Contents

1 Private Financing of Infrastructure: A huge Global Industry 2 The Broad View 3 Macquarie’s infrastructure assets 4 The Virtuous Cycle – Government & Private Sector 5 PPP’s Benefits 6 Evolution of Korea’s PPP Program 7 Korea’s PPP Model 8 How to Meet the Challenges 9 Infrastructure Funds 10 Conclusion

1 Private Financing of Infrastructure: A huge Global Industry

´ “Public Private Partnership (PPP)” ― Ability of private sector to finance infrastructure is essential to economies due to the strategic significance and size of the infrastructure sector ― It’s all about mobility of goods, services and people, and providing social amenities ― Potentially a US$400 billion global industry over the next few years alone ´ Expected annual investment needs: 2005-2010 (US$ million)

200,000 Electricity generation 180,000 Telephone mainlines Paved road length 160,000 Rail road length Mobile 140,000 Water Sanitation 120,000

100,000

80,000

60,000

40,000

20,000

0 High income countries Low income countries Middle income countries

2 The Broad View

´ Nominal GDP growth 2004-2014

$USbn 25,000 5.7% 2004 2009 2014 20,000 3.4% % = 10year CAGR＊

15,000 10.4% 4.3%

10,000

3.2% 5,000 7.8%

North America Developed Europe Emerging Asia Developed Asia Emerging Europe Latin America

＊Compound Annual Growth Rate

3 Managing important assets across the globe Over 110 infrastructure assets, over 700 real estate assets, A$228bn in AUM

UK Canada USA „ Aquarion* South Korea „ M6 Toll „ Moto-Motorway Services „ Edmonton Ring Road „ South Bay Expressway „ International-Matex Tank „ Baekyang Tunnel „ Bristol Airport Provider „ 407 ETR „ Dulles Greenway Terminals „ Cheonan Nonsan „ Energy Power Resources (UK) „ National Car Parks „ A-25* „ Indiana Toll Road „ Longview Expressway „ Wales & West Utilities „ East London Bus Group „ AltaLink „ Skyway „ Smarte Carte „ Incheon International „ Thames Water „ Steam Packet „ Cardinal Power „ FastTrack parking „ American Consolidated Airport Expressway „ CLP Envirogas „ Wightlink „ Sea to Sky „ Atlantic Aviation Media „ Kwangju 2nd Beltway „ Arqiva / National Grid Wireless „ Talarius „ Clean Power Operating „ AIR-serv „ Global Tower Partners Section 1 & 3 „ Airwave „ Macquarie Global Property Trust** „ Icon Parking „ Macquarie DDR „ Machang Bridge „ Red Bee Media Advisors (MGPA) „ Whitecourt „ Hanjin Container Terminals „ Macquarie CountryWide „ Soojungsan Tunnel „ Halterm Limited „ District Energy „ Macquarie Office „ Daegu 4th Beltway, East „ Leisureworld „ Duquesne Light* „ Macquarie Leisure „ Incheon Grand Bridge Belgium Denmark „ Brussels Airport „ Fraser Surrey Docks „ The Gas Company (Hawaii) „ Seoul Chuncheon „Copenhagen Airport „ New World Gaming* Expressway Singapore „ Woomyunsan Tunnel France United Arab Emirates „ MMP REIT „ Seoul Subway Line 9, „ Autoroutes Paris-Rhin- „ Al Ain Industrial City Portugal Malaysia „ MGPA Section 1 Rhône „ Industrial City of Abu Dhabi „ Tagus Crossings „ MGPA „ Yongin Seoul Expressway „ Energy Power Resources Phase 2 New Zealand „ Seosuwon-Osan-Pyungtaek (Europe) „ Industrial City of Abu Dhabi „ Metlife Care Expressway „ Trois Sources & Lomont Phase 3 „ Private Lifecare „ SK E&S Windfarms „ ICAD Effluent Treatment „ Retirement Care New „ West Sea Power/West Sea „ Macquarie Global Property Plant Zealand Water Advisers „ Macquarie CountryWide „ Kukdong Building South Africa „ Macquarie Leisure „ Macquarie NPS REIT Germany „ N3 Toll „ Warnow Tunnel „ N4 Maputo Toll „ TanQuid (tank storage „ Bakwena Platinum Corridor China/Taiwan business) „ Neotel „ Taiwan Broadband „ Techem „ Kelvin Power Communications „ MGPA „ InfraVest Windpower „ Macquarie Office „ Changshu Xinghua Port „ Macquarie CountryWide „ First China Property Group „ MWREF Italy „ MMP REIT „ MGPA „ Macquarie Office Hong Kong „ MGPA Netherlands „ Macquarie Goodman Hong „ NRE* Kong Wholesale Fund „ European Directories# „ Obragas Net* „ Netbeheer Japan Haarlemmermeer* Spain Australia „ Southern Cross „ Toyo Tires Turnpike „ MGPA „ Itevelesa „ Prospect Water Broadcasting „ Zig Inge „ Ibukiyama Driveway „ Dampier – Bunbury „ Transtoll „ Macquarie Office „ Macquarie Office Poland Sweden „ Multinet „ Sydney Airport „ Macquarie CountryWide „ MMP REIT „ Deep Sea Container „ Arlanda Express „ United Energy Distrib. „ Westlink M7 „ Macquarie Leisure „ Macquarie Direct Property Terminal „ AlintaGas Networks „ Eastlink „ MREEF Fund „ MGPA „ Broadcast Australia „ Retirement Villages Group „ Macquarie Direct Property „ MGPA Switzerland „ Macquarie Regional Radioworks „ Macquarie CountryWide „ MGPA „ Regis Group Fund „ Macquarie Goodman Asia

As at 30 September 2007. In some cases, Macquarie or a Macquarie-managed fund has partial interest in an asset. *Subject to financial and customary closing Real Estate Airports Communications Utilities arrangements ** Includes wind, hydro and biomass power assets #European Directories also in Sweden, Finland, Austria, Czech Republic, Slovakia, Denmark & France. Roads Transport services Other 4 Macquarie Investments in Korea

South Taoyuan North Miaoli

South Miaoli C&M Hsinchu County Taichung Seoul Subway Line 9, Section 1 Megabox Incheon International Expressway Incheon Grand Bridge Hanjin Pacific Corporation Kaoshiung Yongin-Seoul Expressway Seosuwon-Osan-Pyungtaek Expressway Seoul-Chuncheon Expressway Renault Samsung Building ING Centre SK E&S Kukdong Building Woomyunsan Tunnel West Sea Power Seattle, WA West Sea Water Oakland, CA Long Beach, CA Cheonan-Nonsan Expressway

Daegu 4th Beltway East Baekyang Tunnel Gwangju 2nd Beltway, Section 1 Soojungsan Tunnel Tokyo Busan New Port Osaka Gwangju 2nd Beltway, Section 3-1 Machang Bridge

TOLLROADS UTILITIES MEDIA PROPERTY

5 The Virtuous Cycle – Government & Private Sector

New/Enhanced Improve Investment Capital Opportunities Budget for institution Huge Need Limitation for Improving and individuals Fixed Asset Infrastructure IncreaseIncrease Government Private Mobilize PrivatePrivate SectorSector More Private Sector InvestmentInvestment inin Sector Capital including foreign investors InfrastructureInfrastructure

Providing New Opportunities Capital Frees up more Development of Market Capital for Other SOC & Local and Regional Other Social Capital Markets Programs - IPO’s Bonds, etc

6 Benefits of Successful PPP

Economic Reality Gov’t Objective Solutions Result

ƒ Increasing Levels of ƒ Develop efficient ƒ PRIVATE ƒ Provides better Economic and effective INVESTMENT IN Infrastructure – Development infrastructure INFRASTRUCTURE delivers improved and – Currently over 350 better value for money infrastructure ƒ Develop bond and through appropriate companies in the listed risk sharing between universe, 7% of the equity markets (eg Korea as a financial public and private world’s market sector parties capitalisation hub ƒ Enhances the ƒ Changing ƒ Grow and utilise the economy – better Demographics in national savings infrastructure = better North Asia and pool logistics and better Korea social mobility – To build their wealth ƒ Enhance community through sophisticated services ƒ Improves Capital financial markets. – 2.4 billion people Markets – Develops – Aging Population globally do not have Debt and equity – Competitive and access to sanitation, 2.5 markets changing economy billion to modern energy supplies, 1.2 billion to ƒ Provides better ƒ Government Capital safe drinking water and services to the outlay constrained 1 billion to roads to community – Urban by Balanced Budget reach markets, jobs and population in East Asia health care facilities and Pacific to rise by 500m over next 20 years. 7 Benefits: Capital Markets

´ Provides good strong investments for national savings. Eg pension funds etc. ´ Develops asset management industries ´ Encourages competition ´ Retail investors and institutional investors benefit ― Annualised return from Macquarie Capital Funds of 18.3% as of Dec. 2007 ´ Develops debt and equity markets

8 Asset Management Industry Benefits – MKIF, MKOF, MDIF

´ Macquarie Korea Infrastructure Fund: ― First and only listed infrastructure fund in Korea ― Largest portfolio of investments ― Market capitalisation of KRW KRW2.1 trillion (as of April 2008) ´ Macquarie Korea Opportunities Fund: ― Largest private equity fund in Korea (specializing in infrastructure) ― 4 major investments in city gas, international ports, cogeneration power plants and a cable TV operator ― Committed Capital: US$1.25bn ´ Macquarie Diversified Infrastructure Fund: ― Unlisted infrastructure fund created in December 2006. ― Targets Korean institutions seeking offshore infrastructure investments. ― One investment to date – Thames Water (US$ 322.3million approx). Investor, Military Mutual Aid Association (Pension Fund) ´ Community benefits: ― 324,000 people travel on MKIF roads daily - crucial logistical links to key cities and airports ― 44,000 jobs at MKIF construction assets ― MKOF’s Samsung Total plant generates enough power for 50,000 households ― Gas pumped to 2.8 million households through MKOF’s stake in SK E&S ― MDIF helping Korean institutions diversify their investments abroad; assisting retirements of Korean families

9 PPP Helps Korean Families Revenue projection matching pension fund liabilities

Pension fund liability Bonds and stocks Macquarie Infrastructure Fund (Korea)

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042

10 PPP’s Financial Structure Benefits: Potentially Huge

Unique access to deals (Macquarie Model)

Risk diversification Pooling of capital ― Brownfield vs Greenfield ― Access to listed markets ― Sector diversification Investor ― Foreign investors (38% MKIF)

Financial Expertise Service Industrial Expertise FUND Investments ― Financial structuring Providers ― Active asset management ― Repricing of mature income ― Operational efficiencies streams

Manager

Fiduciary & Prudential Controls

Economics Portfolio Specialization of scale diversification

11 Evolution of Korea’s PPP program

1994 1997~1998 1999~2004 2005~Present

ƒ Enactment of ƒ Financial crisis ƒ Unsolicited ƒ Abolition of MRG ‘The Act on in late 1997 set projects system Promotion of back the introduced Private Capital development of ƒ Introduction of into Social private ƒ Define and BTL model Overhead investment expand eligible facility types ƒ PPP dominated Capital by sophisticated Investment ƒ MRG and funds termination mechanisms ƒ Allow listed introduced infrastructure funds ƒ Private investors become involved in infrastructure

12 Korea’s PPP Program - PPI Act

´ Private Participation in Infrastructure Act ― First enacted in 1994; revised in 1998 and 2005 ― Focus on financing, management and operation by private investors of infra projects ― Focus on new road, rail and port projects via Concession Agreements. ― Program extended into social infrastructure in 2005. ― Strong participation by construction companies, insurance companies and pension funds. ― Virtually no foreign investment or participation from foreign equity or lenders, except for MKIF (Foreign equity owns 38.5% of MKIF shares, valued at KRW 1 trillion)

´ Key features: ― Outlines key aspects of Concession Agreements (BTO, BTL etc) ― Designates special purpose nature of concession companies; specifies limits to PPP investment e.g. roads, rail etc ― Provides guidelines for Government revenue guarantee support, project termination support, project construction subsidies ― Provides guidelines for the establishment of PPI Infrastructure Funds, restrictions on their investment activity and listing ― Enables Infrastructure Funds to provide equity and loan/bond facilities to special purpose investment companies

13 Korea’s PPP Model: Why It Could Lead the Way

Market Characteristic Korea Australia China 1 Clear legislative/regulatory frameworks 3 3 2 2 Fair judicial environments 3 3 2 3 Long term political support 3 3 3 4 International grade concession agreements 3 3 2 5 Feasible projects 3 3 3 6 Transparent bidding processes 3 3 2 7 Early Government project support mechanisms 3 2 2 8 Strong/developing debt capital markets 3 3 3 Independent regulator/agency to monitor and guide 9 Government performance 3 2 2 10 Macroeconomic stability 3 3 ~ 11 Active domestic equity 3 3 3

14 Korea’s PPP Model: Positives

´ Private Participation in Infrastructure (PPI) Act ― A protective legal environment ― Significant application especially for toll road concessions ― Underpinned by strong early government financial support (Termination Payments; Minimum Revenue Guarantees in the past) ´ A reasonable and progressive regulatory environment ― The central government proven to be a fair and reliable partner ― Project selection follows a statutorily determined process ´ Evolving policy views outlined in annual plan issued by the Government ´ Sophisticated concession and financing agreements by global standards ´ Increasing investor demand for infrastructure project debt and equity ´ Active interest in privatized infrastructure assets

15 Korea’s PPP Model: Challenges

´ Referee should embrace more market-friendly policies ´ Rules can change retrospectively ― Local roads constructed without private investor’s agreement – a risk especially on non-MRG contracts ´ Local governments sometimes don’t understand the infrastructure market, nor the capital markets where upside sharing is key ― Governments should understand it takes time for PPP businesses to yield a profit ´ Sometimes contracts aren’t honored; eg, local governments seeking to overturn concession agreements ´ Inflexible approach by government to changes in structure of investment ― Requirement that private investors maintain capital structure for 30 years is a disincentive ´ Agreements are identical regardless of differences in target sectors. Eg a ports contract is same as a roads contract ´ Investors can be deterred by government interference in refinancing; mandatory approvals for changes to equity shareholding structure (eg., approvals are needed for profit sharing from refinancing) ´ Non-recourse financing should be available to asset managers to help develop PPI market 16 How To Meet The Challenges

´ THERE IS A NEED FOR… ― Consistent and predictable policies ― Embracing market principles ― Better awareness by government of the role of private capital and the importance of profitability, and the importance of the virtuous cycle

´ SPECIFICALLY… ― Clear agreement during negotiating stage that policies will not change ― Restrictions on structuring of PPP investments should be eased ― Political sensitivities (i.e. over toll rate increases) should not interfere with minimum revenue guarantee agreements ― Borrowings by a Public infrastructure fund for expansion purposes should be increased beyond current ceiling of 30% of a fund’s capital (Leveraging should be a commercial decision). ― Public awareness of PPP’s benefits should be improved through an energetic public relations campaign ― Tax concession for individual investors should remain, in order to maintain their interest in PPP sector

17 PPP Funds Need Continued Support to Prosper

´ Infrastructure funds have an underplayed but significant potential role to play in private infrastructure programs

´ To provide a framework for funds to operate efficiently, they should: ― Be able to raise money from all private investment sources ― Be able to invest in a wide range of infrastructure assets ― Be free to use debt capital to enhance returns from equity investments at Fund and project level ― Be permitted to invest this capital how they see fit i.e. through debt, equity and hybrid structures and intermediary vehicles

18 Conclusion

´ PPP Should Play Key Role in Any Economy ´ But the links between infrastructure investment, capital markets and economic development need to be understood

The wrong policies can deter private investment in infrastructure, and result in its benefits not being realised

´ For PPP to Prosper, governments should: ´ Implement consistent and predictable policies ´ Embrace market principles ´ Be more aware of the role of private capital and ― importance of profitability

19 Thank You !