)
SUMMARISED FINANCIAL INFORMATION OF JOINTLY CONTROLLED ENTITIES
Financial position:
Current assets	4,045		3,998
Non-current assets	54		53
	4,099		4,051
Current liabilities	(3,385	)	(3,279	)
Non-current liabilities	—		—
	(3,385	)	(3,279	)
Net assets	714		772
Group’s share of jointly controlled entities’ net assets	357		386
Financial performance:
Income	98		173
Expenses	(158	)	(25	)
Net (loss)/profit	(60	)	148
Group’s share of jointly controlled entities’ (loss)/profit	(30	)	74

Dividends received from associates and joint ventures

During the year, the Group received dividends of $2.9 million (June 2010: $26.5 million).

Contingent liabilities and capital commitments

The Group’s share of contingent liabilities of associates and jointly controlled entities is disclosed in note 30.

The Group’s share of capital commitments and other expenditure commitments of associates and jointly controlled entities is disclosed in note 29.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

14. PROPERTY, PLANT AND EQUIPMENT

Consolidated	Land and buildings at cost $’000		Leasehold improvements at cost $’000		Network systems at cost $’000		Track lease premium at cost $’000		Plant and equipment at cost $’000		Work in progress at cost $’000		Total $’000
Gross Carrying Amount:
Balance at 1 July 2009	373,094		980,043		715,181		198,355		1,861,731		98,682		4,227,086
Additions	4,504		1,235		43,361		—		41,093		83,549		173,742
Transfers	180		70,495		6,907		—		16,877		(94,459	)	—
Disposals	—		(195	)	(865	)	—		(9,224	)	—		(10,284	)
Disposals through sale of business	(247,077	)	(16,989	)	—		—		(81,453	)	(42,606	)	(388,125	)
Classified as held for sale (note 33)	(44,806	)	(13,348	)	—		—		(1,759,208	)	(28,390	)	(1,845,752	)
Net foreign currency exchange differences	(41,999	)	(1,336	)	(70,841	)	—		(19,331	)	(3,355	)	(136,862	)
Other	—		—		—		—		6,733		—		6,733
Balance at 30 June 2010	43,896		1,019,905		693,743		198,355		57,218		13,421		2,026,538
Additions	25		12,930		25,500		—		5,326		49,997		93,778
Transfers	(41	)	15,246		3,689		(15,425	)	220		(3,689	)	—
Disposals	(6	)	(434	)	(22	)	—		(1,606	)	—		(2,068	)
Net foreign currency exchange differences	(6,046	)	—		(68,202	)	—		(4,862	)	14		(79,096	)
Balance at 31 December 2010	37,828		1,047,647		654,708		182,930		56,296		59,743		2,039,152

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

14. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

Consolidated	Land and buildings at cost $’000		Leasehold improvements at cost $’000		Network systems at cost $’000		Track lease premium at cost $’000	Plant and equipment at cost $’000		Work in progress at cost $’000	Total $’000
Accumulated depreciation/amortisation:
Balance at 1 July 2009	23,732		102,690		99,638		13,786	110,707		—	350,553
Disposals	—		(172	)	(849	)	—	(5,006	)	—	(6,027	)
Transfers	180		190		23		—	(393	)	—	—
Disposal through sale of business	(17,740	)	(852	)	—		—	(24,780	)	—	(43,372	)
Classified as held for sale (note 33)	(4,684	)	(4,275	)	—		—	(522,612	)	—	(531,571	)
Impairment losses charged to profit	—		688		—		—	429,846		—	430,534
Depreciation expense	3,185		42,484		20,497		4,472	29,345		—	99,983
Net foreign currency exchange differences	(2,644	)	(106	)	(7,316	)	—	(4,950	)	—	(15,016	)
Other	—		—		—		—	6,737		—	6,737
Balance at 30 June 2010	2,029		140,647		111,993		18,258	18,894		—	291,821
Disposals	—		(29	)	(5	)	—	(1,280	)	—	(1,314	)
Depreciation expense	165		26,009		9,870		2,102	5,000		—	43,146
Net foreign currency exchange differences	(284	)	—		(8,669	)	—	(1,729	)	—	(10,682	)
Balance at 31 December 2010	1,910		166,627		113,189		20,360	20,885		—	(322,971	)
Net Book Value as at 30 June 2010	41,867		879,258		581,750		180,097	38,324		13,421	1,734,717
Net Book Value as at 31 December 2010	35,918		881,020		541,519		162,570	35,411		59,743	1,716,181

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

14. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

	Consolidated
	Dec 2010 (6 months) $’000	June 2010 (12 months) $’000
Aggregate depreciation allocated, whether recognised as an expense or capitalised as part of the carrying amount of other assets during the period:
Land and buildings	165	3,185
Leasehold improvements	26,009	42,484
Network systems	9,870	20,497
Track lease premium	2,102	4,472
Plant and equipment	5,000	29,345
	43,146	99,983

15. INVESTMENT PROPERTY

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Balance at beginning of financial period	—	174,672
Disposals	—	(154,027	)
Net foreign exchange differences	—	(20,645	)
Balance at end of financial period	—	—

The Group’s investment property portfolio was held by PD Ports, which was sold on 20 November 2009.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

16. GOODWILL

	Consolidated
	Dec 2010 $’000		June 2010 $’000
Gross carrying amount:
Balance at beginning of financial period	216,678		726,979
Derecognised on disposal of subsidiary(1)	—		(148,049	)
Transferred to held for sale (note 33)(2)	—		(318,630	)
Net foreign exchange differences	(21,126	)	(43,622	)
Balance at end of financial period	195,552		216,678
Accumulated impairment losses:
Balance at beginning of financial period	(55,785	)	(348,416	)
Impairment losses for the period	—		(193,000	)
Derecognised on disposal of subsidiary(1)	—		148,049
Transferred to held for sale (note 33)(2)	—		318,630
Net foreign exchange differences	—		18,952
Balance at end of financial period	(55,785	)	(55,785	)
Net book value:
At the beginning of the financial period	160,893		378,563
At the end of the financial period	139,767		160,893

(1) This amount related to the sale of PD Ports on 20 November 2009 as part of the recapitalisation of Prime Infrastructure. The goodwill relating to the business was fully impaired at 30 June 2009.

(2) This amount related to the Australian Energy Transmission & Distribution business which has been classified as held for sale in the year to 30 June 2010.

ALLOCATION OF GOODWILL

Goodwill has been allocated for impairment testing purposes to the following cash-generating units:

· International Energy Group and

· WestNet Rail.

The carrying amount of goodwill (other than goodwill classified as held for sale) was allocated to the following cash-generating units.

Goodwill balance	IEG $’000	WestNet Rail $’000	Total $’000
December 2010	130,252	9,515	139,767
June 2010	151,378	9,515	160,893

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

17. OTHER INTANGIBLE ASSETS

	Conservancy rights(1) $’000		Concession arrangements(2) $’000		Permits(3) $’000		Software, licenses and other $’000		Easements and contracts(4),(5) $’000		$’000
Gross carrying amount:
Balance at 1 July 2009	947,192		2,319,662		51,756		44,179		77,202		3,439,991
Additions	—		33,031		—		1,230		—		34,261
Disposals	(835,243	)	(2,352,693	)	—		(5,495	)	—		(3,193,431	)
Transferred to held for sale (note 33)	—		—		(49,272	)	(25,677	)	(79,070	)	(154,019	)
Other	—		—		—		(4,844	)	—		(4,844	)
Transfers	—		—		—		—		1,868		1,868
Net foreign exchange differences	(111,949	)	—		(2,484	)	(344	)	—		(114,777	)
Balance at 30 June 2010	—		—		—		9,049		—		9,049
Additions	—		—		—		—		—		—
Disposals	—		—		—		(3,069	)	—		(3,069	)
Balance at 31 December 2010	—		—		—		5,980		—		5,980
Accumulated amortisation and impairment:
Balance at 1 July 2009	207,982		166,235		4,430		10,551		5,262		394,460
Amortisation expense(6)	—		21,172		522		3,542		1,182		26,418
Impairment expense(7)	—		—		—		—		16,000		16,000
Disposals	(183,401	)	(187,407	)	—		(3,557	)	—		(374,365	)
Transferred to held for sale (note 33)	—		—		(4,741	)	(7,859	)	(22,410	)	(35,010	)
Transfers	—		—		—		34		(34	)	—
Net foreign exchange differences	(24,581	)	—		(211	)	(227	)	—		(25,019	)
Balance at 30 June 2010	—		—		—		2,484		—		2,484
Amortisation expense(6)	—		—		—		1,463		—		1,463
Disposals	—		—		—		(3,069	)	—		(3,069	)
Balance at 31 December 2010	—		—		—		878		—		878
Net book value:
As at 30 June 2010	—		—		—		6,565		—		6,565
As at 31 December 2010	—		—		—		5,102		—		5,102

(1) The conservancy right was acquired as part of the acquisition of PD Ports plc in 2006 and was recorded at its fair value. The conservancy asset recognised was not amortised as it is a right in perpetuity with an indefinite life, but is subject to an annual impairment review. As part of the recapitalisation of Prime Infrastructure, PD Ports was sold for nominal proceeds.

(2) Concession arrangements included the service concession arrangement at DBCT and key concession arrangements at various European ports. The ports’ concessions are usually awarded by Government authorities in that jurisdiction. In the prior year, Prime Infrastructure sold part of its investment in Euroports and entered into arrangements concerning a 49.9% economic interest in DBCT. Accordingly, Prime Infrastructure no longer controls either of these assets and does not consolidate their results.

(3) Permits include the separately identifiable asset acquired as part of the acquisition of Cross Sound Cable in the US and are amortised over the life of the main cable attached to the permit being 40 years. As part of the recapitalisation, Prime Infrastructure is carrying its investment in Cross Sound Cable as held for sale. Refer note 33 for further information.

(4) Easement rights relate to the intangible asset that allows the Tasmanian Gas Pipeline business to access the land above the pipeline. Prime Infrastructure is carrying its investment in Tasmania Gas Pipeline within AET&D as held for sale. Refer note 33 for further information.

(5) Contracts relate to contracts with external customers that have been purchased as part of a business combination. These contracts are within the AET&D business and accordingly are classified as held for sale. Refer note 33 for further information.

(6) Amortisation expense is recognised within depreciation, amortisation and impairment charge in the Income Statement.

(7) Impairment charges are recognised within loss from discontinued operations in the Income Statement. This impairment charge related to intangibles held within the AET&D group.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

18. TRADE AND OTHER PAYABLES

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Current:
Trade payables(1)	76,539	74,536
Distribution payable	8,096	26,383
Interest payable	4,047	11,736
Payable to other related parties(2)	1,590	5,735
Tax related amounts within the tax-consolidated group (non-interest bearing)	25,042	26,175
GST and VAT payable	1,744	4,190
Other	8,553	11,340
Non-current:
Payable to other related parties(2)	14,876	16,223
	140,487	176,318
Disclosed in the Financial Statements as:
Current trade and other payables	125,611	160,095
Non-current trade and other payables	14,876	16,223
	140,487	176,318

(1) The average credit period on purchases of goods and services is 30 days. No interest is incurred on trade creditors.

(2) Further information relating to loans to related parties is set out in note 35 to the Financial Statements.

19. BORROWINGS

	Consolidated
	Dec 2010					June 2010
	Current $’000	Non- current $’000		Total $’000		Current $’000	Non- current $’000		Total $’000
Unsecured:
Bank loans(1)	—	—		—		619,494	—		619,494
Hybrid securities(2)	—	—		—		94,842	—		94,842
	—	—		—		714,336	—		714,336
Secured:
Bank loans(1)	11,884	848,414		860,298		7,314	463,127		470,441
Secured bonds(3)	—	111,685		111,685		—	119,516		119,516
	11,884	960,099		971,983		7,314	582,643		589,957
	11,884	960,099		971,983		721,650	582,643		1,304,293
Less: capitalised borrowing costs	—	(19,477	)	(19,477	)	—	(15,188	)	(15,188	)
	11,884	940,622		952,506		721,650	567,455		1,289,105

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

19. BORROWINGS (CONTINUED)

	Consolidated
	Dec 2010			June 2010
	Current $’000	Non- current $’000	Total $’000	Current $’000	Non- current $’000	Total $’000
1. BANK LOANS
Unsecured:
WestNet Rail Group bank loan facilities(1)	—	—	—	619,494	—	619,494
	—	—	—	619,494	—	619,494
Secured:
WestNet Rail Group bank loan facilities(1)	—	455,000	455,000	—	—	—
IEG bank facility(2)	11,884	393,414	405,298	7,314	463,127	470,441
	11,884	848,414	860,298	7,314	463,127	470,441
	11,884	848,414	860,298	626,808	463,127	1,089,935

(1) WestNet Rail Group completed the refinance of its previous facility during the current period. The facilities comprise the following:

· $455.0 million term facility maturing in January 2014 that is fully drawn (June 2010: $550.0 million fully drawn).

· $77.0 million revolving facility maturing in January 2014 that is undrawn (June 2010: drawn to $69.5 million).

(2) The IEG bank debt facilities comprise the following:

· Senior facilities totalling £235.3 million (June 2010: £237.2 million) and a junior facility totaling £16.0 million (June 2010: £16.0 million) in relation to the IEG UK business maturing in January 2013. As at December 2010, the senior facilities are drawn to $285.9 million (£188.2 million) (June 2010: $330.2 million, £187.1 million). The junior facility is fully drawn at December 2010 ($24.3 million) (June 2010:$28.2 million).

· Bank facilities totalling $95.1 million (£62.7 million) that are fully drawn (June 2010: ($112.0 million, £63.5 million) in relation to IEG’s Islands businesses with a maturity date of May 2016.

Consolidated

Dec 2010

June 2010

Current
$’000

Non-
current
$’000

Total
$’000

Current
$’000

Non-
current
$’000

Total
$’000

2. HYBRID SECURITIES

Prime Infrastructure Networks (New Zealand) SPARCS(1)

—

94,842

—

94,842

(1) In the current financial period, PINNZ redeemed all outstanding SPARCS on issue on 17 November 2010. Holders received face value plus accrued interest in cash for each of their SPARCS under the redemption.

As at 30 June 2010, 119,005,156 SPARCS were on issue at a face value of NZ$119.0 million (A$94.8 million) and the interest rate was 10% per annum.

Prior to the redemption in the current financial period, nil SPARCS were converted into Prime Infrastructure Stapled Securities (June 2010: 36,660).

Consolidated

Dec 2010

June 2010

Current
$’000

Non-
current
$’000

Total
$’000

Current
$’000

Non-
current
$’000

Total
$’000

3. SECURED BONDS

PINNZ secured bonds(1)

—

111,685

—

119,516

(1) Prime Infrastructure Networks (New Zealand) Limited has on issue $111.7 million (NZ$147.1 million) in secured bonds maturing in November 2012 (June 2010: $119.5 million — NZ$147.1 million). The bonds rank pari passu to Prime Infrastructure’s other senior secured debt obligations and have the benefit of the Prime Infrastructure Deed of Common Provisions and Prime Infrastructure Security Trust Deed. As at 31 December 2010, these bonds have a fixed coupon of 9.0% (June 2010: 9.0%).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

20. OTHER FINANCIAL LIABILITIES

	Consolidated
	Dec 2010 $’000	June 2010 $’000
DERIVATIVES
Current:
Foreign currency swaps	—	1,336
Interest rate and inflation swaps	—	23
Non-current:
Foreign currency swaps	—	2,642
Interest rate and inflation swaps	81,649	107,142
	81,649	111,143
OTHER FINANCIAL LIABILITIES
Current:
Other(1)	1,380	3,500
Non-current:
Other(1)	—	42,217
	1,380	45,717
	83,029	156,860
Disclosed in the Financial Statements as:
Current other financial liabilities	1,380	4,859
Non-current other financial liabilities	81,649	152,001
	83,029	156,860

(1) Other financial liabilities relate to outstanding deferred settlement amounts owing to the previous minority interest holders in Euroports. The outstanding liability incurs interest at a rate of 9.99% and is due and payable on 23 August 2011. In the current financial period, an amount of $41.3 million was repaid.

21. PROVISIONS

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Current:
Employee benefits	4,688	4,791
Other	1,322	1,399
Non-current:
Employee benefits	1,039	1,122
Defined benefit obligation	2,750	3,193
	9,799	10,505
Disclosed in the Financial Statements as:
Current other financial liabilities	6,010	6,190
Non-current other financial liabilities	3,789	4,315
	9,799	10,505

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

21. PROVISIONS (CONTINUED)

	Asset retirement obligation(1) $’000		Insurance provision $’000		Duty provision $’000		Other provisions $’000
Balance at 1 July 2009	31,909		1,217		15,682		4,606
Additional provisions recognised	2,203		—		—		3,286
(Reductions)/increases arising from remeasurement	—		—		(324	)	166
Payments made in respect of provisions	—		—		—		(2,756	)
Disposals in the current financial period(2)	—		(1,073	)	—		(1,712	)
Transferred to held for sale (3)	(33,987	)	—		(15,358	)	(1,960	)
Exchange differences	(125	)	(144	)	—		(231	)
Balance at 30 June 2010	—		—		—		1,399
Additional provisions recognised	—		—		—		283
Reductions arising from remeasurement	—		—		—		(34	)
Payments made in respect of provisions	—		—		—		(322	)
Exchange differences	—		—		—		(4	)
Balance at 31 December 2010	—		—		—		1,322

(1) Asset retirement obligations in the prior year represented the present value of future estimated costs to decommission and restore the environment of certain assets. The present value of the decommissioning costs was determined using a risk-free discount rate. The assumed costs of decommissioning were based on best estimates and therefore uncertainty existed as to the actual costs to be incurred. The asset retirement obligation relates to the AET&D and Cross Sound Cable entities and has been classified as held for sale as at 31 December 2010 and 30 June 2010.

(2) Disposals in the prior financial year relate to provisions that were previously recognised within PD Ports which was sold on 20 November 2009.

(3) The amounts that are transferred to held for sale in the prior financial year are included within AET&D and Cross Sound Cable. For further information refer to note 33.

22. OTHER LIABILITIES

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Current:
Deferred income(1)	11,589	9,236
Other(2)	24,852	24,852
Non-current:
Deferred income(1)	157,954	152,947
Other	—	623
	194,395	187,658
Disclosed in the Financial Statements as:
Current other financial liabilities	36,441	34,088
Non-current other financial liabilities	157,954	153,570
	194,395	187,658

(1) Deferred income relates primarily to WestNet Rail and consists of cash contributions from third parties to build or upgrade existing network capabilities. The cash payment is recorded on receipt to deferred income and recognised as revenue over the life of the contracted track access arrangement with the contributor.

(2) The other current liability of $24.9 million relates to Queensland Rail’s contribution to the $71.3 million total assessment for stamp duty from the Western Australia Office of State Revenue in respect of the 2006 acquisition of the ARG Group by WestNet WA Rail Pty Limited. This was paid on 5 February 2010. For further information refer to notes 11 and 30.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

23. RETIREMENT BENEFIT PLANS

The Group operates four defined benefit superannuation plans for qualifying employees within its subsidiary IEG. Under the plans, the employees are entitled to retirement benefits varying between 0% and 67% of final salary at retirement. No other post-retirement benefits are provided to these employees.

The defined benefit superannuation plans are funded plans. Superannuation plans compute their obligations in accordance with the actuarial requirements of the jurisdiction in which the plan is located, which prescribes a different measurement basis to that applied in these Financial Statements. The net surplus/ (deficit) determined in the plans’ most recent Financial Statements are as follows:

Scheme	Date of last actuary report	Assets as a percentage of liabilities		Net surplus/ deficit	Amount $’000
International Energy Group	1 January 2009	106	%	Surplus	331
Guernsey Gas Limited	1 July 2009	152	%	Surplus	3,809
Jersey Gas Company Limited	1 July 2009	70	%	Deficit	(2,700	)
Manx Gas Limited	6 April 2007	72	%	Deficit	(1,933	)

The plan actuaries have recommended that additional contributions beyond the current contribution level be made to eliminate the deficit over a 15 year period (Manx Gas) and a 10 year period (Jersey Gas). The actuaries for the Guernsey Gas plan have recommended contributions of the employer at 15.6% to cover the estimated cost of future accruing benefits.

Funding recommendations are made by the actuaries based on their forecast of various matters, including future plan assets performance, interest rates and salary increases.

The principal assumptions used for the purposes of actuarial valuations were as follows:

	Consolidated
	Dec 2010 %	June 2010 %
Key assumptions used (expressed as weighted averages)
Discount rate(s)	5.40	5.50
Expected return on plan assets	5.59	5.59
Expected rate(s) of salary increase	4.91	4.90

	Consolidated
	Dec 2010 $’000		June 2010 $’000
Amounts recognised in profit or loss in respect of these defined benefit plans are as follows:
Current service cost	899		2,773
Interest cost	983		2,242
Expected return on plan assets	(938	)	(1,868	)
Total included in employee benefit expense (continuing and discontinued operations)	944		3,147
Actuarial gains incurred during the period and recognised in the Income Statement	427		—

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

23. RETIREMENT BENEFIT PLANS (CONTINUED)

	Consolidated
	Dec 2010 $’000		June 2010 $’000
The amount included in the Statement of Financial Position arising from the Group’s obligation in respect of its defined benefit plans is as follows:
Present value of funded defined benefit obligations	(34,171	)	(37,534	)
Fair value of plan assets	32,699		35,923
	(1,472	)	(1,611	)
Present value of unfunded defined benefit obligations	—		—
Deficit	(1,472	)	(1,611	)
Net actuarial losses not recognised	3,450		3,960
Net asset arising from defined benefit obligations	1,978		2,349
Movements in the present value of the defined benefit obligations in the current period were as follows:
Opening defined benefit obligations	(37,534	)	(264,364	)
Current service cost	(899	)	(2,773	)
Interest cost	(983	)	(2,242	)
Contributions from plan participants	(373	)	(598	)
Actuarial (losses)/gains	(599	)	303
Disposal of subsidiary(1)	—		196,505
Exchange differences on foreign plans	5,407		32,014
Benefits paid	964		3,015
Other	(154	)	606
Closing defined benefit obligation	(34,171	)	(37,534	)

(1) The disposal of subsidiary relates to PD Ports which was sold on 20 November 2009.

The expense for the period is included in the employee benefits expense in the Statement of Comprehensive Income. Of the expense for the period, $0.9 million (June 2010: $3.1 million) has been included in the Income Statement as employee benefit expense.

	Consolidated
	Dec 2010 $’000		June 2010 $’000
Movements in the present value of the plan assets in the current period were as follows:
Opening fair value of plan assets	35,923		237,451
Expected return on plan assets	938		1,868
Actuarial gains/(losses)	169		(4,990	)
Exchange differences on foreign plans	(5,174	)	(29,023	)
Contributions from the employer	1,434		1,805
Contributions from plan participants	373		598
Benefits paid	(964	)	(3,015	)
Disposal of subsidiary(1)	—		(168,771	)
Closing fair value of plan assets	32,699		35,923

(1) The disposal of subsidiary relates to PD Ports which was sold on 20 November 2009.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

23. RETIREMENT BENEFIT PLANS (CONTINUED)

The major categories of plan assets, and the expected rate of return at the end of the reporting period for each category, are as follows:

	Expected return		Fair value of plan assets
	Dec 2010 %	June 2010 %	Dec 2010 $’000	June 2010 $’000
Other assets (unitised with profits, policies and bonds)	5.6	5.6	32,699	35,923
Weighted average expected return	5.6	5.6	32,699	35,923

The overall expected rate of return is a weighted average of the expected returns of the various categories of plan assets held. The assessment of the expected returns is based on historical return trends and analysts’ predictions of the market for the asset in the next twelve months.

The actual return on plan assets was a profit of $1.1 million (June 2010: $3.1 million loss).

The history of experience adjustments are as follows:

	Consolidated
	Dec 2010 $’000		June 2010 $’000		2008 $’000		2007 $’000
Fair plan of plan assets	32,699		35,923		266,997		321,329
Present value of defined benefit obligations	(34,171	)	(37,534	)	(260,851	)	(280,333	)
(Deficit)/surplus	(1,472	)	(1,611	)	6,146		40,996
Experience adjustments on plan liabilities — (losses)/gains	(599	)	303		(538	)	21,018
Experience adjustments on plan assets — gains/(losses)	169		(4,990	)	(29,439	)	9,921

24. CAPITALISED BORROWING COSTS

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Borrowing costs capitalised during the financial period(1)	—	43
Weighted average capitalisation on funds borrowed generally	—	2.34	%

(1) Capitalised borrowing costs were recognised by DBCT. During the prior financial year as part of the recapitalisation of Prime Infrastructure, Prime Infrastructure entered into arrangements with Brookfield Infrastructure Australia Trust, such that Prime Infrastructure no longer controls DBCT. Accordingly, Prime Infrastructure accounts for its remaining 50.1% economic interest in DBCT as an equity accounted investment and no longer consolidates its share of DBCT’s borrowings. Refer note 33 for further information.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

25. ISSUED CAPITAL

	Consolidated
	Dec 2010 $’000	June 2010 $’000
353,584,177 fully paid ordinary Stapled Securities (June 2010: 351,776,795)	4,243,244	4,332,865

	Consolidated Dec 2010
	Date	Number ’000	Issue price ($) per Stapled Security	$’000
Fully paid ordinary Stapled Securities
Balance at beginning of financial period		351,777		4,332,865
September quarter distribution	30 Nov 2010			(26,383	)
Special distribution	8 Dec 2010			(70,355	)
Equity component of PINNZ SPARCS	17 Nov 2010			(1,848	)
Equity issued to acquire equity accounted investments	16 Dec 2010	1,807	4.96	8,965
Balance at end of financial period		353,584		4,243,224

	Consolidated June 2010
	Date	Number ‘000		Issue price ($) per Stapled Security	$’000
Fully paid ordinary Stapled Securities
Balance at beginning of financial period		2,591,767			2,811,318
Conversion of PINNZ SPARCS to Prime Infrastructure Stapled Securities	17 Nov 2009	789		0.0371	29
Equity issued as consideration for transfer of BBI Exchangeable Preference Shares	20 Nov 2009	841,790,304		0.0003	284,838
Securities issued as part of the recapitalisation of Prime Infrastructure	20 Nov 2009	4,433,014,153		0.0003	1,500,000
Return of capital to Stapled Securityholders	25 Nov 2009				(103,671	)
Consolidation of Stapled Securities (1:15,000)	25 Nov 2009	(5,277,045,236	)		—
Security issue costs					(109,207	)
March quarter distribution	31 May 2010				(26,383	)
June quarter distribution	30 Jun 2010				(26,383	)
Tax adjustment	30 Jun 2010				2,324
Balance at end of financial period		351,777			4,332,865

Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the Group does not have a limited amount of authorised capital and issued shares do not have a par value.

Ordinary Stapled Securities

Ordinary Stapled Securities entitle the holder to vote, to participate in dividends/distributions, and the proceeds on winding up the Group in proportion to the number of and amounts paid on the Stapled Securities held.

Subsequent to year end (as disclosed in note 36), on 16 February 2011 the Trusts paid a distribution out of retained earnings of $15.7 million and a return capital of $415.9 million to BIP Bermuda Holdings IV Limited, the immediate parent of Prime Infrastructure.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

26. RESERVES

	Consolidated
	Dec 2010 $’000		June 2010 $’000
Foreign currency translation reserve	(138,149	)	(69,230	)
Other reserve	25,810		26,159
General reserve	(17,456	)	(27,774	)
Hedging reserve	(66,878	)	(106,772	)
	(196,673	)	(177,617	)

	Consolidated
	Dec 2010 $’000		June 2010 $’000
FOREIGN CURRENCY TRANSLATION RESERVE
Balance at the beginning of the financial period	(69,230	)	(82,112	)
Gain recognised on disposal of foreign subsidiary	—		(15,752	)
Transferred to equity relating to non-current assets classified as held for sale	—		1,673
Translation of foreign operations	(69,149	)	26,024
Share of reserves of associates	230		937
	(138,149	)	(69,230	)

Exchange differences relating to the translation from New Zealand dollars, Great British pounds, Euros and United States dollars being the functional currency of Prime Infrastructure’s foreign controlled entities in New Zealand, United Kingdom, Channel Islands (Guernsey & Jersey), Europe and United States into Australian dollars are brought to account by entries made directly to the foreign currency translation reserve.

	Consolidated
	Dec 2010 $’000		June 2010 $’000
OTHER RESERVE
Balance at the beginning of the financial period	26,159		2,124
Recognised in the current financial period	(349	)	24,035
	25,810		26,159

Other reserve represents the amortisation to present value of related party loans that are not currently interest bearing. The majority of these loans have been discounted using a rate of between 5.86% and 6.94%.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

26. RESERVES (CONTINUED)

	Consolidated
	Dec 2010 $’000		June 2010 $’000
GENERAL RESERVE
Balance at the beginning of the financial period	(27,774	)	—
Recognised in the current financial period	8,382		(13,601	)
Share of reserves of associate	1,936		(23,045	)
Gain recognised on disposal of subsidiary	—		8,872
	(17,456	)	(27,774	)

The general reserve includes $38.4 million which represents Prime Infrastructure’s proportionate share of Euroports general reserve loss as at December 2010 (June 2010: $40.4 million). In addition, the general reserve includes $12.6 million relating to the acquisition of minority interests in WestNet Rail (June 2010: $12.6 million), $12.9 million gain on transfer of the Public Private Partnerships from a related party and a $4.5 million loss from the transfer of a subsidiary to a related party.

	Consolidated
	Dec 2010 $’000		June 2010 $’000
HEDGING RESERVE
Balance at the beginning of the financial period	(106,772	)	(77,622	)
(Loss)/gain recognised: Interest rate swaps	25,975		(23,033	)
Share of reserves of associates	19,176		(39,135	)
Loss recognised on disposal of subsidiary	—		(28,792	)
Deferred tax arising on hedges	(5,257	)	9,938
Transferred to equity relating to non-current assets classified as held for sale	—		23,901
Transferred to profit or loss	—		27,971
	(66,878	)	(106,772	)

The hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative gain or loss on the hedge is recognised in profit or loss when the hedged transaction impacts the profit or loss.

Gains and losses transferred from equity into profit or loss during the period are included in the following line items in the Income Statement:

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Net hedge loss	—	(27,971	)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

27. ACCUMULATED LOSSES

	Consolidated
	Dec 2010 $’000		June 2010 $’000
Balance at the beginning of the financial period	(1,958,823	)	(999,366	)
Net loss attributable to members of the parent entity	(80,464	)	(959,457	)
Balance at the end of the financial period	(2,039,287	)	(1,958,823	)

28. DISTRIBUTIONS

	Dec 2010		June 2010
	Cents per Security	$’000	Cents per Security	$’000
RECOGNISED AMOUNTS PER FULLY PAID STAPLED SECURITY
Paid from contributed equity:
Capital distribution paid 25 November 2009	—	—	4.00	103,671
March quarter distribution paid 31 May 2010	—	—	7.50	26,383
June quarter distribution declared 30 June 2010	—	—	7.50	26,383
September distribution paid 30 November 2010	7.50	26,383	—	—
Special distribution paid 8 December 2010	20.00	70,355	—	—
		96,738		156,437

As part of the successful merge of Prime Infrastructure and Brookfield Infrastructure Partners, a special distribution of $70.4 million (20 cents per Stapled Security) was declared. The Special Distribution record date for this payment was 25 November 2010 and the payment was paid on 8 December 2010.

The September 2010 quarter distribution was announced on 23 August 2010 with a record date of 30 September 2010 and was paid on 30 November 2010.

In the prior financial year, distributions totalling $156.4 million were paid.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

29. COMMITMENTS FOR EXPENDITURE

	Consolidated
	Dec 2010 $’000	June 2010 $’000
(a) CAPITAL EXPENDITURE COMMITMENTS
Plant and equipment
Not longer than one year	285	884
Longer than one year and not longer than five years	—	—
Longer than five years	—	—
	285	884
Share of associates’ capital expenditure commitments
Not longer than one year	16,298	25,473
Longer than one year and not longer than five years	548	1,405
Longer than five years	—	—
	16,846	26,878
(b) OTHER EXPENDITURE COMMITMENTS
Network systems and information technology
Not longer than one year	51,833	14,834
Longer than one year and not longer than five years	57,620	67,058
Longer than five years	32,168	11,693
	141,621	93,585
Other commitments — maintenance contracts
Not longer than one year	2,138	2,122
Longer than one year and not longer than five years	3,340	6,672
Longer than five years	—	3,273
	5,478	12,067
Share of associates’ other expenditure commitments
Not longer than one year	5,443	10,135
Longer than one year and not longer than five years	871	983
Longer than five years	—	—
	6,314	11,118

(c) LEASE COMMITMENTS

Non-cancellable operating lease commitments are disclosed in note 31 to the Financial Statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

30. CONTINGENT ASSETS AND LIABILITIES

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Contingent liabilities:
Dispute with the Office of State Revenue(1)	46,494	46,494
Bank and other guarantees(2)	21,846	23,211
Acquisition earn-outs(3)	4,152	4,926
Other	425	185
Contingent assets:
Acquisition earn-outs(3)	4,152	4,926
DBCT revenue(4)	1,890	7,784
Other	1,713	1,766

(1) On 6 January 2010, WestNet Rail Holdings Pty Limited, a wholly-owned subsidiary of the Company received an assessment notice from the Western Australian Office of State Revenue in the amount of $71.3 million, being stamp duty assessed in respect of the 2006 acquisition of the ARG Group by WestNet WA Rail Pty Limited. Prime Infrastructure believes the assessment is incorrect at law and intends to vigorously challenge it. Notwithstanding Prime Infrastructure’s objection to the assessment, payment of $46.4 million (being Prime Infrastructure’s share) was made on 5 February 2010 in accordance with the assessment.

WestNet WA Rail Pty Limited, the immediate parent of WestNet Rail Holdings No.1 Pty Limited, and also wholly owned by the Company, exercised its contractual rights of indemnity against Queensland Rail as acquirer of the above rail ARG Group business in 2006 to recover approximately $24.9 million and to use that amount to partially fund the potential liability of WestNet Rail Holdings No.1 Pty Limited under the assessment. Accordingly, if it is ultimately determined that WestNet Rail Holdings No.1 Pty Limited is liable for the stamp duty, the net duty required to be funded by the Company would be $46.4 million. This amount has been included above as a contingent liability.

(2) As at 31 December 2010, the Group, including its associates, had bank and customs guarantees outstanding to third parties totaling $21.8 million (June 2010: $23.2 million). These guarantees are supported by cash on deposit with banks.

(3) An acquisition earn-out is payable to the vendor of Rauma Stevedoring in the situation where Euroports Finland receives a binding option right to operate in a proposed new container terminal in Europe for between 15 and 30 years. The amount payable would be $6.9 million (June 2010: $7.5 million) and would be recognised as an asset. Prime’s proportionate share of this is $4.2 million (June 2010: $4.9 million). The movement between December 2010 and June 2010 is related to movements in foreign exchange.

(4) DBCT is entitled to commence earning revenue on its expansion of DBCT from the first day of the month following commissioning of an expansion. DBCT is currently invoicing its customers on the basis of an Annual Revenue Requirement (ARR) approved by the QCA based on forecast costs and forecast economic parameters. Once the total costs for each phase of the project have been finalised, which based on current estimates will exceed the approved forecast costs, these will be submitted to the QCA which, if approved, would result in a catch up of revenue being due to DBCT. This revenue would be backdated to the first day of the month following commissioning. The amount due, should all costs be approved, has been calculated as $3.8 million as at 31 December 2010 (June 2010: $15.5 million). Prime Infrastructure has disclosed $1.9 million as a contingent asset as at 31 December 2010 being its 50.1% proportionate share (June 2010: $7.8 million).

(5) Tas Gas Networks Pty Limited has entered into a Deed of Settlement with the Tasmanian Government indemnifying the Government against any losses or damages on the constructed gas network for a period of 10 years. The extent to which an outflow or cash will be required cannot be determined in relation to this indemnity.

(6) On 31 August 2007, Prime Infrastructure was part of a consortium that acquired the Alinta Limited business. As part of this transaction, Prime Infrastructure is party to the Amended Umbrella Agreement (amended 30 August 2007) and Participation Deed. The interaction of these two agreements was that Prime Infrastructure was responsible for its proportionate percentage for any unallocated liabilities which do not relate specifically to a consortium business. Any known liabilities in relation to unallocated liabilities were recognised as at 30 June 2010. In the current financial period, the Amended Umbrella Agreement and Participation Deeds were settled between the consortium. No additional contingent liabilities have been recognised.

(7) Prior to Prime Infrastructure’s acquisition of certain Alinta Limited businesses in 2007, Alinta Limited and Alinta 2000 Limited agreed to guarantee the obligations of various companies within the Alinta group. Following the Scheme of Arrangement under which a consortium including Prime Infrastructure acquired the Alinta businesses, Prime Infrastructure acquired the guaranteeing entities, while some of the subsidiaries being guaranteed were acquired by Alinta Energy Limited (formerly Babcock & Brown Power).

Whilst Alinta Limited and Alinta 2000 Limited are guaranteeing obligations of an Alinta Energy subsidiary, as part of the consortium arrangements relating to the acquisition of Alinta Limited, Alinta Energy has agreed to indemnify Prime Infrastructure against, among other things all losses sustained to the extent that such losses relate to Alinta Energy’s assets. Accordingly, to the extent that Prime Infrastructure sustains any losses pursuant to the guarantee, Alinta Energy has agreed to indemnify Prime Infrastructure for such loss. In the current financial period, all agreements have been terminated between the consortium. No additional contingent liabilities have been recognised.

(8) An associate of Prime Infrastructure has established an environmental provision of $3.1 million (Prime Infrastructure’s share is $0.8 million) at 31 December 2010 (June 2010: $2.3 million — Prime Infrastructure share was $0.6 million) to address remediation issues with four projects. The associate is subject to a variety of federal, state and local laws that regulate permitted activities relating to air and water quality, waste disposal and other environmental matters. After consideration of provisions established, Prime Infrastructure believes that costs for environmental remediation and ongoing compliance with these laws will not have a material adverse impact on the Group.

However, there can be no assurances that future events, such as changes in existing laws, new laws or the development of new facts or conditions will not cause significant costs to be incurred.

(9) The Group is defendant in various lawsuits arising from the day-to-day operations of its businesses. Although no assurance can be given, the Directors believe, based on experience to date, that the ultimate resolution of such matters will not have a material adverse impact on the Prime Infrastructure business, cash flows, financial position or results of operations.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

31. LEASES

DISCLOSURE FOR LESSEES

Operating leases

Leasing arrangements

Operating leases consist of rental of office space with varying lease terms, motor vehicles and miscellaneous office equipment. All office space rentals include market review clauses and options to renew. The Group does not have an option to purchase the leased assets at the expiry of the lease periods.

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Non-cancellable operating lease payments
Not longer than one year	1,958	2,075
Longer than one year and not longer than five years	5,909	8,436
Longer than five years	17,187	19,178
	25,054	29,689
Share of associates’ operating lease commitments
Non-cancellable operating lease payments
Not longer than one year	11,031	13,552
Longer than one year and not longer than five years	37,854	46,795
Longer than five years	151,025	199,571
	199,910	259,918

In respect of non-cancellable operating leases, the following liabilities have been recognised:

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Lease incentives
Current	—	—
Non-current	—	623
	—	623

In the prior year, the non-cancellable operating leases were in relation to an entity which has been subsequently transferred out of the Prime Infrastructure Holdings Limited group.

	Consolidated
	Dec 2010 $’000	June 2010 $’000
Share of associates’ operating lease receivables
Not longer than one year	1,038	2,006
Longer than one year and not longer than five years	2,750	4,837
Longer than five years	2,007	4,163
	5,795	11,006

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

32. SUBSIDIARIES

		Ownership interest
Name of entity	Country of incorporation	Dec 2010 %	June 2010 %
Parent entity:
Prime Infrastructure Holdings Limited(3)	Australia
Subsidiaries:
Prime Infrastructure Trust	Australia	100	100
Prime Infrastructure Trust 2	Australia	100	100
Prime Infrastructure Employment Pty Limited(3)	Australia	100	100
Prime BFK Trust	Australia	100	100
ARL2B Partnership	Australia	100	100
BBI Energy Trust(6)	Australia	—	100
Prime NGPL Trust	Australia	100	100
Prime TC Holdings Pty Limited(3)	Australia	100	100
Prime Infrastructure Finance Pty Limited(3)	Australia	100	100
Prime Energy Partnership Pty Limited(3)	Australia	100	100
Prime Energy (Redbank) Pty Limited(3)	Australia	100	100
Prime Energy (Wind) Pty Limited(3)	Australia	100	100
Australian Company Number 108 247 123 Pty Limited(3)	Australia	100	100
Australian Company Number 108 247 098 Pty Limited(3)	Australia	100	100
DBCT Management Pty Limited(3),(4)	Australia	100	100
DBCT Finance Pty Limited(3),(4)	Australia	100	100
DBCT Trust(4)	Australia	100	100
DBCT Investor Services Pty Limited(3),(4)	Australia	100	100
Prime Networks (Australia) Pty Limited(3)	Australia	100	100
Prime Networks (Australia) No.2 Pty Limited(3)	Australia	100	100
Prime Infrastructure Networks (New Zealand) Limited	New Zealand	100	100
Prime Infrastructure Networks (New Zealand) No.2 Limited	New Zealand	100	100
Prime Infrastructure Networks (New Zealand) No.3 Limited	New Zealand	100	100
Tas Gas Holdings Pty Limited(3)	Australia	100	100
Prime TGN Pty Limited (formerly BBI TGN Pty Limited)(3)	Australia	100	100
BBI PES Pty Limited(3)	Australia	100	100
Tas Gas Retail Pty Limited(3)	Australia	100	100
Tas Gas Networks Pty Limited(3)	Australia	100	100
Brookfield Cogen Australia Pty Limited(1),(3)	Australia	100	—
Prime IEG Australia Holdings Pty Limited(3)	Australia	100	100
Prime IEG Australia No.1 Pty Limited(3)	Australia	100	100
Prime IEG Australia No.2 Pty Limited(3)	Australia	100	100
IEG Infrastructure Limited	United Kingdom	100	100
IEG Finance Limited	United Kingdom	100	100
IEG Guernsey Limited	Guernsey	100	100
International Energy Group Limited	Guernsey	100	100
Channel Islands Gas Group Limited	Guernsey	100	100
Guernsey Gas Limited	Guernsey	100	100
Jersey Gas Company Limited	Jersey	100	100
Kosangas (Guernsey) Limited	Guernsey	100	100
Kosangas (Jersey) Limited	Jersey	100	100
Manx Gas Limited	Isle of Man	100	100

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

32. SUBSIDIARIES (CONTINUED)

		Ownership interest
Name of entity	Country of incorporation	Dec 2010 %	June 2010 %
The Gas Supply Company Limited	Guernsey	100	100
The Gas Transportation Company Limited	Guernsey	100	100
GTC Pipelines Limited	United Kingdom	100	100
GTC Utility Construction Limited	United Kingdom	100	100
Utility Grid Installations Limited	United Kingdom	100	100
GPL Investments Limited	United Kingdom	100	100
The Electricity Network Company Limited	United Kingdom	100	100
Power On Connections Limited	United Kingdom	100	100
Power On Investments Limited	United Kingdom	100	100
Prime Port Holdings Pty Limited(3)	Australia	100	100
Prime Finance UK Limited	United Kingdom	100	100
Prime CSC Holdings Pty Limited(3)	Australia	100	100
CSCC US Holdings LLC(2)	United States of America	100	100
CSCC Holdings LLC(2)	United States of America	100	100
CSCC LLC(2)	United States of America	100	100
CSC Operations LLC(2)	United States of America	100	100
Cross-Sound Cable Company LLC(2)	United States of America	100	100
Cross-Sound Cable Company (New York) LLC(2)	United States of America	100	100
CSCC TBC Holdings LLC(2)	United States of America	100	100
CSCC TBC LLC(2)	United States of America	100	100
TBC Operations LLC(2)	United States of America	100	100
Prime Rail Holdings Pty Limited(3)	Australia	100	100
Babcock & Brown WA Rail Trust(3)	Australia	100	100
Prime WA Rail TC Pty Limited(3)	Australia	100	100
Prime MI TC Pty Limited(3)	Australia	100	100
MI Trust(3)	Australia	100	100
WestNet WA Rail Pty Limited(3)	Australia	100	100
WestNet Rail Holdings No.1 Pty Limited(3)	Australia	100	100
WestNet Rail Holdings No.2 Pty Limited(3)	Australia	100	100
WestNet Rail Employment Pty Limited(3)	Australia	100	100
WestNet Rail Pty Limited(3)	Australia	100	100
WestNet Rail NarrowGauge Pty Limited(3)	Australia	100	100
WestNet Rail StandardGauge Pty Limited(3)	Australia	100	100
Prime US Holdings Pty Limited(3)	Australia	100	100
Prime GP (Aust) Holdings I Pty Limited(3)	Australia	100	100
Prime GP (Aust) Holdings II Pty Limited(3)	Australia	100	100
Prime GP (Aust) Pty Limited(3)	Australia	100	100
Prime US Investments Pty Limited(3)	Australia	100	100
ACN 134 741 567 Pty Limited(3)	Australia	100	100
Prime Europe Holdings Pty Limited(3)	Australia	100	100
Prime Infrastructure Europe Holdings (Malta I) Limited	Malta	100	100
Prime Infrastructure Europe Holdings (Malta II) Limited	Malta	100	100
Prime AET&D Holdings No.1 Pty Limited	Australia	100	100
Prime AET&D Holdings No.2 Pty Limited	Australia	100	100

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

32. SUBSIDIARIES (CONTINUED)

		Ownership interest
Name of entity	Country of incorporation	Dec 2010 %	June 2010 %
Prime AET&D Holdings No.3 Pty Limited	Australia	100	100
Prime AET&D Holdings No.4 Pty Limited	Australia	100	100
Prime WestNet Holdings Pty Limited(2)	Australia	100	100
WestNet WA Infrastructure Holdings Pty Limited (formerly WestNet WA Infrastructure Holdings Limited)(2)	Australia	100	100
WestNet Infrastructure Group Pty Limited (formerly WestNet Infrastructure Group Limited)(2)	Australia	100	100
Tasmanian Gas Pipeline Pty Limited(2)	Australia	100	100
WestNet Energy Pty Limited(2)	Australia	100	100
WNG Finance Pty Limited(2)	Australia	100	100
Alinta DBNGP Pty Limited(2)	Australia	100	100
WA Network Holdings Pty Limited(2)	Australia	74.1	74.1
WA Gas Networks Pty Limited(2)	Australia	74.1	74.1
ANetworks Pty Limited(2)	Australia	100	100
WestNet Energy Services Pty Limited(2)	Australia	100	100
WestNet Energy AET&D Holdings No.1 Pty Limited(2)	Australia	100	100
WestNet Energy AET&D Holdings No.2 Pty Limited(2)	Australia	100	100
Brookfield Infrastructure Showgrounds Holdings Pty Limited(3),(5)	Australia	100	—
Brookfield Infrastructure Showgrounds Investments Pty Limited(3),(5)	Australia	100	—
Brookfield Infrastructure Showgrounds Pty Limited(3),(5)	Australia	100	—
Brookfield Infrastructure Long Bay Holdings Pty Limited(3),(5)	Australia	100	—
Brookfield Infrastructure Long Bay Investments Pty Limited(3),(5)	Australia	100	—
Brookfield Infrastructure Long Bay Pty Limited(3),(5)	Australia	100	—

(1) This entity was established during the current financial period.

(2) As part of the recapitalisation of Prime Infrastructure that was completed on 20 November 2009, the AET&D group and Cross Sound Cable were classified as held for sale.

(3) These companies are members of the Prime Infrastructure Holdings Limited tax-consolidated group. Prime Infrastructure Holdings Limited is the head entity in the tax-consolidated group.

(4) As part of the recapitalisation of Prime Infrastructure that was completed on 20 November 2009, Prime Infrastructure no longer controls DBCT and accounts for its 50.1% economic interest as an equity accounted investment.

(5) These entities were acquired on 16 December 2010 from a related entity. Refer note 35 for further information.

(6) This trust was dissolved during the current financial period.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

33. DISCONTINUED OPERATIONS

HELD FOR SALE ASSETS: AUSTRALIAN ENERGY TRANSMISSION & DISTRIBUTION GROUP AND CROSS SOUND CABLE

As part of the recapitalisation of Prime Infrastructure which was completed on 20 November 2009, Prime Infrastructure announced that it would classify its interests in AET&D and Cross Sound Cable as held for sale. Prime Infrastructure and Brookfield Asset Management are using reasonable endeavours to affect a sale of the assets as soon as practicable. Prime Infrastructure has issued an option to the former BEPPA holders to receive any proceeds in relation to the disposal of the AET&D assets, whilst a twelve month option (with an option in favour of Brookfield for a further two periods of twelve months of which the first extension option has been exercised) has been issued to Brookfield to acquire Cross Sound Cable.

Prime Infrastructure has written down its investment in AET&D to nil value and this has resulted in an impairment of $40.3 million (30 June 2010: $662.6 million) being recognised in the current financial period. This has been disclosed within discontinued operations.

COMPARATIVE PERIODS:

In the prior comparative period the following investments were also included within discontinued operations:

EUROPORTS GROUP

On 28 July 2009, Prime Infrastructure announced that it had agreed revised terms to the Share Subscription Agreement pursuant to which a consortium of investors consisting of Antin Infrastructure Partners (Antin IP) and Arcus European Infrastructure Fund I (Arcus) agreed to invest in Euroports Holdings S.á.r.l (Euroports).

The agreed price under the Amended Share Subscription Agreement for the 40% interest was €141.5 million ($243.3 million). The agreed price included equity contribution, interest-bearing loans and non-share equity interests (debt). Furthermore, included within the 33.89% interest acquired to date is a convertible bond held by Antin IP (€8.05m), which if converted, would result in additional equity of 5.97% being issued. The bond was subsequently converted in the current financial period.

The amended Share Subscription Agreement includes a share equalisation process in years 2012 and 2013 based on the performance of Euroports through that time. Depending on Euroports performance, the aggregate equity owned by Antin IP and Arcus will be adjusted from the potential up-front 40% (including conversion of the convertible bond) holdings to an amended holding of between 34% and 65% (to be held between Antin IP and Arcus on the same proportional basis as the up-front holding assuming Antin IP converts its convertible bond into equity).

The net proceeds received from the share subscription agreement were used to repay $60.2 million of financial liabilities (€35.0m). A loss of $82.6 million was recognised on this disposal. An impairment of $111.1 million was recognised in the year ended 30 June 2010 on the anticipated outcome in respect of the Share Equalisation Adjustment mechanism.

DALRYMPLE BAY COAL TERMINAL

As part of the recapitalisation of Prime Infrastructure which was completed on 20 November 2009, Prime Infrastructure Trust issued Convertible Notes to Brookfield Infrastructure Australia Trust for $295.4 million and entered into a number of agreements which conferred a 49.9% economic interest in DBCT to Brookfield Infrastructure Australia Trust.

Under the Convertible Note arrangements entered into with Brookfield Infrastructure Australia Trust, Prime Infrastructure remained responsible for the outcome of the subsequently settled tax dispute with the ATO regarding payments made at DBCT.

In accordance with Accounting Standards, Prime Infrastructure is deemed to have joint control of Dalrymple Bay Coal Terminal, and therefore equity accounts its investment from the date at which control was lost (20 November 2009). The transaction resulted in a gain of $20.5 million being recognised which is included within discontinued operations.

PD PORTS

As part of the recapitalisation of Prime Infrastructure which was completed on 20 November 2009, Brookfield acquired 100% of Prime Infrastructure’s interests in PD Ports for nominal proceeds. As part of this transaction, Brookfield repaid the £100.0 million ($181.0 million) in term and acquisition facilities within PD Ports and the termination costs of associated swaps. This transaction resulted in Prime Infrastructure recognising a loss of $247.2 million in the financial year ended 30 June 2010 which is included within discontinued operations.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

33. DISCONTINUED OPERATIONS (CONTINUED)

	Consolidated
	Dec 2010 (6 months) $’000		June 2010 (12 months) $’000
Profit from discontinued operations:
Revenue	109,240		544,927
Other income	17,146		15,651
Total income	126,386		560,578
Share of profits from associates and jointly controlled entities accounted for using the equity method	10,878		10,388
Employee benefit expense	(18,693	)	(79,444	)
Transmission and direct costs	(5,887	)	(152,292	)
Depreciation, amortisation and impairment expense	(40,285	)	(713,297	)
Finance costs	(57,129	)	(168,950	)
Net hedge gain/(loss)	9,411		(58,238	)
Operating and management charges	(23,650	)	(64,743	)
Other expenses	(13	)	(235	)
Total expense	(125,368	)	(1,226,811	)
Profit/(loss) before income tax expense	1,018		(666,233	)
Attributable income tax expense (note 7)	(7,325	)	(5,446	)
Loss after income tax	(6,307	)	(671,679	)
Loss on disposal of business/discontinued operations (note 37(b))	—		(329,831	)
Profit on disposal of business (note 37(b))	—		20,618
Loss from discontinued operations	(6,307	)	(980,892	)
Cash flows from discontinued operations:
Net cash flows from operating activities	27,441		81,785
Net cash flows from investing activities	(18,537	)	(203,612	)
Net cash flows from financing activities	79		23,941
Net cash flows	8,983		(97,886	)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

33. DISCONTINUED OPERATIONS (CONTINUED)

The major classes of assets and liabilities comprising the businesses classified as held for sale are AET&D and Cross Sound Cable are as follows:

	Consolidated
	Dec 2010 $’000		June 2010 $’000
CURRENT ASSETS
Cash and cash equivalents (note 37(a))	64,191		96,100
Trade and other receivables	32,324		38,663
Other financial assets	3,251		4,960
Inventories	1,059		1,040
Current tax receivables	6,378		12,061
Other current assets	5,303		5,867
Total	112,506		158,691
NON-CURRENT ASSETS
Debt service reserve deposit	315		1,028
Investments accounted for using the equity method (note 13)	279,527		260,000
Property, plant and equipment (note 14)	1,267,981		1,314,181
Other intangible assets (note 17)	110,569		119,009
Deferred tax assets	33,209		39,001
Other non-current assets	21,805		21,208
Total	1,713,406		1,754,427
Total assets classified as held for sale	1,825,912		1,913,118
CURRENT LIABILITIES
Trade and other payables	(25,617	)	(70,788	)
Borrowings	(1,091,933	)	(745,656	)
Other financial liabilities	(35,582	)	(55,698	)
Provisions	(11,851	)	(14,860	)
Other current liabilities	(2,966	)	(928	)
Total	(1,167,949	)	(887,930	)
NON-CURRENT LIABILITIES
Trade and other payables	(2,506	)	(2,813	)
Borrowings	(327,975	)	(703,879	)
Other financial liabilities	(14,661	)	(22,751	)
Deferred tax liability	(281,232	)	(280,958	)
Provisions	(50,810	)	(52,410	)
Other non-current liabilities	(7,279	)	(7,389	)
Total	(684,463	)	(1,070,200	)
Total liabilities associated with assets held for sale	(1,852,412	)	(1,958,130	)
Net liabilities classified as held for sale	(26,500	)	(45,012	)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

34. KEY MANAGEMENT PERSONNEL REMUNERATION

(a) KEY MANAGEMENT PERSONNEL (KMP) REMUNERATION (EXCLUDING DIRECTORS)

The aggregate compensation of the KMP (excluding Directors) of the Group is set out below:

	Consolidated
	Dec 2010 (6 months) $	June 2010 (12 months) $
Short-term employment benefits	2,207,000	5,987,349
Post-employment benefits	37,988	72,305
Share-based payments	372,855	474,733
	2,617,843	6,534,387

Certain KMP (excluding Independent Directors) were not paid directly by the Group during the previous financial year. These KMP were remunerated by the Babcock & Brown Infrastructure Management Pty Limited (the Manager) up to 31 October 2009. Upon separation from Babcock & Brown, all KMP were employed directly by Prime Infrastructure.

(b) REMUNERATION OF DIRECTORS

The aggregate compensation to the Directors of the Group is set out below:

	Consolidated
	Dec 2010 (6 months) $	June 2010 (12 months) $
Short-term employment benefits	267,586	532,113
Post-employment benefits	10,692	44,021
Share-based payments	—	—
	278,278	576,134

(c) REMUNERATION OF KMP AND DIRECTORS

The aggregate compensation to the KMP and Directors of the Group is set out below:

	Consolidated
	Dec 2010 (6 months) $	June 2010 (12 months) $
Short-term employment benefits	2,474,586	6,519,462
Post-employment benefits	48,680	116,326
Share-based payments	372,855	474,733
	2,896,121	7,110,521

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

35. RELATED PARTY DISCLOSURES

(a) EQUITY INTERESTS IN RELATED PARTIES

Equity interests in subsidiaries

Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 32 to the Financial Statements.

Equity interests in associates and joint ventures

In the current financial period Prime Infrastructure acquired 100% of the equity in Brookfield Infrastructure Long Bay Holdings Pty Limited which in turn has a 50% equity interest in the Long Bay Public Private Partnership and 100% of the equity in Brookfield Infrastructure Showgrounds Holdings Pty Limited which has a 50% equity interest in the Melbourne Showgrounds Public Private Partnership. In the prior financial year, Prime Infrastructure sold 33.89% of its investment in Euroports (and a further 6.11% in the current financial period) and entered into arrangements regarding a 49.9% economic interest in Dalrymple Bay Coal Terminal. Further information in relation to equity interests in associates and joint ventures is disclosed in note 13 to the Financial Statements.

(b) TRANSACTIONS WITH OTHER RELATED PARTIES

Other related parties include:

· the parent entity

· entities with significant influence over Prime Infrastructure

· associates

· joint ventures in which the entity is a venturer

· subsidiaries

· other related parties.

Amounts receivable from and payable to related parties are disclosed in notes 8, 9, and 18 to the Financial Statements. All loans advanced to and payable to related parties are unsecured. Interest is charged on certain loans at a variable rate based on the BBSW plus a margin. During the current year, Prime Infrastructure Holdings Limited (the Company) received interest of $66,815,647 (June 2010: $132,588,611) from its intercompany loans with its wholly owned subsidiaries.

An impairment charge on loans to an associate of $21,507,251 million has been recognised in the current financial period (June 2010: $95,657,953).

Transactions and balances between the Company and its subsidiaries were eliminated in full in the preparation of consolidated Financial Statements of the Group.

Transactions involving the parent entity:

As at 31 December 2010, Prime Infrastructure Holdings Limited has recognised a net payable of $201,544,011 (June 2010: $179,395,689) from the members of the tax-consolidated group for the transfer of current and prior year tax losses.

Transactions involving other related parties:

In the prior financial year, Prime Infrastructure cancelled the management agreement with its former external manager, Babcock & Brown Infrastructure Management Pty Limited (a subsidiary of Babcock & Brown). As a result, Babcock & Brown Limited and its subsidiaries were no longer considered to be a related party from 20 November 2009.

As part of the separation from Babcock & Brown, Prime Infrastructure Trust paid a fee of $5.28 million for a subsidiary of Babcock & Brown to remain as the Trustee of the Trust for a period of up to 31 August 2012. This arrangement was subsequently cancelled on 19 November 2010.

During the prior year, the following amounts were paid/payable to Babcock & Brown Limited (or a related entity of Babcock & Brown). All amounts were based on commercial terms.

	Dec 2010 (6 months) $	June 2010 (12 months) $
Paid/payable by the Prime Infrastructure Group:
Base fee including present value of fee for providing services to the Responsible Entity to Prime Infrastructure Trust	—	5,777,340
Management service fee	—	4,146,215
Reimbursement of operating costs	—	3,879,828
Purchase of assets	—	92,500

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

35. RELATED PARTY DISCLOSURES (CONTINUED)

(b) TRANSACTIONS WITH OTHER RELATED PARTIES (CONTINUED)

Transactions involving other related parties (continued):

During the period, the following transactions were made with associates. All amounts were based on commercial terms.

	Dec 2010 $	June 2010 $
Received/receivable from associates:
Interest received from associates(1)	46,477,579	90,125,600
Unwinding of unrealised discount on loans to associates	335,357	657,055
Dividends received from associates	2,912,106	26,482,612
Return of capital from associates(2)	—	10,703,440
Revenue recognised in relation to contractual capital projects	7,669,618	31,207,589
Service fees charged to associate entities(3)	810,924	1,568,011
Fees received for services provided to subsidiary of associate	—	40,193
Paid/payable to associates:
Interest paid to associates	532,806	—
Received/receivable from Brookfield related entities:
Reimbursement of costs in relation to Scheme implementation	8,100,000	—
Fees received in relation to employee secondment	154,828	123,862
Paid/payable to Brookfield related entities:
Transaction facilitation fee(4)	—	18,500,000
Commitment fees (6)	620,316	—
Asset management service fees paid (5)	3,957,868	4,248,948
Director fees paid to Brookfield	209,750	257,526
Computer support fees	33,006	—
Reimbursement of operating costs	63,284	1,575

(1) Interest received from associates represents interest Prime Infrastructure received on its loans to DBCT Management, Myria Holdings Inc, Euroports S.á.r.l and Powerco New Zealand Holdings Limited.

(2) During the prior year, Prime Infrastructure received funds from Myria Holdings Inc. in the form of a return of capital.

(3) Prime Infrastructure continues to provide certain management services to Dalrymple Bay Coal Terminal based on an arms length basis.

(4) In the prior year, Prime Infrastructure agreed to pay Brookfield a transaction facilitation fee inclusive of out of pocket expenses and other costs up to a maximum of $18,500,000 on the successful recapitalisation.

(5) Brookfield provides certain asset management services to the AET&D businesses and Cross Sound Cable. These services include providing strategic advice, overseeing the sales process, supervising operations, making recommendations regarding financing, prepare operational plans.

The asset management agreements have a term of 3 years, but will terminate early should the associated sale options expire and may be extended by the mutual agreement of Prime Infrastructure and Brookfield.

In relation to AET&D, Brookfield is entitled to a fee of $5.0 million per annum asset management fee, payable quarterly in advance and a transaction fee payable at the time of sale of any part of the AET&D business to a third party, equal to 1% of the enterprise value of that part of the business, payable out of the proceeds of any such sale. In relation to Cross Sound Cable, Brookfield is entitled to a base asset management fee equal to the distributable cash generated by the Cross Sound Cable operations during the applicable month and the transaction fee will be equal to 1% of the aggregate enterprise value of Cross Sound Cable based on its sale price.

(6) During the current period, Prime Infrastructure replaced its Corporate facility with external lenders with a similar facility with an affiliate of Brookfield Infrastructure Partners — a related entity. The new facility was on the same terms and conditions as that with the external lenders. A commitment fee of 0.875% is payable on any undrawn amounts.

In the current financial period Prime Infrastructure acquired a 50% equity interest in the Long Bay Public Private Partnership and 50% in the Melbourne Showgrounds Public Private Partnership. These investments were acquired from BIP Bermuda Holdings IV Limited, the immediate parent entity of Prime Infrastructure. The acquisition price of $8,964,615 was paid in Prime Infrastructure Stapled Securities.

(c) PARENT ENTITY

The parent entity in the Group is Prime Infrastructure Holdings Limited. The immediate parent entity is BIP Bermuda Holdings IV Limited and the ultimate parent is Brookfield Infrastructure Partners L.P (NYSE: BIP, TSX: BIP.UN) which is listed on the New York and Toronto Stock Exchanges.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

36. SUBSEQUENT EVENTS

Refinance of DBCT borrowings:

On 17 February 2011, DBCT Finance Pty Limited, in which Prime Infrastructure group has a 50.1% economic interest, priced US$600.0 million of Guaranteed Senior Secured Notes in the form of a Private Placement (USPP) pursuant to Section 4(2) of the U.S. Securities Act of 1933. The Notes will be issued in two US$300.0 million tranches. The first is a 12 year tranche with $298.9 million received on 15 March 2011 and with a bullet maturity on 15 March 2023. The second is a 9 year tranche with $299.0 million which will be received on 28 April 2011 and with a bullet maturity on 28 April 2020.

The proceeds from this USPP issue will be used to repay $287.0 million of current borrowings, pay costs and expenses of the issue, top up the Debt Service Reserve, and repay the $295.0 million of borrowings due to mature in December 2011.

Cross currency swaps have been executed with clean swap lines obtained for both the 9 and 12 year tranches. Fixed to floating swaps have also been executed to ensure DBCT Finance Pty Limited’s current hedging strategy of aligning its debt to the regulatory period is maintained, thereby utilising the natural hedge afforded by the regulatory regime.

On 20 January 2011, DBCT Finance Pty Limited executed documentation for an $80.0 million three year NECap bank facility. On 24 January 2011, an amount of $21.0 million was drawn on this facility with the proceeds used to repay in full the drawn down balance of the existing $40.0 million NECap bank facility (drawn to $21.0 million at 31 December 2010). The $40 million NECap bank facility was subsequently cancelled.

Transfer of Senior Notes receivable from Myria Holdings Inc.:

On 16 February 2011, Prime NGPL Trust, a wholly-owned subsidiary within the Prime Infrastructure group, transferred its Senior Notes receivable from Myria Holdings Inc. ultimately through to Brookfield Infrastructure L.P (BILP). The consideration for the Senior Notes from Myria Holdings Inc. was the receipt of a Subordinated Promissory Note granted by BILP under which BILP undertakes to pay the bearer the aggregate amount of US$451.6 million.

As part of this transaction the Trusts ultimately paid a distribution out of retained earnings of $15.7 million and a return of capital of $415.9 million to BIP Bermuda Holdings IV Limited.

37. NOTES TO THE STATEMENT OF CASH FLOWS

(a) RECONCILIATION OF CASH AND CASH EQUIVALENTS

For the purposes of the Statement of Cash Flows, cash and cash equivalents includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial period as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position as follows:

	Dec 2010 $’000	June 2010 $’000
Cash and cash equivalents	42,596	430,752
Cash included as held for sale (note 33)	64,191	96,100
	106,787	526,852

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

37. NOTES TO THE STATEMENT OF CASH FLOWS (CONTINUED)

(b) BUSINESSES DISPOSED

	Consolidated
	Dec 2010 $’000	June 2010 $’000
CONSIDERATION
Cash and cash equivalents	—	295,400
	—	295,400
Net assets disposed	—	(729,096	)
Transfer of reserves	—	79,319
Minority interests	—	45,164
Loss on disposal (note 33)	—	(309,213	)
Net Cash inflow on disposal of subsidiary:
Consideration received in cash and cash equivalents	—	295,400
Less cash and cash equivalents disposed of	—	(166,029	)
	—	129,371

(c) NON-CASH FINANCING AND INVESTING ACTIVITIES

During the prior financial year 778,656,840 BEPPA with a face value of $1.00 each were converted into 841,790,304 Prime Infrastructure Stapled Securities. In addition, 36,660 SPARCS with a face value of NZ$1.00 each were converted into 789 Prime Infrastructure Stapled Securities.

(d) FINANCING FACILITIES

	Dec 2010 $’000	June 2010 $’000
FINANCING FACILITIES AVAILABLE TO THE GROUP
Bank loans and commercial paper/standby facility:
- amount used	971,983	1,304,293
- amount unused	448,405	395,957
	1,420,388	1,700,250

The financing facilities available to the Group disclosed above only relate to the consolidated and continuing entities of the Group.

(e) CASH BALANCES NOT AVAILABLE FOR USE

As disclosed in note 12 to the Financial Statements, the restricted cash can only be used as a reserve for servicing the debt under certain financing arrangements. These restricted cash balances have not been included in the year end cash balances for the purposes of the Statement of Cash Flows.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

37. NOTES TO THE STATEMENT OF CASH FLOWS (CONTINUED)

(f) RECONCILIATION OF LOSS FOR THE PERIOD TO NET CASH FLOWS FROM OPERATING ACTIVITIES

	Consolidated
	Dec 2010 (6 months) $’000		June 2010 (12 months) $’000
Loss for the period	(79,470	)	(948,597	)
Loss on sale or disposal of non-current assets	55		1,962
(Gain)/loss on disposal of businesses/investments	(11,483	)	309,214
Movement in fair value through profit or loss on derivatives	25,255		(19,303	)
Share of jointly controlled venture entities’ loss after tax	2,451		174,667
Depreciation, amortisation and impairment of non-current assets	106,401		936,846
Amortisation of capitalised borrowing costs	12,391		17,639
Foreign exchange loss	95,497		67,750
Unwinding of unrealised discount on intercompany payables	(355	)	(123	)
Gain on conversion of BEPPA to Prime Infrastructure Staples Securities	—		(392,519	)
Other adjustments	(5,334	)	(51,619	)
Movement in tax balances	(28,050	)	2,723
CHANGES IN NET ASSETS AND LIABILITIES, NET OF EFFECTS FROM ACQUISITION AND DISPOSAL OF BUSINESSES
(Increase)/decrease in assets:
Current receivables	(2,325	)	(20,854	)
Current inventories	698		1,708
Other	(8,884	)	(1,012	)
Increase/(decrease) in liabilities:
Current payables	(21,803	)	(34,132	)
Current provisions	(5,222	)	(1,198	)
Other liabilities and deferred income	14,870		(83,658	)
Net cash provided by/(used in) operating activities	94,692		(40,506	)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

38. FINANCIAL INSTRUMENTS

(a) FINANCIAL RISK MANAGEMENT

The operations of Prime Infrastructure expose it to a number of financial risks, including:

· capital risk

· liquidity risk

· interest rate risk

· foreign currency risk; and

· credit risk.

The Board of Prime Infrastructure recognise that risk management is an integral part of good management practice. Risk management is integrated into Prime Infrastructure’s philosophy, practices, business plans and forecasts with a culture of compliance being promoted within the Group.

As a result of the merger between Prime Infrastructure and Brookfield Infrastructure that was completed on 8 December 2010, the internal treasury functions of the two entities have been combined. This has led to increased experience, knowledge and capability within the Group. The treasury functions also provide services and advice to the corporate head office and also to Prime Infrastructure’s subsidiaries across a broad range of treasury activities that assist with the management of the financial risks relating to the operations of the Group.

The treasury function is governed by a Treasury Policy as approved by the Board. The Treasury Management Committee is a committee appointed by the Board made up of key members of Prime Infrastructure and Brookfield Infrastructure’s management team who perform a monitoring, review and approval role, and report to the Board on a regular basis.

The Group seeks to minimise the risks associated with foreign currency exchange rates and interest rates primarily through the use of derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by Prime Infrastructure’s Treasury Policy. This policy provides written principles on the use of financial derivatives. Prime Infrastructure does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

There has been no material change to the Group’s exposure to market risks or the manner in which it manages and measures the risk.

(b) CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from June 2010.

The capital structure of the Group consists of debt, which includes the borrowings disclosed in note 19, offset by cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital and accumulated losses as disclosed in notes 25 and 27 respectively.

The Group operates globally, through subsidiary companies and associates established in the markets in which the Group trades.

Operating cash flows are used to maintain the assets, as well as to make the routine outflows of tax, distributions and meet interest requirements. The Group manages its debt exposure by ensuring a diversity of funding sources as well as spreading the maturity profile to minimise refinance risk. This includes borrowing in the currency where the asset operates where possible, which acts as a natural hedge.

The Board, along with senior management reviews the capital structure and as part of this review considers the cost of capital and the risk associated with each class of capital. The Group manages its overall capital structure through the payment of distributions, the issue of new securities, the issue of new debt or the redemption of existing debt.

Subsequent to the recapitalisation transaction undertaken in 2009, the Group has recommenced paying distributions. Refer to
note 28 for further information.

Loan covenants

As disclosed within borrowings (note 19), Prime Infrastructure has various loan facilities in place. Most of these facilities have applicable loan covenants attached to these. These are generally in the form of interest cover ratios and gearing ratios.

Prime Infrastructure does not have any market capitalisation covenants attached to any of its borrowings.

During the period ended 31 December 2010 and the year ended 30 June 2010; there were no breaches of any loan covenants within the Group.

(c) LIQUIDITY RISK MANAGEMENT

The main objective of liquidity risk management is to ensure that Prime Infrastructure has sufficient funds available to meet its financial obligations, working capital and potential investment expenditure requirements in a timely manner. It is also associated with planning for unforeseen events which may curtail operating cash flows and cause pressure on the Group’s liquidity.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

38. FINANCIAL INSTRUMENTS (CONTINUED)

(c) LIQUIDITY RISK MANAGEMENT (CONTINUED)

Prime Infrastructure manages liquidity risk by maintaining adequate cash reserves and committed credit lines in addition to continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Refer to note 37(d) for undrawn facilities that are available to the group as at the reporting date to further reduce liquidity risk.

Liquidity and interest risk tables

The following table details the Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

Consolidated — Dec 2010	Weighted average effective interest rate %	Less than 6 months $’000		6-12 months $’000	1-2 years $’000	2-5 years $’000	5+ years $’000	Total contractual cash flows $’000		Carrying amount liabilities $’000
Non-derivative financial liabilities:
Trade and other payables	—	125,611		—	2,628	12,248	—	140,487		140,487
Interest-bearing liabilities	5.04	14,432		7,503	435,800	482,335	52,016	992,086		971,983
Other financial liabilities	10.10	47		1,403	—	—	—	1,450		1,380
		140,090		8,906	438,428	494,583	52,016	1,134,023		1,113,850
Derivative (assets)/liabilities:
Net settled interest rate swaps	—	10,052		9,353	14,719	42,494	4,944	81,562		78,235
Net settled foreign currency exchange forward contracts	—	(23	)	—	—	—	—	(23	)	(23	)
		10,029		9,353	14,719	42,494	4,944	81,539		78,212

Consolidated — June 2010	Weighted average effective interest rate %	Less than 6 months $’000	6-12 months $’000	1-2 years $’000		2-5 years $’000	5+ years $’000	Total contractual cash flows $’000	Carrying amount liabilities $’000
Non-derivative financial liabilities:
Trade and other payables	—	160,095	—	—		16,223	—	176,318	176,318
Interest-bearing liabilities	4.32	25,884	643,956	24,258		165,626	408,054	1,267,778	1,209,451
Other financial liabilities	10.00	100,398	—	—		—	—	100,398	96,689
		286,377	643,956	24,258		181,849	408,054	1,544,494	1,482,458
Derivative (assets)/liabilities:
Net settled interest rate swaps	—	10,290	10,090	17,547		29,630	11,753	79,310	107,165
Net settled foreign currency exchange forward contracts	—	1,425	664	(1,315	)	374	—	1,148	(2,816	)
		11,715	10,754	16,232		30,004	11,753	80,458	104,349

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

38. FINANCIAL INSTRUMENTS (CONTINUED)

(d) INTEREST RATE RISK MANAGEMENT

Prime Infrastructure’s primary objectives of interest rate risk management are to ensure that:

· the Group is not exposed to interest rate movements that could adversely impact on its ability to meet financial obligations;

· earnings and distributions are not adversely affected;

· volatility of debt servicing costs is managed within acceptable parameters; and

· all borrowing covenants under the terms of the various borrowing facilities, including interest cover ratios, are complied with.

Having regard to the above constraints and target, Prime Infrastructure’s objective in managing interest rate risk is to minimise interest expense whilst ensuring that an appropriate level of flexibility exists to accommodate potential changes in funding requirements, ownership of assets and also movements in market interest rates.

To achieve this, in general terms, Prime Infrastructure’s funding mix comprises both fixed and floating rate debt. Fixed rate debt is achieved either through fixed rate debt funding or through the use of financial derivate instruments. In addition, where possible, interest rate risk is minimised by matching the terms of the interest rate swap contracts hedging the borrowings which fund the underlying investments to the regulatory regime for those investments, thus providing natural hedges.

The Group’s exposure to interest rates on financial liabilities is detailed in the liquidity risk management section of this note.

Interest rate sensitivity analysis

The sensitivity analysis below have been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the reporting date and the stipulated change taking place at the beginning of the financial period and held constant throughout the reporting period. A 50 basis point increase or decrease is used when reporting interest rate risk internally to KMP and represents management’s assessment of the potential change in interest rates. A parallel shift in the yield curves by 50 basis points higher or lower at reporting date would have the following impact assuming all other variables were held constant:

	Dec 2010				June 2010
Consolidated	50 bp increase $’000		50 bp decrease $’000		50 bp increase $’000	50 bp decrease(1) $’000
Net profit/(loss)	—		—		—	—
Other equity	(27,380	)	(69,716	)	21,159	(22,919	)

(1) In the prior financial period, US Dollar, Euro and Great British pound are based on a 25 point basis downward shift to ensure the rates do not go below zero.

Interest rate swap contracts

Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt held and the cash flow exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the applicable benchmark curve at reporting date, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the financial period.

The following tables detail the notional principal amounts and remaining terms of interest rate swap contracts of the Group outstanding as at reporting date:

	Average contracted fixed interest rate		Notional principal amount		Fair value
Outstanding floating for fixed contracts	Dec 2010 %	June 2010 %	Dec 2010 $’000	June 2010 $’000	Dec 2010 $’000		June 2010 $’000
Less than 1 year	—	6.61	—	100,000	—		(29	)
1 to 2 years	5.12	—	20,000	—	60		—
2 to 5 years	5.67	6.23	380,000	150,000	(1,416	)	(5,284	)
5 years plus	5.46	5.40	428,967	402,726	(46,806	)	(67,175	)
			828,967	652,726	(48,162	)	(72,488	)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

38. FINANCIAL INSTRUMENTS (CONTINUED)

(d) INTEREST RATE RISK MANAGEMENT (CONTINUED)

Interest rate swap contracts (continued)

Interest rate swap contracts exchanging floating rate interest amount for fixed rate interest amounts are designated as cash flow hedges where possible in order to reduce the Group’s cash flow exposure resulting from variable interest rates on borrowings. The settlement dates coincide with the dates on which the interest is payable on the underlying debt where possible, and the amount accumulated in equity is reclassified to profit or loss over the period that the floating rate interest payments on debt affect profit or loss.

Certain interest rate contracts do not qualify for hedge accounting and are not able to be treated as cashflow hedges.

Inflation Swap Contracts

A subsidiary of Prime Infrastructure has entered into a number of inflation swaps. The purpose of these derivatives is to hedge the proportion of the pre-finance cash flows deemed to be index linked. These derivatives do not qualify for hedge accounting and are not able to be treated as cashflow hedges.

	Average contracted inflation rate indexation		Notional principal amount		Fair value
Inflation swap contracts	Dec 2010 %	June 2010 %	Dec 2010 $’000	June 2010 $’000	Dec 2010 $’000		June 2010 $’000
Less than 1 year	—	—	—	—	—		—
1 to 2 years	—	—	—	—	—		—
2 to 5 years	3.32	3.32	110,478	128,397	(30,072	)	(34,695	)
5 years plus	—	—	—	—	—		—
			110,478	128,297	(30,072	)	(34,695	)

(e) FOREIGN CURRENCY RISK MANAGEMENT

Prime Infrastructure has exposure to foreign currency risk in respect of currency transactions, the value of the Group’s assets and cash flows, capital expenditure and other expenses. Prime Infrastructure’s approach to foreign currency risk management is:

· to hedge to reduce uncertainty by establishing appropriate outcomes in domestic currency reporting terms of significant transactional exposures; and

· to manage translation risk at the Group level by having debt denominated in the currency of the related asset where possible.

Prime Infrastructure has investments in businesses in a number of international locations and is therefore exposed to foreign currency risk on the distributable cash flows from those businesses. The risk is that the distributable cash flows, which are denominated in the underlying currency of the investments, will lose value relative to the Australian dollar, resulting in less Australian dollars available to pay distributions to Securityholders. This risk is managed through entering forward exchange contracts to convert expected distributions to Australian dollars.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

38. FINANCIAL INSTRUMENTS (CONTINUED)

(e) FOREIGN CURRENCY RISK MANAGEMENT (CONTINUED)

The tables below set out the Group’s currency exposure at 31 December 2010 and 30 June 2010:

Consolidated — December 2010	Australian dollar A$’000	British pound A’$000	Euro A$’000	NZ dollar A$’000	US dollar A$’000	Total A$’000
Current financial assets:
Cash and cash equivalents	28,686	10,032	83	91	3,704	42,596
Trade and other receivables	23,047	17,796	540	7,796	5,533	54,712
Other financial assets	34,829	23	—	—	—	34,852
	86,562	27,851	623	7,887	9,237	132,160
Non-current financial assets:
Debt service reserve deposit	7,346	19,015	—	—	—	26,361
Trade and other receivables	—	4,017	—	—	—	4,017
Other financial assets	79,699	—	46,930	197,856	432,305	756,790
	87,045	23,032	46,930	197,856	432,305	787,168
Current financial liabilities:
Trade and other payables	70,519	51,509	2,382	1,201	—	125,611
Borrowings	—	11,884	—	—	—	11,884
Other financial liabilities	1,380	—	—	—	—	1,380
	71,899	63,393	2,382	1,201	—	138,875
Non-current financial liabilities:
Trade and other payables	—	—	14,876	—	—	14,876
Borrowings	443,588	387,785	—	109,249	—	940,622
Other financial liabilities	5,228	76,421	—	—	—	81,649
	448,816	464,206	14,876	109,249	—	1,037,147

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

38. FINANCIAL INSTRUMENTS (CONTINUED)

(e) FOREIGN CURRENCY RISK MANAGEMENT (CONTINUED)

Consolidated — June 2010	Australian dollar A$’000	British pound A’$000	Euro A$’000	NZ dollar A$’000	US dollar A$’000	Total A$’000
Current financial assets:
Cash and cash equivalents	403,332	27,369	2	22	27	430,752
Trade and other receivables	36,807	19,168	—	4,052	22,103	82,130
Other financial assets	67,030	—	—	—	—	67,030
	507,169	46,537	2	4,074	22,130	579,912
Non-current financial assets:
Debt service reserve deposit	7,199	22,654	—	—	—	29,853
Trade and other receivables	—	4,917	—	—	—	4,917
Other financial assets	76,084	—	105,457	200,750	516,250	898,541
	83,283	27,571	105,457	200,750	516,250	933,311
Current financial liabilities:
Trade and other payables	100,114	57,873	—	2,108	—	160,095
Borrowings	617,647	7,314	—	96,689	—	721,650
Other financial liabilities	4,859	—	—	—	—	4,859
	722,620	65,187	—	98,797	—	886,604
Non-current financial liabilities:
Trade and other payables	16,223	—	—	—	—	16,223
Borrowings	—	451,255	—	116,200	—	567,455
Other financial liabilities	14,972	96,192	40,837	—	—	152,001
	31,195	547,447	40,837	116,200	—	735,679

The following tables detail the Group’s sensitivity to a 10% increase and decrease in the Australian dollar against the relevant foreign currencies, with all other variables held constant as at reporting date. 10% is the sensitivity rate used when reporting foreign currency risk internally and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis is performed as follows:

· outstanding foreign currency denominated monetary items (excluding foreign exchange derivative contracts) are adjusted at the period end for a 10% change in foreign currency rates at which they are translated; and

· foreign currency derivative contracts are measured as the change in fair value of the derivative as a result of a 10% change in the spot currency rate.

	Impact on income statement +/- 10%			Impact on equity +/- 10%
Consolidated — Dec 2010	+ 10% $’000		- 10% $’000	+ 10% $’000		- 10% $’000
AUD/GBP	—		—	(2,207	)	2,698
AUD/EUR	(4,266	)	5,214	(2,937	)	3,590
AUD/USD	(39,300	)	48,034	(23,179	)	28,330
AUD/NZD	(17,987	)	21,984	(2,604	)	3,183

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

38. FINANCIAL INSTRUMENTS (CONTINUED)

(e) FOREIGN CURRENCY RISK MANAGEMENT (CONTINUED)

	Impact on income statement +/- 10%				Impact on equity +/- 10%
Consolidated — June 2010	+ 10% $’000		- 10% $’000		+ 10% $’000		- 10% $’000
AUD/GBP	1,025		(1,261	)	(2,025	)	2,474
AUD/EUR	(5,875	)	7,180		(2,804	)	3,427
AUD/USD	(33,844	)	41,148		(20,514	)	25,073
AUD/NZD	(17,722	)	21,659		(2,787	)	3,406

Foreign forward exchange contracts

The following table details the forward foreign currency contracts outstanding at the end of the reporting period.

	Average exchange rate				Foreign currency		Contract value		Fair value
	Dec 2010		June 2010		Dec 2010 FC’000	June 2010 FC’000	Dec 2010 $’000	June 2010 $’000	Dec 2010 $’000	June 2010 $’000
SELL NZ DOLLARS
Less than 3 months	—		$	1.2911	—	2,800	—	2,169	—	116
3 to 6 months	—		$	1.2589	—	2,000	—	1,589	—	(44	)
6 to 12 months	—		$	1.2576	—	5,000	—	3,976	—	(116	)
SELL GB POUNDS
3 to 6 months	—		£	0.4244	—	3,500	—	8,247	—	1,919
6 to 12 months	—		£	0.4206	—	2,500	—	5,944	—	1,296
SELL US DOLLARS
Less than 3 months	—		$	0.8494	—	7,920	—	9,324	—	(85	)
3 to 6 months	—		$	0.8412	—	7,920	—	9,416	—	(92	)
6 to 12 months	—		$	0.8252	—	22,500	—	27,265	—	(158	)
1 year to 2 years	—		$	0.8082	—	37,790	—	46,759	—	(682	)
2 years to 3 years	—		$	0.7558	—	31,232	—	41,322	—	662
BUY GB POUNDS
Less than 3 months	$	0.9825	—		5,624	—	5,527	—	13	—
3 to 6 months	$	0.9825	—		1,055	—	1,037	—	10	—
									23	2,816

The table above provides summary quantitative data about exposure to foreign exchange risks at the end of the reporting period that Prime Infrastructure provides internally to KMP.

The Group does not adopt hedge accounting in relation to foreign currency derivatives, and accordingly, the adjustments to the fair value are recognised in profit or loss.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

38. FINANCIAL INSTRUMENTS (CONTINUED)

(f) CREDIT RISK MANAGEMENT

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to Prime Infrastructure. The Group only undertakes transactions with credit worthy customers and conducts active ongoing credit evaluation on the financial condition of customers and other trade receivables in order to minimise credit risk.

Trade receivables consist of a large number of customers, spread across two distinct asset classes (transport and energy transmission & distribution) and within those asset classes, exposure to a number of diverse industries and geographical areas.

From a treasury perspective, counterparty credit risk is managed through the establishment of authorised counterparty credit limits which ensures Prime Infrastructure only deals with credit worthy counterparties and that counterparty concentration is addressed and the risk of loss is mitigated. Credit limits are sufficiently low to restrict Prime Infrastructure from having credit exposures concentrated with a single counterparty but rather encourages spreading such risks among several parties. The limits are set at levels reflecting Prime Infrastructure’s scale of activity and also allow it to manage treasury business competitively.

Prime Infrastructure does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

(g) FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices:

· the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis; and

· the fair value of derivative instruments are calculated using quoted prices. Where such prices are not available, use is made of discounted cash flow analysis using the applicable yield curve derived from quoted interest rates for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives. The fair value of forward exchange contracts is determined using quoted forward exchange market rates and yield curves derived from quoted interest rates matching maturities of the contract.

Except as detailed in the following tables, the Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements of the Group approximates their fair values.

	Consolidated
	Dec 2010		June 2010
	Carrying amount $’000	Fair value $’000	Carrying amount $’000	Fair value $’000
Financial liabilities
PINNZ SPARCS	—	—	94,842	94,765
PINNZ secured bonds	111,685	111,127	119,516	114,066

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the financial period ended 31 December 2010

38. FINANCIAL INSTRUMENTS (CONTINUED)

(g) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Fair value hierarchy

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

· Level 3: inputs for the assets or liability that are not based on observable market data (unobservable inputs).

Consolidated — Dec 2010	Level 1 $’000	Level 2 $’000		Level 3 $’000	Total $’000
Derivative financial assets	—	3,437		—	3,437
Derivative financial liabilities	—	(81,649	)	—	(81,649	)

Consolidated — June 2010	Level 1 $,000	Level 2 $’000		Level 3 $’000	Total $’000
Derivative financial assets	—	6,794		—	6,794
Derivative financial liabilities	—	(111,143	)	—	(111,143	)

There were no transfers between levels during the period ended 31 December 2010 and year ended 30 June 2010.

39. ADDITIONAL COMPANY INFORMATION

Prime Infrastructure is a Stapled Security entity. The Company and the Trusts were incorporated in Australia and are operating in Australia, New Zealand, Europe and the United States of America.

Registered office

Principal place of business

Level 22

135 King Street

Sydney, New South Wales 2000

Telephone: (02) 9692 2800

Level 22

135 King Street

Sydney, New South Wales 2000

Telephone: (02) 9692 2800

The entity’s principal activities are the acquisition, management and operation of essential infrastructure services in two distinct asset classes: Fee for Service and Utilities with geographic coverage on a global basis within OECD countries.

ITEM 19. EXHIBITS

Number		Description
1.1		Certificate of registration of Brookfield Infrastructure Partners L.P., registered as of May 29, 2007—incorporated by reference to Exhibit 1.1 to our Partnership’s Registration Statement on Form 20-F filed July 31, 2007. (With regard to applicable cross-references in this report, our Partnership’s registration statement was filed with the SEC under File No. 1-33632).
1.2		Amended and Restated Limited Partnership Agreement of Brookfield Infrastructure Partners L.P., dated December 4, 2007—incorporated by reference to Exhibit 1.2 to our Partnership’s Registration Statement on Form 20-F/A filed December 13, 2007.
4.1		Second Amended and Restated Limited Partnership Agreement for Brookfield Infrastructure L.P., dated December 4, 2007—incorporated by reference to Exhibit 4.1 to our Partnership’s Registration Statement on Form 20-F/A filed December 18, 2007.
4.2		Master Services Agreement, dated December 4, 2007, by and among Brookfield Asset Management Inc., Brookfield Infrastructure Partners L.P., Brookfield Infrastructure L.P., Brookfield Infrastructure Holdings (Canada) Inc. and Brookfield Asset Management Barbados Inc. and others—incorporated by reference to Exhibit 4.2 to our Partnership’s Registration Statement on Form 20-F/A filed December 13, 2007.
4.3		Relationship Agreement, dated December 4, 2007, by and among Brookfield Infrastructure Partners L.P., Brookfield Infrastructure Group Inc., Brookfield Infrastructure L.P., Brookfield Infrastructure Group Corporation and Brookfield Asset Management Inc. and others—incorporated by reference to Exhibit 4.3 to our Partnership’s Registration Statement on Form 20-F/A filed December 13, 2007.
4.4		Registration Rights Agreement, dated December 4, 2007, between Brookfield Infrastructure Partners L.P. and Brookfield Asset Management Inc.—incorporated by reference to Exhibit 4.4 to our Partnership’s Registration Statement on Form 20-F/A filed December 13, 2007.
4.5		Trademark Sublicense Agreement, effective as of May 21, 2007, between Brookfield Infrastructure Partners L.P. and Brookfield Global Asset Management Inc.—incorporated by reference to Exhibit 4.5 to our Partnership’s Registration Statement on Form 20-F/A filed December 13, 2007.
4.6		Trademark Sublicense Agreement, effective as of August 17, 2007, between Brookfield Infrastructure L.P. and Brookfield Global Asset Management Inc.—incorporated by reference to Exhibit 4.8 to our Partnership’s Registration Statement on Form 20-F/A filed December 13, 2007.
4.7		Amendment to Second Amended and Restated Limited Partnership Agreement of Brookfield Infrastructure L.P. dated June 13, 2008 by Brookfield Infrastructure General Partner Limited—incorporated by reference to Exhibit 4.17 to our Partnership’s Annual Report on Form 20-F filed June 30, 2008.
4.8		Amendment to Amended and Restated Limited Partnership Agreement, dated June 13, 2008 by Brookfield Infrastructure Partners L.P.—incorporated by reference to Exhibit 4.18 to our Partnership’s Annual Report on Form 20-F filed June 30, 2008.

o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2009

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Title of each class		Name of each exchange on which registered
Limited Partnership Units		The New York Stock Exchange
		Toronto Stock Exchange

		Page number

Consolidated Income Statement		6

Consolidated Statement of Comprehensive Income		7

Consolidated Statement of Financial Position		8 -9

Consolidated Statement of Changes in Equity		10 -11

Consolidated Statement of Cash Flows		12

Notes to the Consolidated Financial Statements		13 -80

Independent Audit Report		81

	Consolidated
	Dec 2010 (6 months) $’000		June 2010 (12 months) $’000
Continuing operations:
(a) FINANCE COSTS
Loss for the year has been arrived at after charging the following finance costs:
Interest on loans	43,505		147,629
Other interest expense	2,443		3,310
Other finance costs	6,949		13,268
	52,897		164,207
(b) NET HEDGE GAIN
Gain on foreign currency derivatives	(12,283	)	(18,462	)
Loss/(gain) on interest rate derivatives	263		(1,188	)
	(12,020	)	(19,650	)

Number		Description
4.9		Second Amended and Restated Credit Agreement, dated June 21, 2010, between Brookfield Infrastructure L.P. and Citibank, N.A., Credit Suisse, Toronto Branch, HSBC Bank Canada, HSBC Bank U.S.A., N.A., Toronto Branch, Royal Bank of Canada and The Royal Bank of Scotland plc. as amended by Amendment No. 1. and Amendment No. 2—incorporated by reference to Exhibit 4.9 to our Partnership’s Annual Report on Form 20-F filed April 26, 2011.(1)
4.10		Amendment dated November 16, 2009 to the Amended and Restated Limited Partnership Agreement dated as of December 4, 2007, as amended as of June 13, 2008 of Brookfield Infrastructure Partners L.P.—incorporated by reference to Exhibit 99.1 to our Partnership’s Report of Foreign Private Issuer on Form 6-K filed March 10, 2010.
4.11		Amendment dated February 5, 2010 to the Amended and Restated Limited Partnership Agreement dated as of December 4, 2007, as amended as of June 13, 2008 and November 16, 2009 of Brookfield Infrastructure Partners L.P.—incorporated by reference to Exhibit 99.1 to our Partnership’s Report of Foreign Private Issuer on Form 6-K filed February 5, 2010.
4.12		Amendment dated February 5, 2010 to the Second Amended and Restated Limited Partnership Agreement dated as of December 4, 2007, as amended as of June 13, 2008 and November 16, 2009 of Brookfield Infrastructure L.P.—incorporated by reference to Exhibit 99.1 to our Partnership’s Report of Foreign Private Issuer on Form 6-K filed February 5, 2010.
12.1		Certification of Samuel Pollock, Chief Executive Officer, Brookfield Infrastructure Group Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2		Certification of John Stinebaugh, Chief Financial Officer, Brookfield Infrastructure Group Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1		Certification of Samuel Pollock, Chief Executive Officer, Brookfield Infrastructure Group Corporation, pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes Oxley Act of 2002.
13.2		Certification of John Stinebaugh, Chief Financial Officer, Brookfield Infrastructure Group Corporation, pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes Oxley Act of 2002.
15.1		Consent of Deloitte & Touche LLP relating to the incorporation of the consolidated and combined financial statements of Brookfield Infrastructure Partners L.P. into the Annual Report on Form 20-F—incorporated by reference to Exhibit 15.1 to our Partnership’s Annual Report on Form 20-F filed April 26, 2011.
15.2		Consent of Deloitte Touche Tohmatsu relating to the incorporation of the consolidated and combined financial statements of Brookfield Infrastructure Partners L.P. into this Annual Report on Form 20-F/A.

	BROOKFIELD INFRASTRUCTURE PARTNERS L.P., by its
	general partner, BROOKFIELD INFRASTRUCTURE
	PARTNERS LIMITED


		By:	/s/ Lou Maroun
			Name: Lou Maroun
			Title: Director


Dated: May 11, 2011

	By:	/s/ Samuel Pollock
	Name:	Samuel Pollock
	Title:	CEO, Brookfield Infrastructure Group Corporation

	By:	/s/ John Stinebaugh
	Name:	John Stinebaugh
	Title:	CFO, Brookfield Infrastructure Group Corporation

		Deloitte Touche Tohmatsu A.B.N. 74 490 121 060

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