Macquarie Infrastructure Group (MIG)

Each independent/non-executive director of MIIML
and MIGIL has received a letter of appointment which details the key terms of their appointment. This letter has been enhanced for the more recent board appointments to include all of the recommended matters in the Principles.

The CEO and CFO, being MIG’s senior executives, have formalised job descriptions and, as Macquarie Capital employees, letters of appointment.

To ensure that the MIG senior executives properly perform their duties, the following procedures
are in place:

• The CEO and CFO are Macquarie Capital employees seconded to MIIML or MCFEL as required. Their performance is assessed by Macquarie in March
  each year as part of Macquarie’s formal employee performance evaluation process. The relevant boards provide annual feedback on the performance of the CEO and CFO
• A review of the performance of MCFEL as adviser against its contractual obligations by the MIGIL independent directors, with external assistance
  if required
• A formal induction program to allow senior executives to participate fully and actively in management
  decision making
• Access by executives to continuing education to update and enhance their skills and knowledge.

The above process was followed for the year ended 30 June 2008.

What you can find on our website:

• A summary of the MIIML and MIGIL board charters.

2. Appointment to the boards

ASX has granted listing rule waivers to facilitate Macquarie appointed directors for the Bermudan company in the same way as they are appointed for the responsible entity of the trusts. In the context of an externally managed vehicle, Macquarie believes these arrangements promote consistency of management and are for the benefit of investors. Macquarie considers the selection of appropriately experienced independent directors as an important contribution to MIG’s performance. From an investor protection viewpoint, MIG has a majority of independent directors on the combined MIG boards. Though Macquarie appointees, these directors are reputable, appropriately qualified and experienced businessmen who satisfy market-standard independence criteria. These directors have a duty at law to prefer the interests of MIG investors to those of Macquarie.

Details of the appointment arrangements are set out below.

MIIML

MIIML is a wholly owned subsidiary of Macquarie Group Limited (MGL) and directors are appointed to MIIML in consultation with the MGL board. The following board composition and membership criteria have been adopted by the board in consultation with MGL:

• The board is to comprise at least four directors. Additional directors may be appointed if the board feels that additional expertise is required in specific areas, or when an outstanding candidate is identified
• New appointments to the board require full MIIML board approval
• Independent directors are to comprise a majority of the board
• The board is to comprise directors with an appropriate range of qualifications and expertise
• Directors can be removed by MIIML’s sole shareholder, MGL, in its absolute discretion and at any time
• The chairman of the board is to be a Macquarie executive or closely connected ex-Macquarie executive. Note, Mark Johnson ceased to be a Macquarie executive effective 31 March 2007
• The chairman must be nominated by the MGL board and requires full MIIML board approval
• A lead independent director is to be appointed each financial year using an alphabetical 12-month rotation system
• To ensure that the board has the benefit of regular new input and to avoid the potential for loss of objectivity over time, independent directors will retire after 12 years.

• Has no material contractual relationship with Macquarie other than as a director of a responsible entity and/or special purpose vehicle
• Is not a director of more than two Macquarie related responsible entities or special purpose vehicle boards
• Has no other interest or relationship that could interfere with the director’s ability to act in the best interests of the Macquarie managed vehicle and independently of management of Macquarie.

Where an individual may not meet one or more of the above criteria but the MGL board corporate governance committee makes a specific determination that, in the particular overall circumstances of that individual, the fact that these criteria have not been met would not prevent the individual from exercising independent judgment on the relevant board(s).

The standards of independence which have been applied are substantively similar to but are not the same as those suggested in the Principles.

The main area of difference is that the Macquarie Fund Policy is designed to ensure that independent directors are independent from both MIG management and Macquarie. The directors believe that the adoption of the Macquarie Fund Policy definition of independence better reflects the true nature of independence in the present circumstances and does not materially prejudice security holders.

The ability of independent directors to serve on up to two separate managed vehicle boards is considered appropriate because the time commitment and level of remuneration for these roles is not so significant as to compromise independence.

MIG considers that the independence of its directors, each of whom is a highly qualified and reputable business person and professional who satisfies the above criteria, does not depend on who appoints them but on their independence of mind, including an ability to constructively challenge and independently contribute to the boards. Independent directors are asked to confirm their independence status on appointment, and on an annual basis, and to notify the board if they cease to satisfy the criteria.

The MIGIL board charter also provides that there must not be half or more of the board located in any jurisdiction other than Bermuda. Robert Mulderig and Jeffrey Conyers are Bermuda-based. Mark Johnson is based in Australia and Dr Peter Dyer in the UK.

In determining the status of directors, the MIGIL board has adopted the standards of independence required by the Macquarie Fund Policy.

The candidates for the board are selected by MCFEL or MIIML, as the case may be, using the same selection and MGL nomination approval process as for MIIML directors. In the case of candidates to be elected by security holders, the nominee is then recommended by MCFEL to the MIGIL board for approval.

The MIGIL board has not constituted a nomination committee because, as a consequence of the management arrangements established for MIGIL and its participation in the stapling arrangements with MIT(I) and MIT(II), its directors are nominated by the relevant Macquarie companies having regard to the board charter criteria and Macquarie Fund Policy requirements.

3. Chairman

Mark Johnson, being the former deputy chairman of Macquarie Bank until his retirement on 19 July 2007, is a non-executive chairman of MIIML and does not satisfy the independence recommendation of the Principles. The Macquarie Fund Policy requires the chairman to be a current or closely connected ex-Macquarie executive because MIIML is a Macquarie company and MIG is externally managed and Macquarie branded.

The MIIML board has resolved to appoint a lead independent director. David Walsh was the lead independent director from July 2007 to June 2008 and Paul McClintock is lead independent director until 30 June 2009. A different lead independent director is to be appointed each financial year using an alphabetical rotation system.

It is MIGIL’s policy to have an independent chairman and Robert Mulderig, chairman of MIGIL, is independent even though he is appointed by MCFEL. Mr Mulderig satisfies the independence test in the Macquarie Fund Policy.

Principle 3

Promote ethical and responsible decision making

MIG’s code of conduct sets out principles and standards for the directors and executives in respect of practices necessary to maintain confidence in MIG’s integrity, and the responsibility and accountability of individuals for reporting and investigating reports of unethical behaviour. The code includes whistleblower, anti-corruption and dealing with governments and anti-money laundering policies.

The code also encompasses principles for compliance with legal and other obligations to MIG’s stakeholders, including security holders, employees, customers, and the broader financial and other communities in which MIG operates.

The code is periodically reviewed and endorsed by the MIIML, MIGIL and MCFEL boards. The code is distributed to all directors and staff and reinforced at induction and other training programs.

A policy on securities dealings is in place under which directors and staff involved in the management of MIG are restricted in their ability to deal in MIG stapled securities. Security trading by MIG directors, officers and staff is permitted only during four-week special trading windows following the release of MIG’s half-yearly and yearly financial results, and following the annual general meeting or lodgement with ASIC and ASX of a disclosure document for a capital raising or a cleansing statement for a rights issue.

When the trading window is not opened following results announcements, pending disclosure of significant transactional activity being undertaken by MIG, a special four-week trading window may apply following an ASX release in respect of the transaction.

Special arrangements apply for the trading by MIIML, MCFEL and associates of MIG securities issued in connection with base fees and performance fees. Standing instructions must be given to a Macquarie broker during a designated directors and staff trading window to sell at above a designated price with the trade to take place at any time in accordance with the instructions. Any instructions given will be on the basis that Chinese walls are operating with the broker at all times during the currency of the instruction. Alternatively, the securities will be placed in a blind trust with an external broker during a trading window, with irrevocable instructions to sell at above a designated price with the trade to take place at any time in accordance with instructions.

The qualifications of the members of both audit and risk committees can be found on our website and later in this report.

2. Audit and risk committee charters

In establishing its audit and risk committee, each of MIIML and MIGIL has established a charter under which the committee is to operate. The charter is materially the same for both companies.

The responsibilities of the audit and risk committee under each charter in relation to financial reporting are to:

• Review and report to the board on the financial statements and related notes, and on the external auditor’s audit of the financial statements and the report thereon
• Recommend to the board the appointment and removal of the external auditor, review the terms of its engagement including arrangements for the rotation of external audit partners, and the scope and quality of the audit
• Monitor auditor independence. The audit and risk committee meets with the external auditor at least twice a year and more frequently if required.

Details of the risk monitoring duties of the audit and risk committee are set out in the Principle 7 commentary.

3. Auditor independence

The audit and risk committees have adopted a policy which includes the following to ensure the independence of the external auditor:

• The external auditor must remain independent from Macquarie and MIG at all times and must comply with APES 110: Code of Ethics for Professional Accountants pertaining to financial independence, and business and employment relationships
• The external auditor must monitor its independence and report to the board every six months that it has remained independent
• Significant permissible non-audit assignments awarded to the external auditor must be approved in advance by the audit and risk committees (or their chairmen between meetings)
• All non-audit assignments are to be reported to the audit and risk committees every six months
• The MIG audit engagement partner and review partner must be rotated every five years.

The MIIML and MIGIL boards and audit and risk committees are of the view that, at the present time, PwC is best placed to provide MIG’s audit services.

MIG’s policy is to lodge market-sensitive information with the ASX and place it on its website, including annual and interim result announcements and analyst presentations, as soon as practically possible. MIG’s website (www.macquarie.com/mig) contains recent announcements, presentations, past and current reports to security holders, answers to frequently asked questions and at least a three-year summary of key financial data. Investors may also register here to receive email copies of MIG’s significant ASX announcements.

Domestic investor roadshows are held regularly throughout Australia. International roadshows are also held for institutional investors. Where they contain new information, analyst and roadshow presentations are released to the ASX and included on the MIG website.

MIG also produces an analyst package which is updated annually. This comprehensive guide aims to provide transparency of MIG’s investments and structure. The analyst package is released to the ASX and consists of detailed business descriptions, corresponding financial variables and financial modelling tools.

Meetings of the three MIG entities are convened at least once a year, usually in October or November. MIGIL is required to hold an annual general meeting (AGM) each year.

In the case of the trusts, which are not required under the Corporations Act to hold an AGM, these are usually informal annual meetings unless there is formal business to be considered. An AGM is held for MIGIL at the same time. Presentations by the chairman and CEO at the AGM are webcast.

For formal meetings, an explanatory memorandum on the resolutions is included with the notice of meeting.Unless specifically stated in the notice of meeting, all holders of fully paid securities are eligible to vote on all resolutions. In the event that security holders cannot attend formal meetings they are able to lodge a proxy in accordance with the Corporations Act or Bermudan Companies Act as applicable. Proxy forms can be mailed or lodged by facsimile or electronically.

What you can find on our website:

• External communications policy summary
• The latest annual report and full financial statements.

(iv) Review the scope of any internal audit to be conducted and the independence of any internal audit team.

As required by the Corporations Act, a compliance committee and designated compliance staff assist the MIIML board in overseeing the trusts’ risk management framework by monitoring compliance plans and ensuring that there is an underlying compliance framework including detailed policies and procedures, staff training and supervision and appropriate compliance reporting.

The compliance committee is currently comprised as follows:

• Brendan Riordan, Chairman, External
• Ray Kellerman, External
• John Hughes, Macquarie
• Andrew Sims/Stuart Green/Mary Nicholson (alternates for John Hughes), Macquarie

The external compliance committee members must satisfy the independence criteria set out in s601JB (2) of the Corporations Act. External members are required to certify their compliance with these requirements on an annual basis and otherwise notify MIIML if they cease to satisfy the criteria.

Both MIIML and MCFEL, as part of Macquarie, are subject to periodic review conducted by Macquarie’s internal audit division.

Each of MIG’s businesses maintains its own risk management framework and supporting infrastructure to manage its own risk. MIG’s ability to control or influence this framework and infrastructure differs based on MIG’s level of ownership and control. It is MIG’s policy to confirm that each business has an appropriate risk management framework in place to assist the business to effectively manage its risks.

During the year management has reported to the audit and risk committees as to the effectiveness of MIG’s management of its material risks. In addition, the MIIML board has received assurance from the CEO and CFO that their declaration under s295A of the Corporations Act 2001 is founded on a sound system of risk management and internal control and that the system is operating in all material respects in relation to financial reporting risks.

2. Reimbursement of responsible entity and adviser expenses

MCFEL and MIIML are also entitled to be reimbursed for expenses incurred by them in relation to the proper performance of their duties, out of the assets of MIG. This includes routine ongoing expenses such as the third party costs of acquiring businesses and managing them, as well as capital raising costs, registry, audit, insurance, compliance costs and other expenses as set out in the trust constitutions and advisory deed.

3. Staff remuneration

MIIML and MCFEL make available employees, including senior executives, to discharge their obligations to the relevant MIG entity. These staff are employed by entities in Macquarie and made available through formalised resourcing arrangements with MIIML and MCFEL. Their remuneration is not a MIG expense. It is paid by Macquarie Capital. Instead MIG pays management fees to Macquarie for providing management and advisory services. These fees are MIG expenses and are disclosed on page 73. MIGIL does not have employees and relies on the MCFEL management staff under the advisory deed arrangements to implement operational decisions and carry out administrative functions.

MIG holds its toll road businesses through interests in special purpose project vehicles. Most of these vehicles have their own internal management paid for at the business level. Where MIIML or MCFEL staff are required to serve as directors on the boards of these vehicles, or are seconded to them from time to time, any fees paid in respect of these arrangements are paid to MIG.

Senior MIIML and MCFEL executives may have some of or their entire performance bonus retentions notionally invested by Macquarie in MIG securities so that the amount varies as if they were actually invested in the securities. Executives may also receive MGL options as part of their remuneration package.