09 Investing in the future10 AnnuAl RepoRt purpose To be a competitive and safe provider of reliable and efficient energy solutions for the people of Queensland.
Values SAFeTy AND eNvirONmeNT AccOuNTABiLiTy eThicS We live safely and respect our environment We assume responsibility We do the right thing, always
PerFOrmANce cOOPerATiON We make a lasting difference We engage with others Contents
Corporate profile 2 Summary of performance Against 3 Stated objectives Five-Year Financial Comparison 5 Chair’s Report 6 Chief executive officer’s Report 8 Board of Directors 10 executive Management team 12 Safety 14 Generating Assets 18 Mining Assets 22 Marketing and trading 26 environment 30 people 38 Stakeholders 42 Corporate Governance 46 Chief Financial officer’s Report 56 Financial Statements 59
This Annual report celebrates the major achievements and initiatives of Tarong energy corporation Limited (‘Tarong energy’ or ‘the corporation’) in the 2009/10 financial year. it provides our stakeholders with an insight into our business activities, our performance and our strategies to meet future challenges. it also discusses our capability to manage the business and our finances on behalf of our Shareholders and, ultimately, the people of Queensland. This Annual report is printed on mega recycled Silk, an environmentally considered sheet consisting of 50 per cent post-consumer recycled waste and 50 per cent FSc certified fibre. mega recycled Silk is made elemental chlorine free and is manufactured at the Gohrsmuhle mill in Germany, which has its own waste water treatment plant and is iSO 14001 emS approved.
The financial statements are printed on a PeFc certified paper. With iSO 14001 emS accreditation, this wood free sheet is also made elemental chlorine free.
For more information or to download a PDF version of this report, visit www.tarongenergy.com.au
01 Corporate profile
established in July 1997 and owned by the Queensland Government, Tarong energy is a significant power generator with a reputation for reliably supplying electricity to help underpin Queensland’s growth.
This reliability is a valuable asset, and Tarong Power Station, located near two units that can generate a gross Tarong energy has developed a flexible Nanango in the South Burnett region, is capacity of 500 mW. and responsive marketing approach to a coal-fired power station comprising four Meandu Mine was acquired by Tarong make the most of this advantage in the units with a gross generating capacity of energy in early 2008 and is operated National electricity market (Nem). The 1,400 megawatts (mW). it also has a by contract miner Thiess Pty Ltd. The corporation sells electricity into the Nem liquid fuel-fired emergency plant with a mine provides coal to the Tarong power pool and provides ancillary services to gross generating capacity of 15 mW. stations via a 1.5km conveyor. the Australian energy market Operator The neighbouring Tarong North Power through the Tarong, Tarong North and The Kunioon coal resource was Station is a supercritical coal-fired power Wivenhoe power stations. acquired along with meandu mine to station with a gross generating capacity further secure a long-term fuel supply for Tarong energy employs 5181 people of 443 mW. its single unit began the Tarong power stations. The resource in electrical and mechanical trades, operating in 2003 and this year, the is located about 15km north of the engineering, and a wide variety of power station became wholly-owned by power stations. professional and support roles at its Tarong energy. generating sites and in its Brisbane Tarong energy also owns the Glen Wivenhoe Power Station, located at corporate office. Wilga and Haystack Road coal Wivenhoe Dam about one hour west of resources located in the Surat Basin The corporation owns a mix of Brisbane, is a pumped-storage, hydro- near chinchilla. generating and mining assets: electric facility. The power station has
1 As at 30 June 2010. Figure includes part-time employees.
02 03 Summary of performance Against Stated objectives
Objective Key OutcOmes
SAFeTy • Successfully implemented the 2009/10 health and Safety Strategic To achieve and maintain improvement Plan a safe workplace • recorded an organisation-wide decrease in the Lost Time injury Frequency rate, medical Treatment injury Frequency rate and recordable injury Frequency rate from the previous year
• exceeded the corporate target relating to health, safety, environment and quality improvement and non-injury incident reporting
GeNerATiNG ASSeTS • Successfully completed major overhauls that included control system refits To improve commercial reliability of and installation of low nitrogen oxide burners on Tarong Power Station’s generation plant performance units 2 and 4 to enhance the power station’s performance and reliability and decrease emissions
• Achieved practical completion of the trial project to redirect ash from the current wet ash storage dam to a void at meandu mine
To maintain continuity of economic • invested significant capital to replace the aging mobile fleet at meandu mine, coal supply resulting in surety of coal deliveries to the power stations and decreased operating costs relating to maintenance
• confirmed the existence of additional economic coal at meandu mine that is capable of securing a fuel supply for the Tarong power stations until at least 2025. The corporation subsequently chose to defer the proposed transition to the Kunioon coal resource
mArKeT POSiTiON • Successfully implemented the 2009/10 retail channel to market strategy To secure market channels to • Achieved 2009/10 gross margin targets optimise margin • Developed systems, policies and procedures to ensure that Tarong energy is prepared for the possible introduction of an emissions trading scheme in the future
BuSiNeSS reNeWAL • commenced investigations to evaluate gas generation options at Tarong To commercially invest in new Power Station and an associated gas pipeline Queensland-based, bulk, low • commenced investigations to demonstrate the value proposition of a coal emission generation options seam gas water treatment plant at the Tarong Power Station site and an associated water pipeline
To optimise the value of Tarong • Acquired The Tokyo electric Power company, incorporated and mitsui & co., Energy’s coal assets Ltd 50 per cent interest in Tarong North Power Station
02 03 Summary of performance Against Stated objectives (continued)
Objective Key OutcOmes
eNvirONmeNT • Progressed planning to undertake a 1ha, 12-month bio carbon capture and To reduce Tarong Energy’s storage trial at Tarong Power Station using algae environmental impacts and secure • in conjunction with cSirO, completed construction of a post-combustion reliability of water supply capture pilot plant at Tarong Power Station
• Offset emissions generated by business-related travel
PeOPLe mANAGemeNT • Achieved certification of the 2009 enterprise Bargaining Agreement To achieve and maintain our • Developed a new employment brand that will differentiate Tarong energy in ‘employer-of-choice’ status the job market and boost recruitment
• Built leadership capability across the corporation through initiatives such as the Supervisor induction Program, change management Toolkit, and the implementation of a Leadership Development Framework
STAKehOLDer reLATiONS • continued to deliver mutual benefits, including directly funding people and To achieve and maintain stakeholder projects that benefit the South Burnett Aboriginal community, through the recognition as a socially responsible indigenous Land use Agreement between Tarong energy and the Wakka and sustainable organisation Wakka people
• invested $285,000 in projects to benefit the South Burnett region through the community Partnership Fund
• Provided an additional $160,000 worth of sponsorship funding to organisations in the South Burnett, Brisbane valley and Surat Basin regions
• engaged with key stakeholders and communities about major projects including investigations into gas and water pipelines from the Surat Basin to Tarong Power Station
04 05 Five-Year Financial Comparison
cOnsOlidated change 2005/06 2006/07 2007/08 2008/09 2009/10 % revenue - electricity - continuing Operations1 418.1 366.3 313.7 439.4 490.8 11.7
revenue - electricity - Discontinued Operations 2.9 6.2 3.8 - - -
revenue - electricity - Total 421.0 372.5 317.5 439.4 490.8 11.7
earnings Before interest and Tax (eBiT)2 110.7 (84.1) 219.4 149.0 156.9 5.3
Profit/(Loss) After income Tax - 62.0 (71.3) 56.7 85.1 91.6 7.6 continuing Operations
Profit/(Loss) After income Tax - 7.3 2.7 121.6 - - - Discontinued Operations2
Profit/(Loss) After income Tax2 69.3 (68.6) 178.4 85.1 91.6 7.6
Dividend Paid or Proposed3 55.5 - 50.8 45.5 17.4 (61.8)
Total Assets 1,568.0 2,115.5 1,848.2 2,087.5 2,567.5 23.0
Total Liabilities 746.6 1,546.5 1,117.1 1,174.1 1,254.0 6.8
Total equity 821.4 569.0 731.1 913.4 1,313.5 43.8
Dividend Payout ratio4,* 80.0% 80.0% 80.0% 80.0% 80.0% 0.0
return on Average Productive Assets4,* 8.0% (0.3%) 2.5% 7.0% 3.2% (53.5)
return on Average equity4,5,6* 8.6% (8.8%) 8.7% 10.8% 8.0% (25.9)
Gearing* 25.2% 39.4% 35.0% 32.8% 25.5% (22.2)
1 including ancillary services, retail and energy services revenue. 2 2007/08 result includes profit on sale of wind farms of $114.9 million. 3 Dividend in relation to financial year shown is payable within six months after the end of the financial year. 4 2007/08 calculations exclude the profit on sale of the wind farms. 5 2007/08 equity was reduced by $134.9 million in June 2008 relating to the repatriation of wind farm sales proceeds to Government via a share buy-back. 6 2009/10 equity was increased by $275.0 million in October 2009 relating to the equity injection received from Government to facilitate the purchase of the additional 50 per cent interest in Tarong North Power Station. * Definitions of these are shown in the calculations on the inside back cover.
04 05 Chair’s Report
This is my fourth chair’s report for Tarong energy, and each year, as i reflect on the challenges and opportunities that the corporation has faced, i am impressed by how our people have responded to the challenges and embraced the opportunities.
As a Board, this means that we can The theme of this year’s report is Full ownership of the supercritical, plan for the future and make major Investing in the future, and of the emissions-efficient station has provided investment decisions knowing that many investments made during us with increased generating flexibility. our people have the skills, drive and 2009/10, the most significant from a it has also decreased the corporation’s commitment to ‘make things happen’. whole-of-corporation perspective was overall carbon intensity, enabling us to On behalf of the Board, i would like the outright purchase of Tarong North play an even greater role in meeting to thank each and every employee Power Station in November 2009. Queensland’s growing energy needs. for their contribution in 2009/10 and The power station was owned as a Another major investment for 2009/10 assure them that providing a safe and joint venture between Tarong energy was the extensive capital replacement rewarding workplace remains at the (50 per cent) and The Tokyo electric program at meandu mine involving the core of the corporation’s decision- Power company, incorporated and purchase of five new dump trucks and making. mitsui & co., Ltd (50 per cent), and associated plant worth more than $50 Our profit after tax of $91.6 million is the opportunity for full ownership million. This investment directly reflects commendable, and while we foresee presented itself after our co-venturers our confidence in the resource’s ability challenges in 2010/11 and beyond in decided to pursue other strategic to deliver coal to the Tarong power stations well into the next decade. maintaining this profit, we are confident interests. i would like to acknowledge that Tarong energy will continue to our former partners and thank them for Despite the Australian Government’s represent value for our Shareholders the genuine care they demonstrated announcement in April 2010 that the and the people of Queensland. over more than six years. carbon Pollution reduction Scheme
06 07 would be placed on hold until at least Burnett where many of our senior 2013, Tarong energy continues to pursue leaders are now well known. opportunities to reduce and offset With no changes at the Board level for our carbon emissions and we made the second consecutive year, i would considerable progress in this area during like to thank my fellow directors for the year. i look forward to reporting on providing stable and strategic leadership. the preliminary results of our flagship projects in next year’s report. Finally i would like to thank our shareholding ministers for their support: Our comprehensive unit overhaul The honourable Andrew Fraser mP, program continued successfully in Treasurer and minister for employment 2009/10, and the communities and economic Development; and The in which we operate benefited honourable Stephen robertson mP, considerably from our presence minister for Natural resources, mines during the year. helen Gluer will and energy and minister for Trade. expand on these investments, as well as operational matters, in her chief executive Officer’s report.
in helen, Tarong energy has an exemplary leader who is well respected by our people and our stakeholders. her sharp mind and engaging personal Graham Carpenter style are wonderful assets and it has chair been a pleasure to work closely with her and the broader management team again this year. They have done a wonderful job of ensuring that our people are well supported, and of championing our considerable investment in the communities in which we operate, particularly in the South
06 07 Chief executive officer’s Report
Tarong energy has performed strongly in a challenging environment this year.
Despite a softening in the electricity a smooth transition into the Tarong employees have the confidence to market and increased competition, we energy workforce. report potential safety incidents and delivered a sound commercial return to improvement opportunities. The Board With a firm focus on our future, we Shareholders. i am pleased to report and executive management Team have continued to look at new ways that our effective contracting strategy believe this culture of reporting is so to diversify and grow our business. in and cost-efficiency focus contributed essential to reaching our goal of a zero late 2009, we began investigating the to an above-budget profit after tax of harm workplace that we set it as a potential to bring coal seam gas (cSG) $91.6 million. corporate incentive target in 2009/10. from the Surat Basin to the Tarong i commend all employees on exceeding The current oversupply of capacity in Power Station site to burn as a second the annual target of reporting 1,200 the electricity market is expected to fuel and reduce our emissions under potential incidents and improvement continue impacting on future wholesale a future carbon Pollution reduction opportunities in health, safety, quality prices. We recognise the effects this will Scheme. As part of the investigations and environment. have on our revenue-based business we identified a further opportunity to and have acted decisively this year to manage and treat large volumes of sustain our competiveness now and cSG water, which may present one Building on our into the future. possible solution for cSG producers. it strengths is very early days and much work is still Our strategy is robust and effective: to be done on the environmental and Throughout 2009/10 we invested we are consolidating our strengths, technical feasibility of these projects. in enhancing the longevity and embedding efficiencies across however, i am excited about the performance of our generating assets the business, investigating new potential to expand our business while while maximising the advantages of opportunities to diversify, and continuing contributing to the beneficial reuse of owning our own fuel source. to invest in our greatest asset, our coal seam gas water. people. The most significant overhaul program in the 26-year history of Tarong Power A safe workplace Station continued with the overhaul Investing in the future and control system refit of unit 4 ensuring the health and safety of our completed safely and to schedule. As mentioned by the chair in his report, employees and contractors is a core The last unit overhaul in the $168 we acquired the remaining 50 per cent million maintenance program will be value on which we will not compromise. interest in Tarong North Power Station in completed in late 2010, and the first Our safety performance continued November 2009. Full ownership of the scheduled overhaul of Tarong North to improve this year, reflecting the emissions-efficient power station is a Power Station under our full ownership increasing effectiveness of our safety key realisation of our strategy to defend will start in 2011. These investments systems, processes and plans. our competitive position. Since the in our generating assets will help us to purchase, i am pleased to report that importantly, we continued to foster continue generating competitively and Tarong North employees are making an active reporting culture where safely for the people of Queensland.
08 09 Our priority at meandu mine is to A committed team As i look back on our achievements continue accessing the most economic of the past year, i would like to coal reserves. This year we progressed i agree with the chair that our people acknowledge all those who contributed. drilling programs at the mine and have an excellent track record of rising i thank the Board, the executive upgraded the mine’s heavy equipment to meet new challenges. This year was management Team and all employees fleet to improve surety of fuel supplies no exception. Faced with a lower profit for their hard work, dedication and and lower production costs in the long forecast at the start of the financial year, overall commitment to ensuring Tarong term. Further work is continuing in we actively sought to manage our costs energy remains a competitive, safe and the year ahead on how we can further and operate more efficiently. i am efficient generator. maximise the value of our operations proud to report that we achieved the The year ahead holds further from the mine to the market. targeted cost savings through innovation challenges, but i have every confidence and teamwork and, most importantly, by that we will once again rise to meet trialing innovations making sound business decisions. them while capitalising on new Because we believe in fostering a opportunities. The Australian Government’s rewarding and inclusive workplace, we announcement of a delay in the listen to our people. in September introduction of an emissions trading 2009, more than three quarters of scheme has provided greater our workforce shared their views on opportunity for Tarong energy to what it is like to work at Tarong energy. transition successfully to lower employees highlighted the corporation’s emissions, without threatening the genuine and strong commitment to Helen Gluer economic and social advantages of safety in the workplace, which is very chiefchief executiveexecutive Officer affordable generation. encouraging. We have also acted Despite the scheme’s delay, we have quickly to address a number of areas pushed on with two innovative trials identified for improvement. looking at commercially sustainable As one of the largest employers in the ways to lower emissions from coal-fired South Burnett region, it is important for generation. in may 2010, construction our people to see that we contribute started on a post-combustion capture to the long-term sustainability of the pilot plant at Tarong Power Station in community they call home. This partnership with the cSirO. We have year we further strengthened our also agreed to work with mBD energy community links through sustained to investigate the feasibility of an engagement, supporting local suppliers algae-based technology that can use and businesses, and providing regional emissions from Tarong Power Station to job opportunities. Our people have produce biodiesel and stockfeed, with the 12-month trial expected to start in especially taken pride in seeing early 2011. communityommunity Partnership Fund projects – some of which will continue to provide benefits for a generation – come to fruition this year.
08 09 Board of Directors
Graham Carpenter Richard (Ric) Barton Leeanne Bond MBA, FAICD, FCA BE(Civil), MS(Civil Eng), MBA, BE(Chem), FIEAust, GAICD Chair (1 July 2007) FIE Aust, FAIM Independent non-executive director Independent non-executive director Independent non-executive director Term of appointment 16 September Term of appointment 1 July 2005 – Term of appointment 1 July 2008 – 2004 – 30 June 2008 30 September 2010 30 September 2011 Reappointed 1 July 2008 – Member, Business Development Member, Audit and Risk 30 September 2011 Committee, People and Performance Management Committee, Business Member, Audit and Risk Committee Development Committee Management Committee, People Ex-officio member, Audit and Risk and Performance Committee Management Committee
mr Graham carpenter is mr ric Barton is a civil ms Leeanne Bond is a a chartered accountant engineer and currently chemical engineer with who has held a number of a partner and director of extensive experience in senior executive positions Flagstaff consulting Group business management, including partner in chartered Pty Ltd. he has extensive projects, design and proposals accounting firms, Auditor- experience at corporate level for international engineering General in the Northern in commercial business; and project management Territory and senior positions at project development organisations. She has with victorian and Queensland and delivery stages in the worked on projects across Treasuries. heavy, resource and civil the hydrocarbons, mineral engineering industries; and at processing, infrastructure and mr carpenter brings project delivery stage in the power industry sectors. expertise in the areas of health and industrial building corporate governance, ms Bond is currently a director industries, predominantly from financial management of the Queensland Bulk Water the constructor’s perspective consulting, accounting, Supply Authority, Seqwater but over recent years from the audit, risk management and corporation and Liquefied project owner’s point of view. performance management. Natural Gas Limited and he has a depth of experience mr Barton held various project consults to industry through in infrastructure management. and senior management her company Breakthrough positions with John energy Pty Ltd. ms Bond is mr carpenter is chair of the holland Pty Ltd concluding a former engineers Australia Audit committees of South with General manager “Professional engineer of Bank corporation, Queensland (Queensland) and executive the year” and Queensland Police Service, urban Land Director. President of engineers Development Authority and Australia. Scenic rim regional council. more recently, he has held or he serves on committees currently holds independent for the Local Government director, steering committee Association of Queensland, member, project director, and Office of State revenue, executive advisor roles with Department of Premier and various government-related cabinet, Griffith university enterprises. and construction Skills Queensland. he provides consulting services to BDO where he was previously a partner.
10 11 Kym Collins Elizabeth Jameson John Pegler Karen Smith-Pomeroy MBA, B Eng(Elec), GAICD BA, LLB(Hons), LSDA, FAICD BE(Mining), MAusIMM MNIA, PNA, FAIBF, MAICD Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director Term of appointment 1 July 2005 – Term of appointment 12 April 2007 Term of appointment 1 July 2006 – Term of appointment 12 April 2007 30 September 2008 – 30 September 2010 30 September 2009 – 30 September 2010 Reappointed 1 October 2008 – Chair, People and Performance Reappointed 1 October 2009 – Chair, Audit and Risk Management 30 September 2011 Committee 30 September 2012 Committee Member, Business Development Member, Business Development Chair, Business Development Committee, People and Performance Committee Committee Committee
ms Kym collins is an electrical ms elizabeth Jameson is mr John Pegler has extensive ms Karen Smith-Pomeroy is a engineer, experienced in a corporate/commercial national and international financial services professional project management, control lawyer with comprehensive experience in open-cut and with extensive experience and energy engineering in experience providing legal underground coal resource in senior roles within the the commercial construction and related advice and development, mining and Australian banking and finance industry. She currently assistance to a large range processing operations, project industries. She is currently provides project management of corporate and not- development processes and chief risk Officer Banking with and engineering design for-profit organisations, international procurement. Suncorp Bank. services on several major including statutory bodies he has a background in coal ms Smith-Pomeroy is a projects in South east and Government Owned utilisation and marketing coal member of the National Queensland through her own corporations. ms Jameson to power generators and steel institute of Accountants consultancy business, and was teaches and facilitates a range mills in Australia, Japan, Korea, and the Australian institute previously the State manager of corporate governance india and other Asian and of company Directors, and for Building Automation at classes and sessions for european countries. a fellow of the Australian Siemens Ltd. the Australian institute of mr Pegler is currently institute of Banking and company Directors. ms collins is currently a chairman and director of Finance. She is also a committee member of the St ms Jameson is Principal of Australian coal Association committee member of the Aidan’s Old Girls Association. Board matters Pty Ltd and Ltd (AcA) and chairman and risk management Association a director of rAcQ Limited. director of AcA Low emissions inc. Australian chapter. She is chair and director of Technologies Ltd (AcALeT). Fibrecycle Pty Ltd, BDO Group he is also chairman of the holdings (Qld) Pty Ltd and National Low emissions coal the Board of Trustees Brisbane council Strategy Working Girls’ Grammar School. She is Group and chairman of the also a member of the Board underground coal Gasification of Taxation. consultative committee. mr Pegler is a Board member of the Fitzroy Basin Association and a director of energy resources of Australia Ltd, a foundation member of the Queensland clean coal council, and life member of the Queensland resources council.
10 11 executive Management team
Helen Gluer Jackie Barber Jenny Gregg MBA, BCom, CPA, FAICD BSc(Chemistry) MBA, BA, Grad Cert(BAdmin), GAICD Chief Executive Officer General Manager General Manager Marketing and Trading People and Communications
helen commenced as the Jackie has more than 19 Jenny commenced with chief executive Officer of years trading experience Tarong energy in the role Tarong energy in January in deregulated electricity of General manager People 2007. Before this, she was markets: first in the uK where and communications in the chief Financial Officer of she worked for Powergen Plc September 2008. Before this, Brisbane city council. Ltd and in Australia for eTSA Jenny worked for more than Power corporation where six years at SunWater holding With a diverse career, helen she helped to establish an the positions of manager, has 25 years experience electricity retailing business in human resources and Acting in banking, finance and New South Wales. General manager, corporate. infrastructure. helen is
currently a council member upon joining Tarong energy in a diverse career, Jenny for the Queensland university in may 1999, Jackie led the has gained experience in of Technology and Local energy contracting team the utilities, human services Government remuneration responsible for optimising the and health sectors both in Tribunal and has directorships corporation’s gross margin line management and within with the Queensland and providing stable cash the human resources field. resources council, National flows for the generation Previous roles include State Generators Forum and portfolio. Jackie was manager (Queensland) and TransLink Transit Authority. appointed General manager National manager, human helen was previously the chair marketing and Trading in July resources for a national of the central Queensland 2008. provider of professional Ports Authority. her other human services. previous directorships have included city Super Pty Ltd, the South east Queensland Water Board and Brisbane Airport corporation.
12 13 Andrew Krotewicz Bob Rutten Richard Van Breda John Williamson BEng (Electrical), Dip Mgt BCom, Cert(HR Mgt) BCompt (Hons), CA(Z), CA(Aus), Dip. BA, LLB, FCIS, FAusIMM, MAICD General Manager Acting General Manager Fin. Serv. (FM) General Manager Corporate Generation Operations Mining Operations Chief Financial Officer Governance (and Company Secretary)
Andrew commenced as As the Acting General manager richard joined Tarong energy As General manager General manager Generation mining Operations, Bob is in the role of chief Financial corporate Governance, John is Operations of Tarong energy responsible for the supply and Officer (cFO) in April 2008. responsible for the secretariat, in September 2008. his role quality of coal provided to the legal, risk management/ richard formerly worked includes responsibility for Tarong power stations. compliance, and internal audit for Stanwell corporation the corporation’s safety and functions of the corporation. With more than 27 years where he was appointed environmental functions. experience in the mining cFO in 2007 after acting in Directly prior to joining Andrew has 29 years industry, his background the role since July 2005. Tarong energy in may 2007, experience in the power includes commercial and As cFO richard oversaw John consulted on corporate industry in both Queensland operations management in Stanwell’s information and governance and commercial and, more recently, in Western projects in New South Wales, communication technology, matters for a range of Australia. Western Australia, Tasmania procurement, finance and clients. Other previous and Queensland. finance risk management roles include Group General in Western Australia, he services. manager corporate Services worked on large-scale, gas- Bob joined Tarong energy and company Secretary fired cogeneration plants for in 2001 as the commercial richard was a partner for Grainco Australia, and Alcoa’s alumina smelters. manager Operations and with Deloitte, Zimbabwe various senior management The joint venture was one due to his background, has from 1995 to 1997 and positions at mim including of the first privately owned supervised and managed subsequently spent three six years as a director of the generators operating in the many projects for Tarong years with a major mining mim Superannuation Plan. then recently deregulated energy including the fuel and manufacturing company. he is currently serving on the state electricity market. options study, the Glen Wilga During this time he was Queensland State council mine plan optimisation study, responsible for the treasury, Andrew is an electrical of chartered Secretaries various environmental impact financial management and engineer who has held Australia. studies, the due diligence reporting of a number of engineering and management report of meandu mine and public companies. roles with the Queensland the recent exploration program electricity commission and that identified additional coal cS energy. he has a suite reserves at the meandu mine. of skills and knowledge in best practice operations, maintenance, engineering, project delivery and asset management.
12 13 Power Worker Scott Vogler with Manager Operations Philips David at Splityard Creek, Wivenhoe Power Station.
14 15 Safety
The safety of our people, contractors and visitors is a core value and our highest priority.
We invest time and resources into Any injury to people is unacceptable Focus was maintained on continuous continuously improving our processes and focus was maintained on improvement of the corporation’s and culture and were encouraged preventing injuries and learning from Occupational health and Safety this year by the high rate of incident those that occurred. With this in mind, management System, with eight existing and improvement reporting, and the a 44 per cent decrease in LTis from the procedures reviewed and seven new implementation of new programs that previous year was an encouraging sign procedures developed. will help us achieve our ultimate goal of that process and cultural improvements Security was also a focus, with a a zero harm workplace. are impacting positively. Security Threat and vulnerability Study Three of the four LTis recorded during conducted during the year to ensure 2009/10 Highlights the year were manual strain injuries: that security preparedness continues two involved contractors on a Principal to meet the corporation’s security contractor construction site, and challenges. SAFeTy PerFOrmANce the other involved a Tarong energy Tarong Power Station was audited by employee at Tarong Power Station. The the hazardous industries and chemicals fourth LTi was caused by an electric Tarong energy achieved more than Branch of Workplace health and Safety shock a contractor received while 1.5 million work-hours without a Queensland against the Dangerous removing a damaged power pack Lost Time injury (LTi) being recorded Goods Safety Management Act 2001 adapter from a power point, resulting in during the year. The corporation met as a large dangerous goods location. an altered heart rhythm. its 2009/10 All injury Frequency rate No non-compliance directives target with decreases in the Lost Time Tarong energy employees demonstrated were issued. injury Frequency rate (LTiFr), the their commitment to improving safety medical Treatment injury Frequency in their workplace by exceeding the imPLemeNTiNG PrOGrAmS rate (mTiFr) and the recordable injury 2009/10 corporate target of 1,200
Frequency rate (riFr) from 2008/09 non-injury incident and health, safety, (see graph). environment and quality improvement The Fitness to Work Program, involving reports by 58 per cent. alcohol and other drugs awareness and FreQueNcy rATeS yeAr-ON-yeAr testing and fatigue management, was 20 SAFe SySTemS fully implemented across all sites during 2008/09 18 the year. The program was also tested 2009/10 16 during a high activity period for the first 14 Tarong energy has a comprehensive time during the overhaul of unit 4 in 12 health and safety regime in place that may 2010. 10 involves policies, procedures, audits and 8 certification, employee education and a 6 focus on continuous improvement. 4
2
0 LTiFr mTiFr riFr
14 15 Production Supervisor Mechanical Simon Rogerson with Mechanical Fitter Brian Birch.
16 17 While the program is working isolation practices during a wider clothing is that it can be worn across effectively, the corporation will consider Permit to Work System review all the corporation’s operational sites opportunities to refine and improve conducted in February 2010. including the contractor-operated processes when it meets with other meandu mine and development Queensland Government-owned iNveSTiNG iN SAFeTy projects. The orange and navy blue generators in 2010/11. shirts feature the STAr logo reminding people to Stop, Think, Assess and in addition: One of the ways that Tarong energy respond when carrying out their work. • The 5S housekeeping program was encourages employees to be proactive The transition will be staged to allow piloted with three teams within the about improving their workplace is efficient use of current clothing and will Generation Operations unit during by providing $10,000 discretionary be replaced on a ‘fair wear and tear’ the year. Pilot groups completed budgets to a number of teams basis by 30 June 2011. the full 5S suite (Sort, Set, Shine, within each business unit for safety, Standardise and Sustain) and will health or environmental initiatives continue to embed programs to separate to those addressed in normal 2010/11 objectives improve the physical conditions of operating or capital budgets. Proposed workplaces and realise efficiencies expenditure is reviewed by the relevant c ontinue to improve systems, and improvements. health and Safety committee prior to work environment and culture with implementation to ensure the program’s the aim of achieving a zero harm • As part of a holistic wellness objectives are met and that ideas can workplace. approach, occupational therapists be shared across the corporation. were engaged to proactively i ntegrate Tarong North Power Purchases this year included: manage employees’ pre-existing Station’s procedures into the conditions identified through annual • a heartStart defibrillator for use corporation’s safety systems. medicals, back clinics held last in transit by Tarong Power Station Facilitate targeted leadership, year and injury reports. results crews that work along the Wivenhoe observation and feedback programs. have proved encouraging and Pipeline; i mplement the 5S housekeeping the corporation will continue to • ‘press to talk’ mobile phones for program more widely across the investigate preventative care and fire wardens in the Brisbane office corporation where the benefits can management techniques. to provide improved and direct be realised. communication to coordinate an mANAGiNG SiGNiFicANT riSKS evacuation; and
• aluminium toolboxes for the fuel The corporation’s Fatal risk control team’s utility vehicles to protect Protocols are aimed at evaluating equipment and improve safety systems for managing activities that through housekeeping. present the highest risks to Tarong energy people if not managed imPrOviNG SAFeTy AcrOSS SiTeS appropriately against best practice in heavy industry. Progress was made in this area during the year Tarong energy began a process of with the instigation of a process for upgrading its Australian Standard the progressive upgrade of machine compliant clothing at the beginning of guarding, and the evaluation of 2010. The main benefit of the new
16 17 A bladder provides the ash dam at Tarong Power Station with additional capacity during extreme rainfall events.
18 19 Generating Assets
The Generation Operations unit is responsible for ensuring that our generating assets maintain their well-earned reputation for reliability and availability.
investments in major overhauls at Tarong for its planned major overhaul. The operational reliability of more than 99.7 Power Station this year, as well as the shutdowns reduced plant availability for per cent. The station’s unit 1 went integration of Tarong North Power Station Tarong Power Station by 8.4 per cent for offline for 42 days in June 2010 for a into our portfolio, ensure that Tarong the year. planned overhaul. energy is well placed to play its role in Tarong North Power Station produced securing Queensland’s energy future. 2,215 GWh of electricity this year. uNiT OverhAuLS in addition to normal overhaul 2009/10 Highlights maintenance, significant refurbishment The largest and most significant and repairs were required to the power operational overhaul of Tarong Power station’s bag house filters, the generator Station commenced in August 2008. ASSeT PerFOrmANce circuit breaker and the turbine, resulting All four generating units are being
in lower than expected plant availability. overhauled over a three-year period to Tarong Power Station produced 7,124 Wivenhoe Power Station maintained improve performance and reliability and gigawatt hours (GWh) of electricity this a high state-of-readiness level and reduce emissions. financial year. remained a key part of Tarong The first overhaul – a $35 million energy’s peaking capability. When Asset renewal activities were a focus in upgrade of unit 1 – was successfully called into service the twin 250 2009/10 as part of a mid-life plant refit completed in January 2009. The larger mW hydromachines lived up to and upgrades. unit 2 overhaul was completed at the their impeccable reputation for beginning of this financial year in July During the year, unit 2 underwent delivering at or above world-class 2009, and unit 4 was completed in an upgrade and commissioning of a performance standards, achieving an may 2010. The overhaul of unit 3 new control system and unit 4 was annual availability of 92.4 per cent, began in July 2010. offline from 6 march 2010 for 69 days start reliability of 99.5 per cent and
lOcatiOn 2009/10 Plant availability % 2009/10 PrOductiOn (gWh sent Out)
BuDGeT AcTuAL BuDGeT AcTuAL
Tarong Power Station 86.7 87.3 7,228 7,124
Wivenhoe Power Station 76.7 92.4 22 40
Tarong North Power Station 93.2 63.6 3,541 2,215
18 19 The overhauls of units 1, 2 and 4 the boiler, turbine, generator and • the requirement to achieve greater involved two major upgrades: condensing/feedheating controls, boiler than 89 per cent availability from and turbine protection systems, turbine the Ash Thickening Plant. This will • refitting each unit’s control system bypass systems, turbine governor and maintain water storage space for the – essentially replacing the ‘brain’ of supervisory systems. The project also longest remaining life scenario of the power station; and includes the upgrade of some common the coal-fired units while ensuring • retrofitting the units with low plant control systems and integrates ash transfer to the new mine void nitrogen oxide (NOx) burners and several existing local control systems. disposal area; preparing for a precipitator trial. The result is a highly automated system • the management of the ash dam units 2 and 4 also had their generator capable of integrating advanced control water level to ensure compliance circuit breakers replaced to update the concepts and new technologies such with environmental licence original maintenance-intensive parts as low NOx burners. A purpose-built requirements through efficient that were approaching the end of their control room was constructed as part de-watering processes and the useful asset life. of the $50 million project, which was installation of an additional water The unit 4 generator rotor was the final officially opened in February 2010 by treatment plant; and Parliamentary Secretary for Natural rotor to receive a mid-life condition • the installation of the Black creek assessment as well as replacement of resources, mines and energy and Trade, diversion trench to significantly retaining rings. This work was in line michael choi. reduce the catchment area of the with good operating and engineering Low NOx burners ash dam and therefore reduce the practice and insurer recommendations. risk of the ash dam overflowing Following a successful trial in 2007, The overhaul of Wivenhoe Power cenospheres and ash water during a low NO burners were installed and Station’s unit 1 commenced on 7 June x significant rain event. commissioned on units 1, 2 and 4, as 2010 as a routine part of the asset’s scheduled, from February 2009. life cycle plan. The unit has been in POST-cOmBuSTiON operation for 26 years and was last The burners are a voluntary measure cAPTure PrOJecT overhauled in April 2005. taken to reduce NO emissions, which x are recognised as a contributor to Overhauls were also undertaken on regional air pollution. The burners Tarong energy has entered into an Tarong North Power Station during the also offer the potential to expand the agreement with the cSirO to design, year to repair turbine damage resulting operating range of each generating unit. build and operate a post-combustion from a lightning incident that occurred capture (Pcc) pilot plant at Tarong in September 2008. The next set of burners will be installed Power Station. The pilot plant will on unit 3 in August 2010. Control system refit experiment with process improvements in the operation of an amine- Although plant operations have been ASh AND ASh WATer STrATeGy based plant for capturing carbon dioxide excellent since the original control emissions during coal-fired generation. system was installed more than 25 years ago, refitting the system was An ash and ash water strategy prepared considered essential to ensure plant during the year will help ensure ash reliability and flexibility into the future. continues to be effectively managed for another 25 years. Starting in August 2008 and coinciding with scheduled overhauls, the project The ash and ash water strategy involves upgrading each unit’s control includes: system infrastructure including
20 21 Wivenhoe Power Station.
After construction off site, assembly TArONG NOrTh POWer STATiON 2010/11 objectives and commissioning of the plant occurred on site during may and June Tarong energy took full ownership of c omplete the control system refit 2010. research will be conducted Tarong North Power Station in late 2009 program of works at Tarong Power over 12 months from July 2010 by purchasing the remaining 50 per Station. to investigate the effectiveness of cent share from joint venture partners Successfully complete the Wivenhoe various operating regimes on carbon The Tokyo electric Power company, Power Station overhaul. capture effectiveness and efficiency. incorporated and mitsui & co., Ltd. Finalise the integration of Tarong Whilst the pilot project will not The power station and its employees North Power Station. immediately reduce carbon emissions are being integrated into the Generation from Tarong Power Station, the c ommence the unit control system Operations business unit. information gathered from the research upgrade at Wivenhoe Power Station. will not only add to the collective body i mplement the ash and ash water of information on Pcc operations, strategy. it will help to select the appropriate technology for use in any commercial- scale application.
20 21 Acting General Manager Mining Bob Rutten with Mining Operations team members Tahlee Rouillon and Lynette Chagnon.
22 23 Mining Assets
Our mining Operations unit manages meandu mine and associated projects, the Kunioon coal resource and other mining interests.
major capital investments made this iNveSTiNG iN NeW eQuiPmeNT SOuTh BurNeTT cOAL reSOurceS year in new trucks and associated mobile fleet will ensure the surety of As part of mining Operations’ asset The strategic coal asset review and coal deliveries to power Tarong energy management strategy, significant capital the update of the meandu life-of-mine into the future. was invested in replacing much of the plan, which were both completed this primary mobile fleet acquired as part year, indicated a significant extension of the meandu mine purchase. A new in the economic life of meandu mine. 2009/10 Highlights excavator, dump trucks and support The results of an exploration drilling equipment were assembled on site program undertaken during the year and over a six month period beginning in the outcomes of the strategic review Key PArTNerShiP STreNGTheNeD early 2010. No safety incidents or indicated a prospective exploration target
injuries were recorded during the on- east of the current active mining area meandu mine is operated by site and off-site build and assembly of that may identify further economic coal. experienced contract miner Thiess Pty the mobile fleet. The investment also During the year it was confirmed Ltd under a mining Services Agreement. resulted in approximately $3 million that meandu mine would be able to The critical nature of supplying fuel worth of local investment and created a supply the Tarong power stations until to the Tarong power stations means boost to regional employment. at least 2025. While the transition that the relationship between the The strategic replacement of aging to the Kunioon coal resource has parties is of particular focus for the mobile fleet has a two-fold benefit: been officially deferred, it remains an corporation, and it was pleasing that increasing the surety of coal deliveries important part of the corporation’s fuel Thiess again met all established safety, to the power stations through the use supply strategy. environmental, cost and production of reliable equipment, and decreasing targets in 2009/10. operating costs. SurAT BASiN miNiNG ASSeTS The parties negotiated a 12-month extension to their agreement during ADDreSSiNG AN iNhereNT riSK Tarong energy has owned mining the year. This affirms Tarong energy’s tenements in the Surat Basin since partnering approach to operations at Tarong energy and Thiess recognised 1999. These include mineral meandu mine and recognises Thiess’ that the interaction of light and heavy Development Licences and exploration performance and commitment to the vehicles was one of the most significant Permits for coal over and around: project. risks to people and machinery on site. • the Glen Wilga coal resource With a view to reducing this risk, Thiess located about 12km south east of commenced implementation of an chinchilla; and innovative mine design during the year that is specifically aimed at avoiding • the haystack road coal resource those interactions. located about 25km east of chinchilla.
22 23 24 25 Tarong energy also has interests in a TrAiNiNG ceNTre uPDATe 150km transport corridor from the Surat Basin to the Tarong power stations. The Operations Training centre in relation to Glen Wilga and associated commenced a trainee program in July land holdings, the corporation is 2009 to provide a pathway to full-time exploring opportunities to determine employment within the mining industry their market value. for South Burnett residents. reflecting in February 2010, the Queensland local community demographics, the Government released a discussion training centre is tailored to ensure paper on the topic of strategic opportunities are available to women cropping land which may impact the and Aboriginal people. The program mining prospects of haystack road. was recognised with an award in the Accordingly, Tarong energy will continue ‘Best company initiative’ category of the to monitor strategic cropping land policy 2010 Queensland resources council developments to determine options for resources Awards for Women. this resource. While there is no guarantee of employment upon completing the iNveSTiNG iN NeW eNerGy program, all eight successful graduates to date have been able to transition into full-time positions at meandu mine. Tarong energy reported last year that it was investigating less carbon-intensive fuel options as part of its commitment 2010/11 objectives to reducing greenhouse gas emissions. Develop a long-term disposal A study into the potential for a biodiesel strategy for ash from the power fuel industry in the South Burnett region, stations into mine voids. particularly focused on establishing and managing a productive Pongamia c omplete the detailed scope and (legume tree) plantation and harvesting award the contract for the upgrade the trees’ oil for biodiesel production, of the meandu mine coal handling commenced during the year. Preparation Plant.
Ongoing research into the c omplete the initial phase of the environmental and economic viability exploration program to the east of of Pongamia continues with plans to the current active mining area at undertake trial plantations at meandu meandu mine. mine and on other Tarong energy- c ommence a refurbishment of the owned land. meandu mine dragline to ensure The corporation is also investigating long-term operational efficiency and a partnership with the university of reliability. Queensland’s centre for integrative Legume research under an Australian research council Linkage Grant.
24 25 Energy traders Oliver Jessup (left) and David Warman.
26 27 Marketing and trading
The marketing and Trading unit manages the dispatch of electricity generated by our assets in the National electricity market.
This year’s investment in training and undertaking detailed analyses of QueeNSLAND - mONThLy preparation for the possible introduction options such as removal units and off- AverAGe SPOT PriceS of a carbon price will ensure we are take agreements from low emissions $90 well placed to manage future challenges generation to mitigate the corporation’s $80 effectively. carbon liability. $70 $60 The Australian Government announced
$/mWh $50 delays to the cPrS in April 2010, 2009/10 Highlights $40 however, Tarong energy continues to $30
prepare for the possible introduction $20 of an emissions trading scheme in the QueeNSLAND mArKeT OvervieW $10 future. A key part of this preparation 0 is ensuring that employees receive 09 JuL 09AuG 09SeP 09OcT 09NOv 09Dec JAN 10FeB 10mAr 10APr 10mAy 10JuN 10 The Queensland electricity market the necessary training and have the continued to experience reduced appropriate systems available to them Less than $20 Between $20 and $50 volatility throughout the year. maximum to effectively manage any potential Between $50 and $300 Greater than $300 demand in Queensland was 8,890.7 carbon liability on behalf of the mW representing growth of only 2.46 corporation. per cent on the previous year. electricity demand was well below the forecast DiverSiFyiNG The cuSTOmer BASe QueeNSLAND - ANNuAL levels reflecting, in part, the slow down AverAGe SPOT PriceS in economic growth and average summer temperatures. The Queensland energy market $60 continues to evolve since privatisation The average spot price in Queensland $50 and the introduction of full retail for the year was $33.30 per megawatt contestability. Tarong energy has $40 hour (mWh). This annual average adapted to this changing environment by $/mWh spot price was supported by stable $30 developing innovative products aligned underlying prices in the $20 to $50/ $20 to the requirements of the corporation’s mWh price range. changing customer base. $10
PrePAriNG FOr chANGe Tarong energy also successfully 0 implemented its retail channel to 1998/991999/002000/012001/022002/032003/042004/052005/062006/072007/082008/092009/10 market strategy in 2009/10 to diversify Tarong energy continued to develop its revenue streams and secure stable Less than $20 Between $20 and $50 and enhance systems, policies and cash flows. Between $50 and $300 Greater than $300 procedures to prepare for the carbon Pollution reduction Scheme (cPrS),
26 27 OPTimiSiNG FiNANciAL 2010/11 objectives PerFOrmANce c ontinue to develop innovative Tarong energy successfully achieved trading strategies to ensure 2009/10 gross margin targets by that Tarong energy’s revenue adopting a diversified contracting is optimised, and commercially strategy and providing innovative sustainable returns are delivered on solutions to its expanding customer the corporation’s portfolio of assets. base. marketing and Trading continued c ontinue to prepare for an to develop and enhance the integrated emissions trading scheme and spot and contracts trading strategy assess options to cost-effectively to optimise the portfolio return, manage any potential carbon while proactively managing the risks liability. associated with planned and unplanned i nvest in the future by equipping outages during the year. employees with the necessary skills The seamless integration of the and systems to adjust to changing Tarong North Power Station into the market dynamics. corporation’s asset portfolio during 2009/10 provided additional flexibility when bidding and dispatching the output of the corporation’s assets and supported marketing and Trading’s overall strategy.
iNDuSTry eNGAGemeNT
As one of Queensland’s most significant generators, Tarong energy continued to actively participate in the National Generators Forum which directly represents the 23 major power generators in the Australian electricity supply system.
members of the marketing and Trading team also focused on developing relationships with the Australian energy regulator and the Australian energy market Operator.
28 29 28 29 Nanango State High School students with tingids, bred for use as a biological control agent on Tarong Energy-owned land.
30 31 environment
Tarong energy understands that our activities have an impact on the environment and we are committed to minimising these impacts and using natural resources sustainably.
This year we made progress in several The process for managing NumBer OF iNciDeNTS key areas including reducing emissions environmental risks was a particular AND cOmPLAiNTS
to air, rehabilitation of the ash dam and area under review during the year and 8
preserving wildlife habitat. improvements will be implemented in 7
2010/11. 6 2009/10 Highlights 5 Air 4
3 iNciDeNTS Tarong energy maintained its focus on 2
improving regional air quality by reducing 1
For the fifth consecutive year, Tarong the level of airborne emissions. 0 energy recorded no catastrophic or 2006/07 2007/08 2008/09 2009/10 The particulate licence limit was exceeded major environmental incidents at any at Tarong Power Station in July 2009 catastrophic moderate of its sites. There was one regulatory major complaints due to transitional issues with the new breach in July 2009 at Tarong Power control system. The maximum particulate Station, further detailed under the Air concentration during the 54 minute section of this report. exceedence from unit 1 was 488 mg/ The corporation received and Nm3 (licence limit is 458 mg/Nm3). Station’s four generating units, and responded to seven environmental burners will be installed in the final unit The Department of environment and complaints during the year (see graph). during its overhaul. resource management (Derm) was notified immediately. measures taken A regional air quality modelling study eNvirONmeNTAL mANAGemeNT to prevent a recurrence included a was conducted during the year which review of operator training programs determined that the burners have and emission control procedures. had a positive impact and significantly Tarong energy’s environmental in addition, as part of the control decreased NO concentrations. The performance is managed through a x system refit project (see page 20), study also modelled the impact of certified environmental management investigations began into the feasibility Tarong energy’s particulate emissions System (emS), which provides a of automatic unloading and tripping of a on the surrounding environment. structured and robust approach focused unit in the event of high emission levels. The findings indicated that the levels on continuous improvement. in of particulates – based on a typical 2009/10, certification of the emS to Reducing emissions emissions profile – were predicted to AS/NZS iSO 14001 was maintained Low nitrogen oxide (NO ) burners have be below all relevant state and federal at the Tarong and Wivenhoe power x been installed in three of Tarong Power ambient air quality guidelines. stations and the Brisbane office.
30 31 Reporting Offsetting emissions feasibility of transporting this water for treatment at Tarong Power Station and compliance with air quality Tarong energy continued to offset is beneficial reuse on site or within requirements is reported to Derm. emissions generated by business-related South east Queensland is being studied. Tarong energy also reports emissions travel through Greenfleet’s nationwide investigations also include options for information to the National Pollutant reforestation program. in line with reuse or storage of salts extracted from inventory (www.npi.gov.au); and for the Queensland Government policies, Tarong the water. first time in October 2009, reported its energy has offset all business-related greenhouse gas emissions under the travel including cars, buses and air travel Trialing new technologies new National Greenhouse and energy since December 2007. Tarong energy and mBD energy have reporting System. To directly reduce emissions, Tarong agreed to conduct a 1ha bio carbon energy continued to replace six- capture and storage trial at Tarong cArBON cylinder petrol powered vehicles in its Power Station using algae. mBD energy
leased vehicle fleet with four-cylinder is a melbourne-based, public unlisted Tarong energy assumed full ownership diesel powered vehicles. This change technology company which operates of Australia’s most emissions-efficient has resulted in a reduction in fuel a joint research and development coal-fired power station in late 2009. consumption and carbon emissions. To facility in Townsville with James cook university. Tarong North Power Station affirmed date, 95 per cent of Tarong energy’s its reputation this year with a carbon leased vehicle fleet has been replaced called algal synthesis, the process intensity of 822 kilograms of carbon with more efficient vehicles. involves the injection of captured flue gases into a waste water growth dioxide (cO2) equivalent per mWh of Investigating gas electricity generated (see graph). medium contained in large, elongated, Tarong energy continued to investigate plastic membranes to produce rapid Tarong Power Station’s carbon intensity, ways to grow a low emissions expansion approximating up to a as illustrated in the graph, increased generation portfolio. One option is doubling of oil-rich algal biomass every slightly from the previous year. This is to bring coal seam gas (cSG) to the 24 hours. attributed to lower average unit loads Tarong Power Station site to burn as a This algal biomass, grown from locally resulting generally from market trading secondary fuel. This project involves: conditions. selected strains of microalgae to protect • discussions with potential cSG local biodiversity, may be harvested suppliers; daily to produce algal meal suitable for
KG OF cO2e/mWh GeNerATeD nutritious, lower-methane animal feed, • identifying a route for a high human nutritional supplements and oils 900 pressure pipeline to transport gas to suited to the production of plastics and Tarong Power Station; and 880 transport fuels including large quantities 860 • investigating a range of options to of biodiesel. The trial plant will be
840 use gas to generate electricity at operational in the second part of the Tarong Power Station. 2010/11 financial year and will run for 820 12 months. 800 As part of the investigations into gas supply, Tarong energy identified a Tarong energy has also entered into an 780 potential opportunity to manage and agreement with the cSirO to design, 760 treat the large volumes of brackish water build and operate a post-combustion 2005/06 2006/07 2007/08 2008/09 2009/10 released in the cSG production process. carbon capture pilot plant at Tarong Tarong North Power Station Tarong Power Station The technical and environmental Power Station (see page 20).
32 33 Revegetation trials at the ash dam, Tarong Power Station.
32 33 WATer built water storage facility located near Protecting fauna habitat Proston. Boondooma Dam received As part of a surface rights extension significant inflows early in 2010 to reach Water is essential for operating Tarong to meandu mine, Tarong energy its highest level in more than five years, energy’s power stations. committed to creating a voluntary which further improved reliability of vegetation offset to mitigate the in 2009/10, Tarong energy used water water supply to the power station. from the South east Queensland Water potential impact of its activities on Responsible management Grid to supply Tarong North Power the Black Breasted Button Quail, a Station. Tarong energy remains strongly vulnerable bird species. committed to water conservation and Tarong Power Station continues to use The offset property purchased was reuses water where possible. water that is predominately sourced chosen due to the presence of regrowth from Boondooma Dam, a purpose- The corporation saved approximately habitat for the Black Breasted Button 790 mL of water during the year by Quail. The area will also become an reusing blowdown water at Tarong important wildlife corridor, providing Power Station and meandu mine. Over connectivity to surrounding native forest WATer cONSumPTiON AT 1,200 mL of water from the ash dam once fully revegetated. TArONG POWer STATiON was also reused during the reporting A long-term strategy was developed period, representing a significant saving 30,000 includes 8,232 mL of and a weed control program was Purified recycled Water in raw water use. implemented during the year to 25,000 includes 4,913 mL of Leveraging opportunities manage issues associated with the Purified recycled Water 20,000 A review of meandu mine’s site water property’s cattle grazing history. Sections of the property have been Water (mL)Water 15,000 management plan commenced during the year. it will consider integration fenced to exclude cattle and aid in the 10,000 opportunities afforded by Tarong natural regeneration of the site.
5,000 energy’s common ownership of the Tarong energy recognises the power station and mine sites in order 0 importance of environmental education 2005/06 2006/07 2007/08 2008/09 2009/10 to optimise water usage and improve and partnered with Nanango State high quality and conservation strategies. School during the year to purchase seedlings for students to propagate LAND and help revegetate the offset property.
WATer recycLeD AT Senior students are also undertaking a TArONG POWer STATiON Tarong energy owns considerable land long-term monitoring study of the site. 12,000 holdings in addition to its operating includes 8,232 mL of Controlling weeds and pests Purified recycled Water sites. These include properties related 10,000 to the Kunioon coal resource in the Tarong energy is committed to working 8,000 South Burnett region and properties cooperatively with local communities includes 4,913 mL of related to the Glen Wilga coal resource on land issues. This includes working 6,000 Purified recycled Water Water (mL)Water in the Surat Basin. with key stakeholders to determine the 4,000 The corporation is committed to best solution for immediate and long- 2,000 managing issues related to habitat term weed and pest problems and preservation, rehabilitation and property utilising local contractors to complete 0 2005/06 2006/07 2007/08 2008/09 2009/10 maintenance on all its land holdings. identified work.
34 35 A Black Swan nests on Black Creek Dam.
34 35 The corporation partnered again with Nanango State high School in an environmental education project focused on weed control. One educational stream has year 10 agriculture students breeding small moths called tingids, which are a biological control agent for cat’s claw creeper. A large number of tingids were successfully released on Tarong energy-owned land during the year to help control this prevalent weed.
Tarong energy carries out a successful program at the Tarong and Wivenhoe power station and meandu mine sites as part of a coordinated regional effort to control feral dogs.
WASTe
Tarong power stations generate ash as a direct result of burning coal to produce electricity. The corporation sells more than 20 per cent of this ash for use in various manufacturing processes (see graph page 37) and continues to seek potential new markets to limit the volumes being managed as waste.
New ash disposal
Tarong energy obtained approval to redirect ash into the King 2 West void at meandu mine early in 2008. During the reporting period, the ash pipeline to the King 2 West void was commissioned and ash placement began via a 4.5km above-ground pipeline. This void has a storage capacity of up to five years. After this time, and subject to further approval, ash will be redirected to other voids with sufficient capacity for the life of the power stations.
A 4.5km above-ground pipeline transports ash from the Tarong power stations to a mine void at Meandu Mine.
36 37 SALe OF cOAL to machinery. The corporation is also 2010/11 objectives cOmBuSTiON PrODucTS investigating the possibility of utilising spoil from meandu mine for ash dam 450,000 i mplement a NOX monitoring 400,000 capping. program once the burner installation 350,000 Improving spill response project at Tarong Power Station is 300,000 finalised. A bioremediation facility for oil- 250,000
Tonnes contaminated soil was designed and c ommission the stormwater 200,000 upgrade project at Tarong Power 150,000 constructed at meandu mine during the Station to improve stormwater 100,000 year. Operating procedures detail how management on site. 50,000 oil-contaminated soil from on-site spills
0 are monitored and controlled to achieve c ommence research and trials on 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 low hydrocarbon residuals, reducing the post-combustion capture pilot potential contamination. plant at Tarong Power Station and Rehabilitating the ash dam conduct a bio carbon capture and Tarong energy continued to utilise the mOve TO GreeNer OFFice storage trial using algae. ash dam for the disposal of ash and Deliver a revised environmental related effluents during 2009/10 while The Brisbane corporate office relocated training program to improve maintaining compliance with relevant to a more environmentally sustainable understanding of environmental conditions of Tarong Power Station’s building in September 2009. Located obligations. environmental Authority. in Albert Street in Brisbane, Am-60 has An audit of the groundwater and surface been awarded a 5 Star rating by the water monitoring programs associated Green Building council of Australia. with the ash dam was conducted by As a tenant of Am-60, Tarong energy Derm in January 2010. No non- is obligated to comply with Green compliances were identified. Star building initiatives and invested in employee education on waste and The Ash Dam management Plan, energy management during the year. required as a condition of Tarong energy’s environmental Authority, was also reviewed in September 2009 to SuSTAiNABLe PrOcuremeNT include revised mandatory reporting levels for water. During the year, sustainability The revegetation trials established in considerations were introduced as 2007 on the capped ash dam surface a requirement in the Tarong energy were monitored during the year. The Procurement Policy. more specifically, trials continue to demonstrate the the corporation now gives consideration successful establishment of native trees to strategies that manage demand and and shrubs over a capping of sandstone avoid unnecessary consumption, and spoil without the use of topsoil or minimise whole-of-life environmental fertilisers. Progressive capping of the impacts. it also considers suppliers’ ash dam to prevent dust migration will socially responsible practices including continue in 2010/11 over areas of the compliance with legislative obligations ash dam that are full and accessible in relation to employees.
36 37 Technical Employee - Mechanical Ed Hodgson and Manager Operations Philips David.
38 39 people
Our people are vital to the ongoing success and future security of our business.
By providing a safe, rewarding and LiSTeNiNG TO Our PeOPLe supportive workplace, we continue to attract, engage and retain motivated and Tarong energy values the input of skilled employees. employees in helping to shape Our focus in 2009/10 was on fostering their workplace. in September a strong leadership culture, planning 2009, approximately 77 per cent of for our future workforce needs and employees completed the biennial addressing employee feedback. employee Opinion Survey to share feedback about what it is like to work at Tarong energy. The survey results 2009/10 Highlights indicated that employees believe Tarong energy displays a genuine and strong commitment to safety and the 2009 eNTerPriSe BArGAiNiNG environment. Key areas for further AGreemeNT improvement included enhancing
leadership capability, and managing and Following negotiations between improving employee performance. employee representatives, unions and Tarong energy has acted on the Tarong energy, the 2009 enterprise survey findings and feedback, using Bargaining Agreement was certified the information to support ongoing on 22 September 2009. variations initiatives and introduce new programs from the 2006 Agreement focused on that matter to employees. These optimising operational work practices include a new Leadership Development to benefit both employees and the Framework and a review of the annual corporation. performance review program. A manager’s Guide to the enterprise Bargaining Agreement was released in February 2010 to assist managers in the practical application and implementation of the Agreement and to respond to employees’ commonly asked questions.
38 39 Apprentices Kynan Blines and Kyle Butler.
eNGAGiNG WiTh Our PeOPLe cOmmuNiTy SuPPOrT Leadership charter outlining the desired attributes and performance expected of leaders and the qualities With employees operating across five As part of Tarong energy’s social to which emerging leaders should sites in three southern Queensland investment program, the corporation aspire. A pilot group of managers also regions, Tarong energy has well- offers support to employees who attended a Senior Leaders’ Leadership established communication channels contribute to their community through Development Program, which will be to encourage the sharing of information sport, volunteering or charity fundraising. rolled out to the broader management and feedback among all sites and This year Tarong energy sponsored its team in 2010/11. Tarong energy will business units. corporation-wide first team in the Queensland corporate continue to reinforce the principles of activities include biannual ceO Games. in may, employees joined its Leadership charter in the upcoming presentations, a weekly newsletter, together at celebratory ‘biggest morning financial year through stronger links monthly corporate issues and teas’ to raise more than $3,000 for the with its performance and salary review information discussions, senior cancer council Australia. Tarong energy processes. management workshops and the matched all funds raised by employees intranet, TarongNet. dollar for dollar. FuTure FOcuS Focus group research of representative
employees was undertaken in August iNveSTiNG iN Our LeADerS Tarong energy continued to plan 2009 to provide valued feedback on the corporation’s internal communication, for the future of its workforce. The as well as reward and recognition effective leadership is vital to motivate, corporation’s succession planning activities, leadership and employment align and engage the workforce. Tarong model was redeveloped to more branding. The research results have energy continued to embed a visible effectively identify business-critical roles helped to shape key initiatives, including culture of strong leadership with the and support the career progression of ongoing improvements to internal launch of the Leadership Development promising employees. A continued communication tools and the new Framework. focus on succession planning will help employment brand. central to the framework was the to optimise the workforce and ensure corporation-wide release of a new the right people with the right skill sets
40 41 Environment Graduate Juanita Legrady on Wivenhoe Dam.
are working in the right areas for the Tarong energy line managers and recruiTiNG SKiLLeD PeOPLe corporation to deliver on its future supervisors attended a new Supervisor objectives. induction Program from early 2010 A new employment brand was where they received practical guidance in a boost for regional employment and developed to differentiate Tarong on how to better manage their team’s Tarong energy’s future workforce needs, energy in the job market and boost performance. These inductions will nine new apprentices and trainees recruitment. The brand will be publicly continue on an ongoing basis for started in various work placements at released and embedded internally in employees who commence work in line Tarong Power Station in February 2010. mid 2010. Tarong energy also launched management positions. At meandu mine, 16 trainees attended a new online recruitment system to the mining Operations Training centre streamline and enhance the recruiting during the year, all aiming for a future ADAPTiNG TO chANGe process for both candidates and career in the mining industry recruiting managers. (see page 25). To ensure Tarong energy remains competitive and profitable in a 2010/11 objectives mANAGiNG PerFOrmANce challenging market it is essential that employees adapt to and i dentify the roles and employees manage change effectively. in 2010, A review of the corporation’s critical to our business to ensure Tarong energy developed a change performance management process was sufficient resourcing for the future. management Toolkit to assist managers undertaken in late 2009 in response c ontinue to implement workforce to plan for and implement change to feedback from the employee strategies to attract, retain and initiatives, and to lead their teams Opinion Survey. Policy and procedural engage a skilled workforce. effectively through the change process. changes, coupled with intensive e mbed the corporation’s change training at supervisor level, have led management processes. to improvements in the effectiveness of employees’ biannual performance Launch the new employment brand. reviews.
40 41 Indigenous Relations Advisor Darren Schmidt and Wakka Wakka Elder Beryl Gambrill interpret a painting depicting the relationship between Tarong Energy and the Wakka Wakka people to corporate office employees.
42 43 Stakeholders
We value the relationships we have with councils, schools, traditional owners and community organisations, as well as our Shareholders, government departments and industry partners.
During the year we invested more Key to the corporation’s response WOrKiNG WiTh than $600,000 in community events, was the production of the Community TrADiTiONAL OWNerS projects and initiatives, and focused on Report; a yearbook-style publication improving our engagement activities. featuring articles of relevance to the The indigenous Land use Agreement South Burnett, Surat Basin and Brisbane (iLuA) between Tarong energy and the valley communities. The inaugural Wakka Wakka people, the traditional 2009/10 Highlights report was widely distributed in early owners of the land where Tarong 2010 and will be repeated on an energy’s South Burnett assets are annual, calendar-year basis. Tarong eNGAGiNG WiTh The cOmmuNiTy located, continued to deliver mutual energy also continued to produce its benefits during the year. The iLuA community newsletter, Power News, formalises the relationship between Tarong energy understands that its distributing 10,000 copies of each issue Tarong energy and the Wakka ability to generate electricity for the to businesses and households in the Wakka people and provides a strong people of Queensland is, in large South Burnett region. foundation for both parties to achieve part, dependant on the support of the Another response to the research their respective goals. communities in which it operates. The findings involved making changes to corporation continued to build on its Both parties demonstrated their community information sessions, which existing relationships within the South commitment to the spirit as well as have been a feature of Tarong energy’s Burnett region during the year and also the intent of the iLuA during the year. community engagement for several strengthened ties with Brisbane valley Senior Tarong energy managers were years. in 2009/10, Tarong energy stakeholders. invited to murgon in September 2009 hosted two sessions that were open to an event celebrating new premises community engagement activities in to all members of the South Burnett for the cultural and business arm of 2009/10 centred on evolving Tarong community and held in community the Wakka Wakka people, the Bunya energy’s approach using feedback locations rather than at Tarong Power Wakka Wakka cultural and heritage gained from perception research Station. The sessions provided corporation. A month later, Wakka undertaken in may 2009. The findings attendees with the opportunity to meet Wakka elders were honoured guests highlighted the communities’ desire to senior Tarong energy representatives at the opening of the Wakka Wakka be kept better informed about current and learn about major projects, as meeting room at Tarong energy’s activities and for the corporation to well as employment and sponsorship new corporate office where a painting work more effectively with landowners, opportunities. The number of depicting the close relationship between particularly in the Surat Basin. The attendees, the issues raised and the the parties was also unveiled. research also identified the opportunity feedback received were all encouraging. to raise the profile of Tarong energy’s community investment.
42 43 Nanango State School Principal Lyle Giles and students pose on playground equipment funded by the Tarong Energy Community Partnership Fund.
Supporting employment Bark ridge Services. These local small representative Sports Award and the businesses provided cultural heritage high School Scholarship Program. The During the reporting period, the two and natural resource management Tertiary education Scholarship Program committees established under the services during the year. was adjusted to expand its accessibility iLuA – the Agreement implementation and ensure it continues to meet the Group (AiG) and the Aboriginal Tarong energy also engaged the Wakka needs of applicants. community interest consultative Wakka people and their technical committee (Acicc) – remained advisers to complete several cultural Other Acicc highlights for the 2009/10 focused on delivering long-term social heritage surveys in 2009/10. year included: and economic outcomes with an Supporting sustainable outcomes • providing financial support to emphasis on supporting role models cherbourg radio station 4um for the and employment initiatives. The Acicc operates as a committee preparation of a business plan; under the iLuA and comprises South Burnett Aboriginal people aspire traditional owners, senior Tarong energy • fostering links between potential to work locally in stable employment employees and representatives of applicants and other funding bodies; environments. The focus of the the wider South Burnett Aboriginal AiG and Acicc during the year was • funding the year 12 graduation community. to support initiatives that led to the ceremony for South Burnett improvement of local employment The Acicc provides funding to support Aboriginal students; and prospects. projects that aspire towards long- • supporting the re-establishment of term sustainability, providing more Tarong energy’s indigenous relations the Barambah cricket club, which than $155,000 of targeted financial team also worked towards this goal completed the season as South support to the South Burnett Aboriginal by building relationships with local Burnett regional champions. community in 2009/10. employment agencies in an effort to deliver sustainable employment This funding supported more than ShArehOLDer AND iNDuSTry opportunities that ultimately extend 40 Aboriginal community groups eNGAGemeNT beyond the life of the iLuA. and individuals to create long-term improvements in the areas of education, Tarong energy directly supports The support of Tarong energy’s health, culture, business and sport. Aboriginal employment as part of the Shareholders is essential to the operation of the Tarong power stations in December 2009, the Acicc corporation’s ongoing success. regular and meandu mine by engaging the undertook a review of its three core reports and briefings were provided Bunya Wakka Wakka cultural and funding programs – the Tertiary to shareholding ministers and their heritage Aboriginal corporation and iron education Scholarship Program, Junior departments throughout the year.
44 45 Tarong energy also continued to focus at the school. Providing a safe, Tarong energy also: on effective communication with other engaging and interactive area for the • provided $15,000 to the Duke of state government agencies such as students, the play forts will benefit edinburgh Program to purchase the Queensland manufactured Water students for years to come. equipment for South Burnett Authority (WaterSecure) and the • careFlight rescue received funding participants; SeQ Water Grid manager, as well as for its Lighting the Dark project, participating in industry groups such as • sponsored the annual rail Trail Fun contributing to the purchase of the Queensland resources council and run held in the Brisbane valley night vision goggles. The goggles the National Generators Forum. region; will enable pilots to land helicopters safely at night when transporting • supported safety initiatives of the SOciAL iNveSTmeNT critical patients to larger hospitals for Blackbutt SeS, murgon State high emergency treatment. School and the cooyar Town rural Fire Brigade; and Tarong energy continued to support the • Wondai country club purchased community in 2009/10 through the lawn maintenance equipment with • sponsored the Boondooma Dam implementation of its Social investment the fund’s support, which will help Fish Stocking and management Policy. The policy has two funding maintain the local golf and bowls Association’s fish stocking program streams – the corporate Sponsorship club as well as facilitate business and fishing events. Program and the Tarong energy development through the pursuit of community Partnership Fund. tendering opportunities. 2010/11 objectives Community Partnership Fund Corporate Sponsorship Program
Since its inception last financial year, The corporate Sponsorship Program c ontinue to evolve the Social the community Partnership Fund provided more than $160,000 to investment Policy to ensure has awarded more than $500,000 to community groups, schools and councils maximum benefits for the organisations and community groups in in the Brisbane valley, Surat Basin and communities in which Tarong the South Burnett region. South Burnett regions in 2009/10. energy operates.
The fund supports activities that build Through the corporate Sponsorship u ndertake biennial perception social capital in the South Burnett Program, Tarong energy continued to research to ensure communication, through training and capacity building; support several key activities including: community relations and indigenous the provision of services; or through relations activities are meeting • the Science and engineering capital works and infrastructure projects. community needs and expectations. challenge at Nanango State high in 2009/10, Tarong energy supported School – seven Tarong energy c ontinue to work with traditional eight major projects worth more than engineers volunteered their time to owners and the broader South $285,000 through the community judge this event; Burnett Aboriginal community Partnership Fund. to ensure sustainable social and • Playgroup Week celebrations – economic benefits are provided Several of these projects, and many this event brought families from through the iLuA. from 2008/09, were completed and throughout the South Burnett celebrated within the region during the together; and year. These included: • the Queensland music Festival – • The Nanango State School South Burnett residents continued received funding to build new play to benefit from this three-year equipment with soft-fall surfaces partnership.
44 45 Chair Graham Carpenter (standing), General Manager Corporate Governance John Williamson, CEO Helen Gluer (sitting) and Manager Corporate Communication Stephanie McMahon in Tarong Energy’s Brisbane Board room.
46 47 Corporate Governance
Approach to corporate Foundations of • overseeing the processes for identifying the significant risks facing governance management and the organisation, and ensuring that oversight appropriate and adequate control, Tarong energy is committed to monitoring and reporting processes best practice corporate governance (Corporate Governance are in place; and and processes that will enhance Guidelines principle 1) the corporation’s efficiency and • reporting to and communicating Role and function of the Board and effectiveness and ensure the with shareholding ministers. appropriate degree of accountability and senior management The chief executive Officer’s transparency to stakeholders. The Board has adopted a charter responsibilities include the overall that sets out the functions and Tarong energy defines governance as operational, business management responsibilities of the Board within ‘the system by which the corporation is and financial performance of Tarong the governance structure of Tarong directed, managed and held to account’. energy while managing the organisation energy. The conduct of the Board is it incorporates the culture, structures in accordance with strategy, plans and also governed by the Corporations and processes for decision-making, policies approved by the Board to Act 2001, the Government Owned accountability, control and behaviour. achieve agreed targets. it provides the framework within which: Corporations Act 1993 and Tarong energy’s constitution. Senior executives reporting to the • the Board is accountable to chief executive Officer have their roles The primary responsibilities of the shareholding ministers for the and responsibilities defined in specific Board include: successful operation of Tarong position descriptions. energy; • the appointment, removal, Committees of the Board • the strategies and goals of Tarong performance monitoring and energy are set and agreed; succession planning of the chief The Board has established three executive Officer and the senior committees to assist in the execution • key risks are managed; and executives; of its role and to allow detailed • ethical values and behaviours, and consideration of complex issues. • the approval of corporate strategies, responsible decision-making are committee members are chosen for the annual budget and five-year promoted and inappropriate actions their skills and experience. financial plan; and behaviours are not sanctioned. The roles, responsibilities and delegated • monitoring of organisational and Tarong energy has adopted the authorities of each committee are financial performance and the principles outlined in the Corporate set out in the respective committee achievement of Tarong energy’s Governance Guidelines for Government charters. each year the charters are strategic objectives and targets; Owned Corporations and believes reviewed and, where appropriate, that through the reporting period its • overseeing the effectiveness of the updated to take account of changes and governance arrangements have been management processes in place other developments in the committees’ consistent with these principles. and approving major corporate areas of responsibility. initiatives; The key features of Tarong energy’s each committee meets several times governance regime are set out in this • approving policies in relation a year, depending on committee section. Further details on corporate to corporate governance, risk workload requirements. The role and governance matters are available on management, compliance, safety membership of each committee are Tarong energy’s website, and environment; described in more detail in this section. www.tarongenergy.com.au
46 47 People and Performance Committee The committee’s primary The committees are authorised, with (Corporate Governance Guidelines responsibilities are: prior approval of the chair or the chair Principles 1 and 8) Audit and risk management committee, • financial management and or company Secretary if the chair The People and Performance accounting practices; committee comprises the following is conflicted, to obtain independent directors: • the integrity of financial statements; external professional advice at the corporation’s expense and to secure elizabeth Jameson (chair) • business critical risk identification, risk management and compliance the attendance of external parties with Leeanne Bond frameworks and business continuity relevant experience and expertise if they Graham carpenter strategy and plans; consider it necessary.
Kym collins • compliance with regulatory and The Board and Board committee charters are available on The committee’s primary contractual obligations; responsibilities are: Tarong energy’s website, • the internal and external audit www.tarongenergy.com.au • corporate governance policy and effectiveness and independence; framework; Executive remuneration and • audit plan approvals; performance review • stakeholder engagement and (Corporate Governance Guidelines corporate communication; • the energy trading strategy and risk profile; and Principles 1 and 8) • succession planning for the ceO, senior executives and directors; • insurance strategy and renewals. each year the Board, with the assistance of the People and Performance • workplace health and safety; Business Development Committee committee, undertakes a formal • remuneration, strategy, reviews and The Business Development committee process of reviewing the performance setting incentive targets for the ceO comprises the following directors: of the chief executive Officer and senior and the senior executives; executives. The rate of remuneration John Pegler (chair) • employment and industrial relations increase for the chief executive Officer strategy and policy; and ric Barton and senior executives is determined with regard to market salary movements • Board, committee and director Kym collins and also individual performance. At-risk evaluations. Graham carpenter performance incentive payments for Audit and Risk Management elizabeth Jameson the chief executive Officer and senior Committee executives are capped at 15 per cent (Corporate Governance Guidelines The committee’s primary of total fixed remuneration, with the Principles 1 and 4) responsibilities are: amount payable tied to achievement The Audit and risk management • corporate strategy; of pre-determined, Board approved, committee comprises the following • business renewal projects; and corporation and individual performance directors: targets. The chief executive Officer is • business processes. Karen Smith-Pomeroy (chair) not present at the Board meeting or The papers and material provided to Graham carpenter (ex-officio) People and Performance committee committee members are available to all meeting when the chief executive Leeanne Bond directors. The minutes of committee Officer’s own remuneration and ric Barton meetings are provided to the Board. performance are being considered.
48 49 Further details about the chief director induction program in place that aspect of Tarong energy’s business at executive Officer and senior executive includes the provision of key corporate the corporation’s expense. The process remuneration (including at-risk documents, facilitation of site visits and for obtaining such advice requires performance incentive payments) are meetings with senior executives. the relevant director to consult with disclosed in the remuneration report the chair or the chair Audit and risk The induction program is modified as on page 115. management committee, or company required to ensure that it is appropriate Secretary where the chair is conflicted, Details of the remuneration paid to for the new directors’ qualifications and to facilitate the advice. directors and senior executives are set out experience. in note 30 from page 111 of this report. The Board can conduct or direct any To facilitate continual improvement, all investigation to fulfil its responsibilities, directors are encouraged to participate and can retain, at the corporation’s Structure the Board in professional and self-development expense, any legal, accounting or to add value activities. Activities undertaken by other services it considers necessary to directors that are in furtherance of their perform its duties. (Corporate Governance responsibilities to Tarong energy are Access to management Guidelines principle 2) paid for by the corporation. each director has access to the chief Director independence The Board held 11 meetings during the executive Officer and members of period 1 July 2009 to 30 June 2010. The Board has considered the the executive management Team in The table on page 61 of this report associations of each of the directors the event that they require additional information; and each director is provides details of director attendance and is of the view that all directors encouraged to contact the company at those meetings. are independent. The basis for this decision is that no director is employed Secretary prior to a Board meeting The Board of Tarong energy consists by Tarong energy or is a supplier to, or to discuss any matters that require of seven independent, non-executive customer of, Tarong energy. in addition, clarification. directors. The names, qualifications no director has a relationship or contract Board evaluation and relevant skills, experience and with Tarong energy or a business or expertise of the directors who held The Board evaluates its performance, other relationship (including length of office during the financial year and up the performance of individual directors, service as a director) that, in the opinion to the date of this report, along with the chair and the Board committees of the Board, would affect the director’s their terms of appointment, are set out at regular periods, not exceeding two ability to act in the best interests of the on pages 10 to 11. years. The People and Performance corporation. committee is responsible for assessing The Board considers that individually materiality thresholds used in the the framework and the processes and collectively the directors bring a determination of whether a relationship used for conducting the performance level of skill, knowledge and experience is ‘material’ are detailed in the evaluations. that enables the Board to discharge its independence of Directors Policy, which The objective of the performance responsibilities effectively. is available in the corporate Governance evaluation is to: Directors are appointed by the section of the Tarong energy website, • identify areas in which the Board is Governor-in-council. Appointments are www.tarongenergy.com.au performing well; for a specified period. Access to independent professional • identify areas for Board advice Director induction and professional performance improvements; development Directors are entitled to seek • identify significant corporate Tarong energy has a comprehensive independent professional advice on any governance issues facing the Board;
48 49 The reception area of Tarong Energy’s new office in Albert Street Brisbane.
50 51 • provide a forum for directors to Policies are an important part of the potential or perceived conflicts of discuss any governance issues; code of ethics and are based on the interest on appointment and they are following five principles: required at least annually, or when • develop a series of relevant changes occur, to update these recommendations to address these 1. e thical Behaviour disclosures. The company Secretary issues; (ethical Behaviour Policy) ensures that copies of all disclosures, • develop an agreed set of 2. Fair Treatment including updated disclosures, are action items to ensure practical (Fair Treatment Policy) provided to each other director. improvements to the corporate 3. c onflict of interest (conflict of interest Any director with a conflict of interest governance system; and and Gifts and Benefits policies) in a matter being considered by the • identify director professional 4. c onfidential information Board must declare their interest and, development requirements. (confidential information and unless the Board resolves otherwise, During 2009/10, an internally facilitated Securities Trading policies) they may not participate in boardroom Board evaluation was held. The results discussions or vote on matters in 5. c ompliance with the Law of the review were presented to the respect of which they have a conflict. (Government Owned corporations Board and discussed. An agreed set corporate responsibility Policy). The conflict of interest Policy is available of action items was developed to in the corporate Governance section address the issues identified. A report ethical and responsible decision-making of the Tarong energy website, www. to Shareholders was provided on the at Tarong energy is also promoted tarongenergy.com.au outcomes of the Board evaluation. by the Whistleblower Protection Policy that is designed to support Trading in securities and protect employees who report The Securities Trading Policy deals with promote ethical and non-compliant or unethical conduct the manner in which Tarong energy’s responsible decision- by other employees. The policy directors and employees can trade making formalises Tarong energy’s commitment in securities. This policy is specifically to protecting the confidentiality and designed to raise awareness of the (Corporate Governance position of employees who wish to raise prohibitions on insider trading contained Guidelines principle 3) serious matters that affect the integrity within the Corporations Act 2001, to of Tarong energy. ensure Tarong energy Group personnel Corporate Values and Code of Ethics The corporate values and code of understand these requirements and The corporate values and code of ethics are available on Tarong energy’s the restrictions on trading whilst in ethics apply to Tarong energy directors, website, www.tarongenergy.com.au possession of price-sensitive information employees and contractors. The code and to raise awareness of directors and promotes ethical and responsible Avoidance of conflicts of interest officers that in some circumstances, decision-making and requires high by directors trading in securities may create an standards of honesty, integrity, fairness The Board is conscious of its obligation actual or potential conflict of interest. and equity in all aspects of employment to ensure that directors avoid conflicts of The Securities Trading Policy is available with Tarong energy. The behaviour interest (actual, potential or perceived) in the corporate Governance section of this fosters is integral to supporting between their duties as directors of the Tarong energy website, Tarong energy’s values and governance Tarong energy and their other interests www.tarongenergy.com.au practices. and duties.
All directors are required to provide written disclosure of any actual,
50 51 Safeguard integrity of Make timely and Respect the rights of financial reporting balanced disclosures Shareholders (Corporate Governance (Corporate Governance (Corporate Governance Guidelines principle 4) Guidelines principle 5) Guidelines principle 6)
The Audit and risk management in line with the requirements of the Tarong energy is committed to ensuring committee assists the Board in Government Owned Corporations Act, that its stakeholders are continually overseeing the reliability and integrity of shareholding ministers are advised in a and appropriately informed of Tarong financial reporting practices, accounting timely manner of all issues likely to have a energy’s performance and activities. policies, auditing and external reporting. significant financial, operating, employee, communication is undertaken through The committee provides advice to community or environmental impact. a number of forums. These include the the Board on financial statements, following: Tarong energy also regularly assesses financial systems integrity and business the key information requirements of its • Statement of Corporate Intent, risks. it also oversees compliance stakeholders. Corporate Plan and quarterly reports with applicable laws, regulations and are prepared to provide information to corporate policies and ensures that Release of information Shareholders and their representatives an adequate, current internal control publication scheme on Tarong energy’s performance system is operating for areas such Tarong energy is committed to routinely against agreed targets. The as business, operational, asset and publishing, releasing and/or making Statement of corporate intent (with financial risk. information available to the public commercially sensitive information The external audit function is performed through its website-based publication deleted) is published on Tarong by or on behalf of the Queensland scheme as a matter of course, unless energy’s website. Auditor General. Additional work is there are good public interest reasons • An Annual Report that is prepared conducted as required by independent for not doing so. it is also committed and issued to Shareholders and professionals. to regularly reviewing the currency of interested stakeholders is also information contained in its publication The Audit and risk management published on Tarong energy’s website. scheme. committee consists of four members. • An interim report for the six Other directors who are not members in addition, the Board considers months ending 31 December of the committee, the auditors whether there are any matters requiring providing details of Tarong energy’s (internal and external) and other publication in respect of each and every performance against key financial senior executives, attend meetings by item of business that it considers at its and non financial targets is published invitation. For information on the skills, meetings. on its website in march. experience and expertise of the Audit Tarong energy’s publication scheme is • A forecast report detailing Tarong and risk management committee available on the Tarong energy website, energy’s expectation of its members, please refer to pages 10 www.tarongenergy.com.au to 11 of this report. Details of the performance for the financial year is number of meetings and attendance published on its website in July. by members at the Audit and risk • Briefings to Shareholders and their management committee meetings can representatives are conducted on be found on page 61 of this report. a regular basis for the purpose of disclosing business activities and performance against agreed targets.
52 53 • Biannual community information • information reported to management’s response to these sessions, an annual Community management, the Board and reviews. The internal audit function is Report and a quarterly newsletter stakeholders is accurate, reliable, independent of management, has full inform the local community of timely and complete; and and free access to the Audit and risk activities involving Tarong energy. management committee, and has full • compliance obligations are identified and free access to the corporation’s • Tarong Energy’s website is a key and assessed, and any exceptions employees and records. The internal source of information for Tarong are identified with corrective actions Auditor and representatives of the energy’s stakeholders and the wider taken in a timely manner. Auditor General are invited to meet with community. Tarong energy views effective risk the committee without management management as key to maintaining its being present. The internal Auditor Recognise and operational and strategic objectives. reports, for administrative purposes, manage risk The Board has ensured, through its to the General manager corporate oversight of a system of management Governance. (Corporate Governance controls and the regular reporting to the When presenting financial statements Guidelines principle 7) Board and Audit and risk management for approval, the chief executive Officer committee, that Tarong energy has the in recognition of the linkages between and the chief Financial Officer provide ability to understand and subsequently governance, risk and compliance, Tarong a written statement to the Board to the manage its risks. reviews of Tarong energy has adopted an integrated effect that: energy’s business-critical risks occur governance, risk management and periodically. From these reviews, any • Tarong energy’s financial statements compliance framework. ethics and changes in Tarong energy’s risk profile and notes to the accounts comply culture have been identified as the are considered and addressed. in all material respects with the cornerstone of this integrated approach. Accounting Standards and present Tarong energy conducts a periodic The objectives of this framework are to a true and fair view, in all material business continuity exercise that is ensure that: respects, of the company’s financial designed to provide a sound degree of performance; • Tarong energy’s values, ethics and resilience should Tarong energy need behavioural expectations are known, to respond to, and recover from, a crisis • Tarong energy’s financial statements clearly communicated and accepted whilst continuing to maintain normal are founded on a sound system within Tarong energy; business operations. of risk management and internal control and the system is operating • business strategies are understood The corporation’s internal audit effectively in relation to financial and Tarong energy’s people, function operates under the terms of reporting risks; and processes and technology are the internal Audit charter. The charter aligned to support the achievement is reviewed periodically by the Audit • the risk management and internal of the strategies; and risk management committee and control systems are operating formalises the purpose, role, authority, effectively in relation to all material • risk appetites and tolerances within responsibilities, scope and operational business risks for the period and the business units and across Tarong framework of the internal audit function. that nothing has occurred since energy are appropriate and aligned period-end that would materially with the expectations of the Board, The effectiveness of risk management, change the position. management and stakeholders; control, performance and governance processes is subject to review by the • all significant risks have been internal Auditor. The Audit and risk identified and assessed, and are management committee monitors actively managed;
52 53 Remunerate fairly and Government directions Modification of responsibly and notifications 2009/10 Statement of (Corporate Governance Corporate Intent Guidelines principle 8) SPOrTS AND recreATiON SPONSOrShiP POLicy Nil The fees paid to directors for serving on the Board and on the committees On 8 October 2009, a letter was Dividend policy of the Board are determined by the received from The honourable Andrew shareholding ministers and advised to Fraser mP, Treasurer and minister Tarong energy’s Dividend Policy Tarong energy. for employment and economic takes into account the return that The People and Performance Development; and The honourable Shareholders expect from their committee oversees, and provides Stephen robertson mP, minister for investment and the cash requirements advice to the Board on, employment Natural resources, mines and energy of the business. On 28 April 2010, the strategies and frameworks. it makes and minister for Trade, notifying Tarong Board of Tarong energy recommended recommendations to the Board on energy that in accordance with section to Shareholders a dividend amount enterprise Bargaining Agreements (eBA) 114 of the Government Owned equivalent to 80 per cent of Tarong as well as remuneration settings for Corporations Act 1993, the Sports and energy’s consolidated profit after tax for non-eBA staff and the packages and recreation Sponsorship Policy applies to the 2009/10 year. other terms of employment for senior Tarong energy and, as far as practicable, executives. When increasing senior its subsidiaries. executive remuneration or awarding overseas travel incentive payments, the Board must revOcATiON OF DirecTiON comply with the Government Owned Tarong energy’s chief executive Officer ThAT APPLieD The ‘AuDiT AND corporations Governance Arrangements travelled to the united States to attend rePOrTiNG reQuiremeNTS for chief and Senior executives a change and organisational renewal FOr GOverNmeNT OWNeD Appointments and remuneration. course at harvard university. At the cOrPOrATiON cONTrOLLeD eNTiTieS conclusion of the course she also met The People and Performance committee AND iNveSTmeNTS’ TO TArONG with representatives of electric Power consists of four members. Other eNerGy uNDer The GOVERNMENT research institute (ePri) to discuss directors who are not members of the OWNED CORPORATIONS ACT 1993 committee and other senior executives technical issues in achieving reductions attend meetings by invitation. For in cO2 from uS electricity emissions On 4 may 2010, a letter was received information on the skills, experience and by 2030 and with representatives expertise of the People and Performance from The honourable Andrew from the uS Departments of State and committee members, please refer to Fraser mP, Treasurer and minister energy to gain a greater understanding pages 10 to 11 of this report. Details of for employment and economic of the industrial and community issues the number of meetings and attendance Development; and The honourable involved in achieving a low energy mix by members at the People and Stephen robertson mP, minister for by 2030. Natural resources, mines and energy Performance committee meetings can Tarong energy’s chief Scientist travelled and minister for Trade advising that they be found on page 61 of this report. to the united States to attend the Flow- had revoked the direction that applied Details of the remuneration paid to accelerated corrosion (FAc) in Fossil the Audit Policy to Tarong energy. directors and senior executives are set and combined cycle/hrSG Plants out in note 30 from page 111 of this international conference. report.
54 55 Meandu Mine’s dragline.
Corporate entertainment and hospitality (individual events over $5,000)
event date PurPOse / benefits tO tarOng energy cOst
christmas December 2009 Approximately 500 employees participated in $33,2281 functions corporation-wide christmas functions
1 cost did not exceed $100/head at this event.
54 55 Chief Financial officer’s Report
Results for the million (2009: $40.3 million) was also million), which reflects the significant a significant contributor to the strong capital maintenance program and the financial year ended profit result for the year. This unrealised acquisition of Tarong North Power 30 June 2010 gain is the result of a fall in forward Station. electricity prices and reflects Tarong Tarong energy has appropriate debt in what has been a very challenging energy’s strong and active positioning in facilities in place through Queensland year for the electricity generation sector the energy contract market. Treasury corporation to fund future in Queensland, Tarong energy has Tarong energy continued to focus on capital expenditure. reported a solid financial result with a business improvements and efficiencies, profit after tax of $91.6 million (2009: which resulted in significant operating $85.1 million). cost savings. The importance of owning Significant Surplus generation capacity in meandu mine, and the flexibility and transactions and Queensland (available installed value this provides, will be important projects capacity of approximately12,100 mW in adapting to an electricity market that 2 against peak demand of 8,891 mW ), requires increased responsiveness. Whilst the electricity market has proved continued market uncertainty arising challenging, Tarong energy has also Tarong energy will pay a dividend of from the delayed emissions trading completed a range of significant $17.4 million (2009: $45.5 million) to scheme, and a relatively mild summer transactions and projects during the year. Shareholders, representing 80 per cent and winter, have all contributed to of net profit after tax, excluding mark-to- lower wholesale and contract electricity The acquisition of the 50 per cent market unrealised gains. prices. The Queensland weighted interest in Tarong North Power Station average spot price was $33.30/mWh that Tarong energy did not already for the year ended 30 June 2010, Financial position own will provide significant portfolio which makes the profit result for the management benefits. The purchase was made from Tarong energy’s joint year even more notable. At 30 June 2010 Tarong energy had venture partners, The Tokyo electric total debt of $449.6 million (2009: Total sent-out generation for the Power company, incorporated and $445.0 million) and a gearing ratio, financial year was 9,150 GWh (2009: mitsui & co., Ltd. 8,601 GWh). This increase is largely representing total debt as a percentage attributable to the acquisition of the 50 of total capital, of 25.5 per cent (2009: in addition, Tarong energy finalised per cent of Tarong North Power Station 32.8 per cent). The improvement in its long-term fuel strategy for the not already owned on 30 November the gearing ratio is primarily the result Tarong energy power stations with the 2009. Further details of the acquisition of increased profitability and an equity confirmation of economically mineable are outlined below. The increase contribution of $275.0 million from the coal from meandu mine until at least in generation volumes offset lower State Government of Queensland to 2025. This supports the decision to electricity prices resulting in an overall fund the acquisition of the remaining defer the development of the Kunioon increase in revenue from continuing 50 per cent interest in Tarong North coal resource for the medium term and operations of $490.8 million (2009: Power Station. provides considerable fuel certainty into the future. $439.4 million), an increase of $51.4 Net operating cash flows were $82.6 million over the prior year. million (2009: $171.2 million). Total Tarong energy undertook an extensive The change in the fair value of cash flows on investing activities plant overhaul program during the year derivative financial instruments of $99.7 were $385.3 million (2009: $163.1 with the completion of Tarong Power
2 Source: Australian energy market Operator.
56 Station’s unit 2 and unit 4 overhauls, ensuring that we maintain security of a Tarong North Power Station overhaul, supply and a commercial focus. and the planning and initiation of the Tarong energy has a long-term overhauls of Wivenhoe Power Station’s economic fuel source, a portfolio of unit 1 and Tarong Power Station’s reliable and well maintained generation unit 3. The Tarong Power Station assets and a dedicated, skilled overhauls also involved the upgrade of workforce to deliver our future business unit control systems, the installation of objectives. We are well placed to face low NO burners and the development x the challenges that lie ahead. and commissioning of the ash to mine void pipeline to support long-term ash management.
Tarong energy invested in upgrades to its mine fleet to improve efficiencies at the mine and ultimately lower production costs. During the year, Richard Van Breda the mine fleet replacement program chief Financial Officer commenced with the delivery of a new 350 tonne excavator and five 220 tonne dump trucks.
the future
Tarong energy operates in a challenging environment where there is a significant oversupply of generating capacity in the Queensland electricity market and Federal Government policy in relation to an emissions trading scheme remains uncertain. We will continue to invest in the safety and development of our people and optimise our assets to capitalise on market opportunities that maximise value to our Shareholders.
Tarong energy remains committed to being a competitive and safe provider of reliable and efficient energy solutions for the people of Queensland. We are investigating a number of projects to adapt to a future carbon-constrained world, whilst
56 57 Wivenhoe Dam.
58 Financial Statements for the year ended 30 June 2010
Directors’ report 60 Auditor’s Independence Declaration 63 Statements of comprehensive income 64 Balance sheets 65 Statements of changes in equity 66 Cash flow statements 68
Notes to the financial statements 69 24 non‑current liabilities ‑ deferred tax liabilities 103 1 Summary of significant accounting policies 69 25 non‑current liabilities ‑ Provisions 104 2 financial risk management 79 26 n on‑current liabilities ‑ retirement benefit 3 Critical accounting estimates and judgements 86 obligations 105 4 revenue 86 27 Contributed equity 108 5 other income 87 28 reserves and retained earnings 110 6 expenses 87 29 dividends 111 7 Income tax expense 88 30 Key management personnel disclosures 111 8 Current assets ‑ Cash and cash equivalents 89 31 employee benefits 117 9 Current assets ‑ trade and other receivables 89 32 remuneration of auditors 119 10 Current assets ‑ Inventories 90 33 Contingencies 119 11 Current assets ‑ other current assets 90 34 Commitments 120 12 derivative financial instruments 91 35 related party transactions 121 13 n on‑current assets ‑ trade and other receivables 92 36 Business combination 122 14 n on‑current assets ‑ Property, plant and equipment 93 37 Subsidiaries and associates 124 15 n on‑current assets ‑ exploration and evaluation 97 38 deed of cross guarantee 124 16 non‑current assets ‑ deferred tax assets 97 39 Interests in joint ventures 125 17 non‑current assets ‑ Intangible assets 98 40 economic dependency 126 18 non‑current assets ‑ other non‑current assets 99 41 events occurring after the reporting period 126 19 Current liabilities ‑ trade and other payables 100 42 r econciliation of profit after income tax to net cash inflow from operating activities 127 20 Current liabilities ‑ Borrowings 100 21 Current liabilities ‑ Provisions 100 Directors’ declaration 128 Independent Auditor’s Report 129 22 Current liabilities ‑ other current liabilities 101 23 non‑current liabilities ‑ Borrowings 101
59 Directors’ report 30 June 2010
Directors’ report
the directors present their report together with the financial report of tarong energy Corporation Limited (“Corporation” or “Parent entity”) and of the economic entity, being the Corporation and its subsidiaries, and the Corporation’s interest in joint ventures for the financial year ended 30 June 2010 and the auditor’s report thereon.
Directors
details of the directors’ period of appointment, their qualifications, experience and special responsibilities are detailed in the annual report.
the following persons were directors of tarong energy Corporation Limited during the whole of the financial year and up to the date of this report:
Mr G J Carpenter Mr r a Barton Ms L K Bond Ms K L Collins Ms e M Jameson Mr J h Pegler Ms K e Smith‑Pomeroy
Principal activities
the principal activity of the economic entity during the year was the generation and sale of electricity and the operation and development of coal mining assets in support of its principal activity.
Trading results
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Profit before income tax 128,570 118,509 136,377 93,939
Profit after income tax 91,552 85,103 97,198 67,495
Profit attributable to members of the economic entity 91,552 85,103 97,198 67,495
Dividends ‑ Tarong Energy Corporation Limited
In accordance with the Government Owned Corporations Act 1993, the following dividends of the economic entity have been paid or declared since the end of the preceding financial year:
$’000 final dividend for 2008/09 declared in previous year, paid 31 december 2009 45,541 final dividend for 2009/10 provided for in this report 17,401
Review of operations
Information on the operations of the economic entity and the results of such operations are detailed in the annual report.
60 61 Directors’ report (continued)
Significant changes in the state of affairs
Acquisition of additional 50% interest in Tarong North Power Station
on 30 november 2009 tn Power Pty Ltd (tn Power), a subsidiary of the Corporation, obtained control of tarong north Power Station, a single unit 443 megawatt supercritical coal‑fired power station, located adjacent to tarong Power Station in the Wide Bay Burnett region. Prior to the acquisition the tarong north Power Station was operated as an unincorporated joint venture whose participants were tn Power (50% interest) and tM energy (australia) Pty Ltd. the unit utilises advanced supercritical boiler technology making it one of the most emissions‑efficient coal‑fired power stations in australia. the acquisition will enable the Corporation to better manage market risks and provide increased flexibility in dispatch of its generation portfolio.
Matters subsequent to the end of the financial year
no matter or circumstance has arisen since 30 June 2010 that has significantly affected, or may significantly affect:
(a) the economic entity’s operations in future financial years;
(b) the results of those operations in future financial years; or
(c) the economic entity’s state of affairs in future financial years.
Likely developments
an outline of the likely developments in the economic entity’s operations is included throughout the annual report.
Environmental regulation
the economic entity’s operations are subject to significant environmental regulation under both Commonwealth and State legislation. the primary environmental legislation governing the economic entity’s activities in Queensland is the Environmental Protection Act 1994.
the economic entity undertakes a number of systematic processes to manage its environmental activities. these systems include line management environmental responsibilities for day‑to‑day activities, specialist environmental personnel providing environmental advice and monitoring compliance, and a reporting regime which involves the Chief executive officer providing monthly environmental performance reports to the Board. the directors are not aware of any significant breaches of environmental regulation occurring during the period covered by this report. further information relating to environmental matters is contained within the annual report.
Meetings of directors
the number of directors’ meetings held, and the number attended by each of the directors of tarong energy Corporation Limited during the period 1 July 2009 to 30 June 2010 are detailed in the table below:
Meetings of committees Full meetings of directors People and Audit and Risk Business Performance Management DevelopmentD
a B a B a B a B
Mr G J CarpenterC 11 11 5 5 5 5 5 5
Mr r a Barton 11 10 ‑ ‑ 5 5 3 3
Ms L K Bond 11 11 3 3 3 2 2 2
Ms K L Collins 11 11 5 5 2 2 3 3
Ms e M Jameson 11 9 5 5 ‑ ‑ 5 3
Mr J h Pegler 11 11 ‑ ‑ ‑ ‑ 5 5
Ms K e Smith‑Pomeroy 11 10 ‑ ‑ 5 5 ‑ ‑
a = number of meetings held during the time the director held office or was a member of the committee. B = number of meetings attended. C = Mr G J Carpenter is an ex‑officio member of the audit and risk Management Committee. d = the Strategy and Business development Committee was renamed Business development Committee on 3 february 2010.
60 61 Directors’ report (continued)
Indemnification and insurance of officers
In accordance with the Constitution of the economic entity, the economic entity has entered into a standard form deed of access, insurance and indemnity with the current directors of the economic entity to indemnify them to the maximum extent permitted by law against all liabilities which they may incur in the performance of their duties as directors of the economic entity, except a liability for a pecuniary penalty order or compensation order under the Corporations Act 2001.
the indemnity is made available to current and former directors of the economic entity for a period of seven years from the date of their resignation. to the extent permitted by law the indemnity covers liability for legal costs.
In accordance with the standard form deed of access, insurance and indemnity referred to above, the economic entity has, during the financial year ended 30 June 2010, paid an insurance premium in respect of the directors and executive officers of the economic entity. In accordance with normal commercial practice, the insurance contract prohibits disclosure of the nature or the liability covered by, or the amount payable under, the contract of insurance.
no claims have been made by any director or officer of the economic entity pursuant to these indemnities.
Auditor’s independence declaration
a copy of the auditor’s independence declaration, as required under section 307C of the Corporations Act 2001, is set out on page 63.
Rounding of amounts
the Corporation is of a kind referred to in Class order 98/100, issued by the australian Securities and Investments Commission, relating to the ‘’rounding off’’ of amounts in the directors’ report. amounts in the directors’ report have been rounded off in accordance with that Class order to the nearest thousand dollars, unless otherwise stated.
Auditor
the Queensland audit office continues in office in accordance with section 327 of theCorporations Act 2001.
this report is made in accordance with a resolution of directors.
Mr G J Carpenter Ms K e Smith‑Pomeroy director director
Brisbane 17 august 2010
62 63 Auditor’s Independence Declaration 30 June 2010
Auditor’s Independence Declaration
to the directors of tarong energy Corporation Limited
this audit independence declaration has been provided pursuant to section 307C of the Corporations Act 2001.
Independence Declaration
as lead auditor for the audit of tarong energy Corporation Limited for the year ended 30 June 2010, I declare that, to the best of my knowledge and belief, there have been:
(a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the audit.
this declaration is in respect of tarong energy Corporation Limited and the entities it controlled during the period.
J f adams Queensland audit office delegate of the auditor‑General of Queensland Brisbane
17 august 2010
62 63 Statements of comprehensive income For the year ended 30 June 2010
Consolidated Parent Entity
2010 2009 2010 2009
notes $’000 $’000 $’000 $’000
Revenue 4 497,202 448,244 439,126 396,260 other income 5 21,787 33,521 6,652 4,254 Change in fair value of derivative instruments that do not qualify 99,715 40,252 98,758 40,209 for hedge accounting Changes in inventory/deferred stripping 1,290 13,123 ‑ ‑ reversal of impairment loss 14 6,711 ‑ ‑ ‑ fuel costs (143,412) (123,427) (120,194) (95,583) depreciation and amortisation expense 6 (92,203) (88,527) (70,022) (70,593) employee benefits expense (68,213) (70,999) (66,115) (69,127) raw materials and consumables used (39,752) (33,882) (26,281) (25,314) Services (26,957) (23,422) (18,656) (20,581) Purchases of electricity (22,414) ‑ (22,414) ‑ Cost to terminate contractual obligations 36 (18,875) ‑ (18,875) ‑ transmission systems costs (15,422) (2,920) (14,809) (2,543) other expenses (40,291) (38,495) (23,682) (36,679) finance costs 6 (30,596) (34,959) (27,111) (26,364) Profit before income tax 128,570 118,509 136,377 93,939 Income tax expense 7 (37,018) (33,406) (39,179) (26,444) Profit for the year 91,552 85,103 97,198 67,495
Other comprehensive income effective portion of changes in fair value of cash flow hedges 177,933 126,708 177,933 126,708 net change in fair value of cash flow hedges transferred to profit (107,755) 85,416 (107,755) 85,416 and loss defined benefit plan actuarial gains/(losses) 2,586 (8,278) 2,586 (8,278) Income tax relating to components of other comprehensive (21,828) (61,014) (21,828) (61,014) income Other comprehensive income for the year, net of tax 50,936 142,832 50,936 142,832
Total comprehensive income for the year 142,488 227,935 148,134 210,327 Profit for the year is attributable to: owners of tarong energy Corporation Limited 91,552 85,103 97,198 67,495 total comprehensive income for the year is attributable to: owners of tarong energy Corporation Limited 142,488 227,935 148,134 210,327
The above statements of comprehensive income should be read in conjunction with the accompanying notes.
64 65 Balance sheets As at 30 June 2010
Consolidated Parent Entity
2010 2009 2010 2009
notes $’000 $’000 $’000 $’000
ASSETS Current assets Cash and cash equivalents 8 9,983 78,661 9,927 78,185 trade and other receivables 9 97,226 88,588 75,374 72,287 Inventories 10 81,314 75,011 69,121 57,450 Current tax receivables 6,505 ‑ 6,505 ‑ other current assets 11 56,351 29,695 217 ‑ derivative financial instruments 12 194,996 106,104 194,996 106,104 total current assets 446,375 378,059 356,140 314,026
Non‑current assets trade and other receivables 13 ‑ 5,059 566,793 312,013 derivative financial instruments 12 241,586 137,169 241,586 137,169 Property, plant and equipment 14 1,705,880 1,422,044 1,219,992 1,172,157 exploration and evaluation 15 49,476 49,476 49,476 49,476 Intangible assets 17 111,491 66,822 ‑ ‑ other non‑current assets 18 12,728 28,875 1,756 ‑ total non‑current assets 2,121,161 1,709,445 2,079,603 1,670,815 Total assets 2,567,536 2,087,504 2,435,743 1,984,841
LIABILITIES Current liabilities trade and other payables 19 78,359 78,615 44,012 69,507 Borrowings 20 28,656 ‑ 28,656 ‑ derivative financial instruments 12 79,401 70,149 79,401 70,149 Current tax liabilities ‑ 2,448 ‑ 2,448 Provisions 21 51,265 67,268 41,749 66,162 other current liabilities 22 4,953 1,178 1,331 295 total current liabilities 242,634 219,658 195,149 208,561
Non‑current liabilities Borrowings 23 420,911 445,009 420,911 445,009 deferred tax liabilities 24 359,723 301,233 336,290 292,989 Provisions 25 162,923 155,055 95,169 70,500 retirement benefit obligations 26 19 3,091 19 3,091 derivative financial instruments 12 65,698 50,009 65,698 50,009 other non‑current liabilities 2,092 ‑ 2,092 ‑ total non‑current liabilities 1,011,366 954,397 920,179 861,598 Total liabilities 1,254,000 1,174,055 1,115,328 1,070,159 Net assets 1,313,536 913,449 1,320,415 914,682
EQUITY Contributed equity 27 986,965 711,965 986,965 711,965 reserves 28(a) 142,976 93,850 142,976 93,850 retained earnings 28(b) 183,595 107,634 190,474 108,867 Total equity 1,313,536 913,449 1,320,415 914,682
64 The above balance sheets should be read in conjunction with the accompanying notes. 65 Statements of changes in equity For the year ended 30 June 2010
Contributed Retained Consolidated Reserves Total equity equity earnings
notes $’000 $’000 $’000 $’000
Balance as at 1 July 2008 711,965 (54,637) 73,727 731,055
Total comprehensive income for the year
Profit for year 28(b) ‑ ‑ 85,103 85,103
effective portion of changes in fair value of cash flow 28(a) ‑ 88,696 ‑ 88,696 hedges, net of tax net change in fair value of cash flow hedges transferred to 28(a) ‑ 59,791 ‑ 59,791 profit and loss, net of tax
defined benefit plan actuarial (losses) net of tax 28(b) ‑ ‑ (5,655) (5,655)
Total comprehensive income for the year ‑ 148,487 79,448 227,935
Transactions with equity holders in their capacity as equity holders:
Contributions of equity net of transaction costs 27 ‑ ‑ ‑ ‑
dividends provided for or paid 29 ‑ ‑ (45,541) (45,541)
Balance as at 30 June 2009 711,965 93,850 107,634 913,449
Balance as at 1 July 2009 711,965 93,850 107,634 913,449
Total comprehensive income for the year
Profit for year 28(b) ‑ ‑ 91,552 91,552
effective portion of changes in fair value of cash flow 28(a) ‑ 124,554 ‑ 124,554 hedges, net of tax net change in fair value of cash flow hedges transferred to 28(a) ‑ (75,428) ‑ (75,428) profit and loss, net of tax
defined benefit plan actuarial gains, net of tax 28(b) ‑ ‑ 1,810 1,810
Total comprehensive income for the year ‑ 49,126 93,362 142,488
Transactions with equity holders in their capacity as equity holders:
Contributions of equity, net of transaction costs and tax 27 275,000 ‑ ‑ 275,000
dividends provided for or paid 29 ‑ ‑ (17,401) (17,401)
Balance as at 30 June 2010 986,965 142,976 183,595 1,313,536
The above statements of changes in equity should be read in conjunction with the accompanying notes.
66 67 Statements of changes in equity (continued) For the year ended 30 June 2010
Ordinary Retained Parent Reserves Total equity shares earnings
notes $’000 $’000 $’000 $’000
Balance as at 1 July 2008 711,965 (54,637) 92,568 749,896
Total comprehensive income for the year
Profit for year 28(b) ‑ ‑ 67,495 67,495
effective portion of changes in fair value of cash flow hedges, 28(a) ‑ 88,696 ‑ 88,696 net of tax net change in fair value of cash flow hedges transferred to 28(a) ‑ 59,791 ‑ 59,791 profit and loss, net of tax
defined benefit plan actuarial (losses) net of tax 28(b) ‑ ‑ (5,655) (5,655)
Total comprehensive income for the year ‑ 148,487 61,840 210,327
Transactions with equity holders in their capacity as equity holders:
Contributions of equity, net of transaction costs 27 ‑ ‑ ‑ ‑
dividends provided for or paid 29 ‑ ‑ (45,541) (45,541)
Balance as at 30 June 2009 711,965 93,850 108,867 914,682
Balance as at 1 July 2009 711,965 93,850 108,867 914,682
Total comprehensive income for the year
Profit for year 28(b) ‑ ‑ 97,198 97,198
effective portion of changes in fair value of cash flow hedges, 28(a) ‑ 124,554 ‑ 124,554 net of tax net change in fair value of cash flow hedges transferred to 28(a) ‑ (75,428) ‑ (75,428) profit and loss, net of tax
defined benefit plan actuarial gains, net of tax 28(b) ‑ ‑ 1,810 1,810
Total comprehensive income for the year ‑ 49,126 99,008 148,134
Transactions with equity holders in their capacity as equity holders:
Contributions of equity, net of transaction costs and tax 27 275,000 ‑ ‑ 275,000
dividends provided for or paid 29 ‑ ‑ (17,401) (17,401)
Balance as at 30 June 2010 986,965 142,976 190,474 1,320,415
The above statements of changes in equity should be read in conjunction with the accompanying notes.
66 67 Cash flow statements For the year ended 30 June 2010
Consolidated Parent Entity
2010 2009 2010 2009
notes $’000 $’000 $’000 $’000
Cash flows from operating activities
receipts from customers (inclusive of goods and services tax) 539,623 514,065 478,417 432,503 Payments to suppliers and employees (inclusive of goods and (407,637) (329,349) (355,644) (275,953) services tax)
Cash generated from operations 131,986 184,716 122,773 156,550
Payment to terminate contractual obligations (18,875) ‑ (18,875) ‑
Interest received 2,296 4,505 2,431 4,489
Interest paid (24,632) (22,372) (24,633) (19,965)
Income taxes (paid)/received (8,175) 4,395 (8,175) 4,395
Net cash inflow from operating activities 42 82,600 171,244 73,521 145,469
Cash flows from investing activities
Payment for the acquisition of a subsidiary, net of cash acquired 36 (253,462) ‑ ‑ ‑
Payments for property, plant and equipment (131,869) (147,000) (100,738) (127,586)
Interest payments capitalised (5,032) (8,299) (2,688) (3,910)
Payments for exploration and evaluation expenditure ‑ (1,832) ‑ (1,832)
Loans repaid by/(provided to) associated entities 5,059 (6,231) (272,379) (4,225)
Proceeds from sale of property, plant and equipment 9 289 9 18
Net cash outflow from investing activities (385,295) (163,073) (375,796) (137,535)
Cash flows from financing activities
equity contribution 275,000 ‑ 275,000 ‑
Proceeds from borrowings 4,558 51,898 4,558 51,898
dividends paid to the Corporation’s shareholders (45,541) (50,750) (45,541) (50,750)
Net cash inflow from financing activities 234,017 1,148 234,017 1,148
Net (decrease)/increase in cash and cash equivalents (68,678) 9,319 (68,258) 9,082
Cash and cash equivalents at the beginning of the financial year 78,661 69,342 78,185 69,103
Cash and cash equivalents at end of year 8 9,983 78,661 9,927 78,185
The above cash flow statements should be read in conjunction with the accompanying notes.
68 69 Notes to the financial statements For the year ended 30 June 2010
1 Summary of significant accounting (b) Principles of consolidation policies Subsidiaries the principal accounting policies adopted in the preparation the consolidated financial statements incorporate the of these financial statements are set out below. these assets and liabilities of all subsidiaries of tarong energy policies have been consistently applied to all the years Corporation Limited as at 30 June 2010 and the results presented, unless otherwise stated. the financial statements of all subsidiaries for the year then ended. tarong energy include separate financial statements for tarong energy Corporation Limited and its subsidiaries together are referred Corporation Limited as an individual entity and the to in this financial report as the economic entity. consolidated entity consisting of tarong energy Corporation Limited and its subsidiaries (together referred to as the Subsidiaries are all those entities (including special purpose “economic entity”). entities) over which the economic entity has the power to govern the financial and operating policies, generally (a) Basis of preparation accompanying a shareholding of more than one‑half of the voting rights. the existence and effect of potential the financial report is a general purpose financial report voting rights that are currently exercisable or convertible are which has been prepared in accordance with australian considered when assessing whether the economic entity accounting Standards (aaSBs) (including australian controls another entity. Interpretations) adopted by the australian accounting Standards Board (aaSB) and the Corporations Act 2001. Subsidiaries are consolidated from the date on which control is transferred to the economic entity. they are the consolidated financial report of the economic entity de‑consolidated from the date that control ceases. and the financial report of the Corporation comply with International financial reporting Standards (IfrSs) and Intercompany transactions, balances and unrealised gains interpretations adopted by the International accounting on transactions between economic entity companies are Standards Board (IaSB). eliminated. unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset Date of issue transferred. accounting policies of subsidiaries have been the consolidated financial statements were authorised for changed where necessary to ensure consistency with the issue by the Board of directors on 17 august 2010. policies adopted by the economic entity. Investments in subsidiaries are accounted for at cost in Historical cost convention the individual financial statements of tarong energy these financial statements have been prepared under the Corporation Limited. historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative Joint ventures instruments) at fair value. the proportionate interests in the assets, liabilities and expenses of joint venture operations have been Critical accounting estimates incorporated in the financial statements under the the preparation of financial statements in conformity with appropriate headings. details of joint ventures are set australian accounting Standards (aaSBs) requires the use out in note 39. of certain critical accounting estimates. It also requires management to exercise its judgement in the process of (c) Foreign currency translation applying the economic entity’s accounting policies. the areas involving a higher degree of judgement or complexity, Functional and presentation currency or areas where assumptions and estimates are significant to Items included in the financial statements of each of the the financial statements are disclosed in note 3. economic entity’s entities are measured using the currency of the primary economic environment in which the entity Rounding of amounts operates (‘the functional currency’). the consolidated the Corporation is of a kind referred to in Class order financial statements are presented in australian dollars, 98/100, issued by the australian Securities and Investments which is tarong energy Corporation Limited’s functional and Commission, relating to the ‘’rounding off’’ of amounts in presentation currency. the financial report. amounts in the financial report have been rounded off in accordance with that Class order to the nearest thousand dollars, or in certain cases, to the nearest dollar.
68 69 Notes to the financial statements(continued) For the year ended 30 June 2010
1 Summary of significant accounting the economic entity also holds new South Wales (nSW) policies (continued) Greenhouse abatement Certificates (nGaCs) which have been acquired or created immediately upon registration (c) Foreign currency translation (continued) with the Independent Pricing and regulatory tribunal of nSW. one nGaC represents the abatement of one tonne of Transactions and balances carbon dioxide equivalent associated with the consumption of electricity in nSW. nGaCs are held for trading purposes foreign currency transactions are translated into the with revenue being recognised when the sale of certificates functional currency using the exchange rates prevailing at actually occurs. the dates of the transactions. foreign exchange gains and losses resulting from the settlement of such transactions and Interest revenue from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are Interest revenue is recognised as it accrues using the recognised in the profit and loss, except when they are effective interest rate method. deferred in equity as qualifying cash flow hedges. Sale of by‑product
(d) Revenue recognition revenue from by‑product sales is recognised when the goods are provided to the customer, the customer has revenue is measured at the fair value of the consideration accepted the goods and collection of the related receivable received or receivable. amounts disclosed as revenue are is probable. net of returns, trade allowances and duties and taxes paid. revenue is recognised for the major business activities Other revenue as follows: other revenue is recognised when the goods are provided Sales revenue or when the fee in respect of services provided is receivable.
revenue from the sale of electricity traded in the national (e) Income tax electricity Market (neM) is recognised when the electricity generated has been dispatched. the revenue is based Income tax expense comprises current and deferred tax. on spot prices for the products and is calculated by the Income tax expense is recognised in the profit and loss australian energy Market operator (aeMo), the body except to the extent that it relates to items recognised responsible for administering and operating the wholesale directly in equity, in which case it is recognised in other spot electricity market and managing the security of the comprehensive income. power system. electricity revenue also includes the effective Current tax is the expected tax payable on the taxable portion of the fair value of electricity derivative contracts income for the year, using tax rates enacted or substantially designated as cash flow hedges. enacted at the reporting date, and any adjustment to tax the economic entity further diversified its portfolio by payable in respect of previous years. implementing a retail channel to market strategy during the deferred tax is recognised using the balance sheet method. period ended 30 June 2010. revenue from retail contracts deferred tax assets and liabilities are recognised for is calculated based on the terms of the individual contracts temporary differences at the tax rates expected to apply and is recognised when the electricity is consumed by the when the assets are recovered or liabilities are settled, counterparty. based on the tax rate which is enacted or substantively energy services revenue is received in relation to the enacted. the relevant tax rates are applied to the cumulative recharge of transmission and other operating costs directly amounts of deductible and taxable temporary differences attributable to retail operations and is recognised when the to measure the deferred tax asset or liability. an exception electricity is consumed by the counterparty. is made for certain temporary differences arising from the initial recognition of an asset or a liability. no deferred tax the economic entity is involved in various environmental asset or liability is recognised in relation to these temporary certificate schemes. It holds renewable energy Certificates differences if they arose in a transaction, other than a (reCs) and Gas electricity Certificates (GeCs) to meet business combination, that at the time of the transaction did its environmental obligations and for trading purposes. not affect either accounting profit or taxable profit or loss. for reCs and GeCs held for trading purposes, revenue is recognised when the sale of certificates occurs.
70 71 Notes to the financial statements(continued) For the year ended 30 June 2010
1 Summary of significant accounting (f) Leases policies (continued) Leases of property, plant and equipment where the economic entity, as lessee, has substantially all the risks (e) Income tax (continued) and rewards of ownership are classified as finance leases. deferred tax assets are recognised for deductible temporary finance leases are capitalised at the lease’s inception at differences and unused tax losses only if it is probable that the fair value of the leased property or, if lower, the present future taxable amounts will be available to utilise those value of the minimum lease payments. the corresponding temporary differences and losses. rental obligations, net of finance charges, are included in other short‑term and long‑term payables. each lease deferred tax liabilities and assets are not recognised for payment is allocated between the liability and finance cost. temporary differences between the carrying amount and tax the finance cost is charged to the profit and loss over the bases of investments in controlled entities where the parent lease period so as to produce a constant periodic rate of entity is able to control the timing of the reversal of the interest on the remaining balance of the liability for each temporary differences and it is probable that the differences period. the property, plant and equipment acquired under will not reverse in the foreseeable future. finance leases are depreciated over the shorter of the deferred tax assets and liabilities are offset when there is asset’s useful life and the lease term. the economic entity a legally enforceable right to offset current tax assets and does not currently have any finance leases. liabilities and when the deferred tax balances relate to the Leases in which a significant portion of the risks and same taxation authority. Current tax assets and tax liabilities rewards of ownership are not transferred to the economic are offset where the entity has a legally enforceable right entity as lessee are classified as operating leases (note to offset and intends either to settle on a net basis, or to 34). Payments made under operating leases (net of any realise the asset and settle the liability simultaneously. incentives received from the lessor) are charged to the profit Current and deferred tax balances attributable to amounts and loss on a straight‑line basis over the period of the lease. recognised directly in equity are also recognised directly in equity. (g) Business combinations the economic entity has adopted revised aaSB 3 Tax consolidation Business Combinations (2008) and amended aaSB 127 tarong energy Corporation Limited and its wholly‑owned Consolidated and Separate Financial Statements (2008) australian controlled entities are part of a tax consolidated for business combinations occurring in the financial year group under the tax consolidation legislation as of starting 1 July 2009. all business combinations occurring 1 July 2003. on or after 1 July 2009 are accounted for by applying the
the head entity, tarong energy Corporation Limited, and the acquisition method. the change in accounting policy is controlled entities in the tax consolidated group continue applied prospectively and had no impact on comparative to account for their own current and deferred tax amounts. information presented in this financial report. these tax amounts are measured as if each entity in the tax the economic entity has applied the acquisition method for consolidated group continues to be a stand alone taxpayer the business combination disclosed in note 36. in its own right. for every business combination, the economic entity In addition to its own current and deferred tax amounts, identifies the acquirer, which is the combining entity tarong energy Corporation Limited also recognises the that obtains control of the other combining entities or current tax liabilities (or assets) and the deferred tax assets businesses. Control is the power to govern the financial arising from unused tax losses assumed from controlled and operating policies of an entity so as to obtain benefits entities in the tax consolidated group as disclosed in note 7. from its activities. In assessing control, the economic entity
assets or liabilities arising under tax funding agreements takes into consideration potential voting rights that currently with the tax consolidated entities are recognised as amounts are exercisable. the acquisition date is the date on which receivable from or payable to other entities in the group. control is transferred to the acquirer. Judgement is applied in details about the tax funding agreement are disclosed in determining the acquisition date and determining whether note 7. control is transferred from one party to another.
70 71 Notes to the financial statements(continued) For the year ended 30 June 2010
1 Summary of significant accounting interest rate. Losses are recognised in the statement of policies (continued) comprehensive income and reflected in an allowance account against receivables. (g) Business combinations (continued) Non‑financial assets
Measuring goodwill the carrying amounts of the economic entity’s non‑financial the economic entity measures goodwill as the fair value assets, other than inventories and deferred tax assets, are of the consideration transferred including the recognised reviewed at each reporting date to determine whether amount of any non‑controlling interest in the acquiree, there is any indication of impairment. If any such indication less the net recognised amount (generally fair value) of exists, then the asset’s recoverable amount is estimated. for the identifiable assets acquired and liabilities assumed, all goodwill, and intangible assets that have indefinite useful measured as of the acquisition date. lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the economic entity the recoverable amount of an asset or cash‑generating unit to the previous owners of the acquiree, and equity interests is the greater of its value in use and its fair value less costs issued by the economic entity. Consideration transferred to sell. In assessing value in use, the estimated future cash also includes the fair value of any contingent consideration flows are discounted to their present value using a pre‑tax and share‑based payment awards of the acquiree that discount rate that reflects current market assessments of are replaced mandatorily in the business combination. the time value of money and the risks specific to the asset. If a business combination results in the termination of for the purpose of impairment testing, assets that cannot pre‑existing relationships between the economic entity and be tested individually are grouped together into the smallest the acquiree, then the lower of the termination amount, as group of assets that generates cash inflows from continuing contained in the agreement, and the value of the off‑market use that are largely independent of the cash inflows of element is deducted from the consideration transferred and other assets or groups of assets (the “cash‑generating recognised in other expenses. unit”). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, cash‑generating Contingent liabilities units to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the a contingent liability of the acquiree is assumed in a lowest level at which goodwill is monitored for internal business combination only if such a liability represents a reporting purposes. Goodwill acquired in a business present obligation and arises from a past event, and its fair combination is allocated to groups of cash‑generating units value can be measured reliably. that are expected to benefit from the synergies of the Non‑controlling interest combination.
the economic entity measures any non‑controlling interest the economic entity’s corporate assets do not generate at its proportionate interest in the identifiable net assets of separate cash inflows. If there is an indication that a the acquiree. corporate asset may be impaired, then the recoverable amount is determined for the cash‑generating unit to which Transaction costs the corporate asset belongs.
transaction costs that the economic entity incurs in an impairment loss is recognised if the carrying amount of connection with a business combination, such as finder’s an asset or its cash‑generating unit exceeds its estimated fees, legal fees, due diligence fees, and other professional recoverable amount. Impairment losses are recognised in and consulting fees, are expensed as incurred. the profit and loss. Impairment losses recognised in respect of cash‑generating units are allocated first to reduce the (h) Impairment of assets carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in Financial assets ‑ including receivables the unit (group of units) on a pro rata basis. an impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective
72 73 Notes to the financial statements(continued) For the year ended 30 June 2010
1 Summary of significant accounting Work in progress inventory relates to stocks of raw and policies (continued) crushed coal not in a form ready for consumption. Quantities are assessed through monthly surveys. (h) Impairment of assets (continued) Environmental certificates an impairment loss in respect of goodwill is not reversed. the Corporation is subject to various regulatory In respect of other assets, impairment losses recognised environmental schemes and as such accrues environmental in prior periods are assessed at each reporting date for liabilities as part of its general business operations. to meet any indications that the loss has decreased or no longer these liabilities, the Corporation acquires environmental exists. an impairment loss is reversed if there has been a certificates on the wholesale market and surrenders these change in the estimates used to determine the recoverable to the scheme administrators annually. the Corporation amount. an impairment loss is reversed only to the extent currently holds reCs, GeCs and nGaCs and these are that the asset’s carrying amount does not exceed the recognised at fair value through the profit and loss. fair value carrying amount that would have been determined, net of is determined by reference to observable market prices for depreciation or amortisation, if no impairment loss had such certificates at balance date. been recognised.
(l) Derivatives and hedging activities (i) Cash and cash equivalents derivatives are initially recognised at fair value on the date for the purpose of presentation in the cash flow statements, a derivative contract is entered into and are subsequently cash and cash equivalents includes cash on hand, deposits remeasured to their fair value at each reporting date. the held at call with financial institutions, other short‑term, highly method of recognising the resulting gain or loss depends liquid investments with original maturities of three months on whether the derivative is designated as a hedging or less that are readily convertible to known amounts instrument, and if so, the nature of the item being hedged. of cash and which are subject to an insignificant risk of the economic entity designates certain derivatives as either; changes in value, and bank overdrafts. Bank overdrafts are (1) hedges of the fair value of recognised assets or liabilities shown within borrowings in current liabilities in the or a firm commitment (fair value hedge); or (2) hedges of balance sheets. highly probable forecast transactions (cash flow hedges).
(j) Trade receivables at the inception of the transaction, the economic entity documents the relationship between hedging instruments trade receivables are recognised initially at fair value and hedged items, as well as its risk management objective and subsequently measured at amortised cost using the and strategy for undertaking various hedge transactions. the effective interest method, less provision for impairment. economic entity also documents its assessment, both at trade receivables are generally due for settlement within hedge inception and on an ongoing basis, of whether the 30 days. derivatives that are used in hedging transactions have been (k) Inventories and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. Raw materials and fuel the fair values of various derivative financial instruments fuel and stores are stated at the lower of cost and net used for hedging purposes are disclosed in note 12. realisable value. Cost for raw materials, stores and fuel is Movements in the hedging reserve in shareholders’ equity their purchase price and for partly processed and saleable are shown in note 28. products is generally the cost of production. for this the full fair value of a hedging derivative is classified as a purpose, the cost of production includes direct materials, non‑current asset or liability when the remaining maturity direct labour and an appropriate proportion of variable and of the hedged item is more than 12 months; it is classified fixed overhead expenditure, the latter being allocated on as a current asset or liability when the remaining maturity of the basis of normal operating capacity. Costs are assigned the hedged item is less than 12 months. to individual items of inventory on the basis of weighted average costs.
net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
72 73 Notes to the financial statements(continued) For the year ended 30 June 2010
1 Summary of significant accounting Stripping costs incurred during the production stage of policies (continued) a mine are deferred when this is considered the most appropriate basis for matching the costs against the related (l) Derivatives and hedging activities (continued) economic benefits. the amount of stripping costs deferred is based on the ratio obtained by dividing the amount of Cash flow hedge waste mined by the amount of coal mined. Stripping costs incurred in the period are deferred to the extent that the the effective portion of changes in the fair value of stripping ratio for the current period exceeds the expected derivatives that are designated and qualify as cash flow stripping ratio for the area or block subject to mining activity hedges is recognised in profit and loss and accumulated in during the period. Such deferred costs are then charged reserves in equity. the gain or loss relating to the ineffective to the profit and loss in subsequent periods to the extent portion is recognised immediately in profit and loss within that the current period stripping ratio falls below the block other income or other expense. stripping ratio. the block stripping ratio is calculated based amounts accumulated in equity are reclassified to profit on proven and probable reserves. any changes to the block and loss in the periods when the hedged item affects profit stripping ratio are accounted for prospectively. and loss (for instance when the forecast sale that is hedged deferred stripping costs are included in “other current takes place). the gain or loss is recognised in profit and assets” and “other non‑current assets”. these form part of loss within sales. however, when the forecast transaction the total investment in the relevant cash generating unit, that is hedged results in the recognition of a non‑financial which is reviewed for impairment if events or changes in asset (for example, inventory) or a non‑financial liability, the circumstances indicate that the carrying value may not be gains and losses previously deferred in equity are transferred recoverable. from equity and included in the measurement of the initial cost or carrying amount of the asset or liability. the deferred (n) Property, plant and equipment amounts are ultimately recognised in profit and loss as cost of goods sold in the case of inventory, or as depreciation in Property, plant and equipment are stated at historical cost the case of fixed assets. less accumulated depreciation and accumulated impairment charges. historical cost includes expenditure that is directly When a hedging instrument expires or is sold or terminated, attributable to the acquisition of the items. Cost may also or when a hedge no longer meets the criteria for hedge include the costs of dismantling and removing the items accounting, any cumulative gain or loss existing in equity and restoring the site on which they are located, capitalised at that time remains in equity and is recognised when the borrowing costs and transfers from other comprehensive forecast transaction is ultimately recognised in the profit income of any gains or losses on qualifying cash flow or loss. When a forecast transaction is no longer expected hedges of foreign currency purchases of property, plant to occur, the cumulative gain or loss that was reported in and equipment. equity is immediately transferred to the income statement. Subsequent costs of replacing part of an item of property, Derivatives that do not qualify for hedge accounting plant and equipment are included in the asset’s carrying Certain derivative instruments do not qualify for hedge amount or recognised as a separate asset, as appropriate, accounting. Changes in the fair value of any derivative only when it is probable that future economic benefits instrument that do not qualify for hedge accounting are associated with the item will flow to the economic entity recognised immediately in the profit and loss as “Changes in and the cost of the item can be measured reliably. the the fair value of derivative instruments that do not qualify for carrying amount of the replaced asset is derecognised. hedge accounting”. the costs of day‑to‑day servicing of property, plant and equipment are recognised in the profit and loss as incurred.
(m) Deferred stripping costs the economic entity has established a program of major Stripping costs comprise the removal of overburden overhauls providing cyclical maintenance works on the and other waste products from a mine. Stripping costs operating assets. Capitalised overhaul expenditure is incurred in the development of a mine before production depreciated over the period in which the economic entity commences are capitalised as part of the cost of expects to derive the benefits of the overhaul. constructing the mine and are subsequently amortised over the life of the operation.
74 75 Notes to the financial statements(continued) For the year ended 30 June 2010
1 Summary of significant accounting more frequently if events or changes in circumstances policies (continued) indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill (n) Property, plant and equipment (continued) relating to the entity sold. Depreciation Research and development depreciation is recorded over the useful life of the asset, expenditure on research and development activities, or over the remaining life of the mine if shorter. assets undertaken with the prospect of obtaining and developing are depreciated from the date they become available new scientific or technical knowledge and understanding, for use. Land is not depreciated. the major categories of is recognised in the profit and loss as an expense when it property, plant and equipment are depreciated on a units of is incurred. production or straight line basis as follows: Mining information and mining leases Units of production basis Mining information and mining leases acquired are carried operational mining assets and mining development assets at the net fair value at date of acquisition less amortisation are depreciated on a ‘units of production’ basis. In applying and impairment losses. Mining information and mining the units of production method, depreciation is normally leases are amortised over the life of the mine for which the calculated using the quantity of material extracted from the information relates using the units of production method mine in the period as a percentage of the total quantity of and reflecting the pattern of economic benefit to the material to be extracted in current and future periods based economic entity. on proven and probable reserves.
development costs that relate to a discrete section of an ore (p) Trade and other payables body and which only provide benefit over the life of those trade and other payables represent liabilities for goods and reserves, are depreciated over the estimated life of that services provided to the economic entity prior to the end discrete section. development costs incurred which benefit of the financial year which are unpaid. trade payables are the entire ore body are depreciated over the estimated life stated at their original invoice amount, are unsecured and of the ore body. are normally settled on 30 day terms. Straight line basis (q) Borrowings • Buildings 23‑32 years Borrowings are initially recognised at fair value, net of • Generation assets 2‑32 years transaction costs incurred. Borrowings are subsequently • Non‑generation assets 2‑10 years measured at amortised cost. any difference between the • Capitalised overhauls 2‑4 years proceeds (net of transaction costs) and the redemption estimates of residual values and useful lives are reassessed amount is recognised in the profit and loss over the period annually, and any change in estimate is taken into account of the borrowings using the effective interest method. fees in the determination of future depreciation charges. paid on the establishment of loan facilities are recognised as an asset’s carrying amount is written down immediately transaction costs of the loan to the extent that it is probable to its recoverable amount if the asset’s carrying amount is that some or all of the facility will be drawn down. In this greater than its estimated recoverable amount (note 1(h)). case, the fee is deferred until the draw down occurs. to the extent there is no evidence that it is probable that some or Gains and losses on disposals are determined by comparing all of the facility will be drawn down, the fee is capitalised as proceeds with the carrying amount. these are included in a prepayment for liquidity services and amortised over the the profit and loss. period of the facility to which it relates.
(o) Intangible assets Borrowings are derecognised from the balance sheet when the obligation specified in the contract is discharged, Goodwill cancelled or expired. the difference between the carrying Goodwill represents the excess of the cost of an acquisition amount of a financial liability that has been extinguished over the fair value of the economic entity’s share of the or transferred to another party and the consideration paid, net identifiable assets of the acquired business/subsidiary including any non‑cash assets transferred or liabilities at the date of acquisition. Goodwill is not amortised. assumed, is recognised in other income or other expenses. Instead, goodwill is tested for impairment annually or
74 75 Notes to the financial statements(continued) For the year ended 30 June 2010
1 Summary of significant accounting (t) Employee benefits policies (continued) Short‑term obligations
(r) Borrowing costs Liabilities for wages and salaries, including non‑monetary benefits, annual leave and accumulating sick leave expected Borrowing costs relate to interest incurred on the to be settled within 12 months of the reporting date are Corporation’s loan with Queensland treasury Corporation recognised as provisions in respect of employees’ services (QtC), net of interest earned on the QtC debt offset up to the reporting date and are measured at the amounts facility. these costs are expensed as incurred unless they expected to be paid when the liabilities are settled. Liabilities relate to qualifying assets, in which case they are capitalised for non‑accumulating sick leave are recognised when the during the period of time that is required to complete and leave is taken and measured at the rates paid or payable. prepare the asset for its intended use or sale.
exploration, evaluation and development expenditure Other long‑term employee benefit obligations
carried forward relating to areas of interest on the basis the liability for long service leave is recognised in the that they are expected to be recouped through successful provision for employee benefits and measured as the development and exploitation, or alternatively by sale are present value of expected future payments to be made deemed to be qualifying assets. exploration, evaluation in respect of services provided by employees up to the and development expenditure carried forward relating to reporting date using the projected unit credit method. areas of interest which have not reached a stage permitting Consideration is given to expected future wage and salary reliable assessment of economic benefits are not regarded levels, experience of employee departures and periods of as qualifying assets and therefore, related borrowing costs service. expected future payments are discounted using are expensed. market yields at the reporting date on national Government Where funds are borrowed specifically for the acquisition, bonds with terms to maturity that match, as closely as construction or production of a qualifying asset, the amount possible, the estimated future cash outflows. of borrowing costs capitalised are those incurred in relation Retirement benefit obligations to that borrowing net of any interest earned on those borrowings. Where funds are borrowed generally, borrowing all employees of the economic entity are eligible for costs are capitalised using a weighted average interest rate. benefits on retirement, disability or death. the economic entity’s default superannuation plan (eSI Super) has a (s) Provisions defined benefit section and a defined contribution section Provisions are recognised when the economic entity has a within its plan. the defined benefit section provides defined present legal or constructive obligation as a result of past lump sum benefits based on years of service and final events, it is more likely than not that an outflow of resources average salary. the defined contribution section receives will be required to settle the obligation, and the amount has fixed contributions from economic entity companies and the been reliably estimated. Provisions are not recognised for economic entity’s legal or constructive obligation is limited to future operating losses. these contributions.
Where there are a number of similar obligations, the a liability or asset in respect of defined benefit likelihood that an outflow will be required in settlement superannuation plans is recognised in the balance sheet, is determined by considering the class of obligations as a and is measured as the present value of the defined benefit whole. a provision is recognised even if the likelihood of an obligation at the reporting date plus unrecognised actuarial outflow with respect to any one item included in the same gains (less unrecognised actuarial losses) less the fair value class of obligations may be small. of the superannuation fund’s assets at that date and any unrecognised past service cost. the present value of the Provisions are measured at the present value of defined benefit obligation is based on expected future management’s best estimate of the expenditure required payments which arise from membership of the fund to the to settle the present obligation at the balance sheet date. reporting date, calculated annually by independent actuaries the discount rate used to determine the present value using the projected unit credit method. Consideration is reflects the current market assessment of the time value of given to expected future wage and salary levels, experience money and the risks specific to the liability. the increase in of employee departures and periods of service. the provision due to the passage of time is recognised as interest expense.
76 77 Notes to the financial statements(continued) For the year ended 30 June 2010
1 Summary of significant accounting (u) Dividends policies (continued) Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the (t) Employee benefits(continued) discretion of the economic entity, on or before the end of expected future payments are discounted using market the financial year but not distributed at balance date. yields at the reporting date on Government bonds with terms to maturity that match, as closely as possible, the (v) Exploration and evaluation expenditure estimated future cash outflows. exploration, evaluation and development costs are actuarial gains and losses arising from experience accumulated in respect of each separate area of interest. adjustments and changes in actuarial assumptions are exploration and evaluation costs are carried forward where recognised in other comprehensive income. material and where:
Past service costs are recognised immediately in income, • right of tenure of the area of interest is current and they unless the changes to the superannuation fund are are expected to be recouped through sale or successful conditional on the employees remaining in service for a development and exploitation of the area of interest; or specified period of time (the vesting period). In this case, • activities in the area of interest have not yet reached the past service costs are amortised on a straight line basis a stage that permits reasonable assessment of the over the vesting period. existence of economically recoverable reserves.
future taxes that are funded by the Corporation and are development expenditure incurred by or on behalf of the part of the provision of the existing benefit obligation economic entity is accumulated separately for each area of (for example, taxes on investment income and employer interest in which economically recoverable resources have contributions) are taken into account in measuring the net been identified. Such expenditure comprises costs directly liability or asset. attributable to the construction of a mine and the related Contributions to the defined contribution fund are infrastructure. recognised as an expense as they become payable. once a development decision has been taken, the carrying Prepaid contributions are recognised as an asset to the amount of the exploration and evaluation expenditure extent that a cash refund or a reduction in the future in respect of the area of interest is aggregated with the payments is available. development expenditure and classified under non‑current assets as development properties. Profit‑sharing and bonus plans a development property is reclassified as a mining the economic entity recognises a liability and an expense property at the end of the commissioning phase, when the for bonuses on a formula that takes into consideration, mine is capable of operating in the manner intended by amongst other factors, the profit attributable to the management. Corporation’s shareholders. the economic entity recognises a provision where contractually obliged or where there is a development properties are tested for impairment in past practice that has created a constructive obligation. accordance with the policy in note 1(h). When an area of interest is abandoned or the directors Termination benefits decide that it is not commercial, all accumulated costs in termination benefits are payable when employment is respect of that area are written off in the financial period in terminated before the normal retirement date, or when which the decision is made. an employee accepts voluntary redundancy in exchange amortisation is not charged on costs carried forward in for these benefits. the economic entity recognises respect of areas of interest in the development phase until termination benefits when it is demonstrably committed to production commences. When production commences, either terminating the employment of current employees carried forward exploration, evaluation and development according to a detailed formal plan without possibility of costs are amortised on a units of production basis over the withdrawal or to providing termination benefits as a result of life of the economically recoverable reserves. an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value.
76 77 Notes to the financial statements(continued) For the year ended 30 June 2010
1 Summary of significant accounting Cash flows are presented on a gross basis. the GSt policies (continued) components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the (w) Restoration, rehabilitation and environmental taxation authority are presented as operating cash flows. expenditure (y) Fair value estimation future costs associated with the rehabilitation of power the fair value of financial assets and financial liabilities station sites, and close down and restoration of coal must be estimated for recognition and measurement or for mines are estimated and provided for in accordance with disclosure purposes. note 1(s). In relation to mining activities, restoration and rehabilitation costs are provided for in the accounting period the fair value of financial instruments traded in active when the obligation arising from the related disturbance markets is based on quoted market prices at the balance occurs, whether this occurs during the site development or date. the quoted market price used for financial assets and during the production phase, based on the net present value liabilities held by the economic entity is the appropriate of estimated future costs. Provisions for restoration and current mid price. rehabilitation costs do not include any additional obligations the fair value of financial instruments that are not traded in which are expected to arise from future disturbance. the an active market is determined using valuation techniques. costs are estimated on the basis of a closure plan. the the economic entity uses a variety of methods and makes cost estimates are calculated annually during the life of the assumptions that are based on market conditions existing at operation to reflect known developments and are subject to each balance date. Quoted market prices or dealer quotes formal review at regular intervals. for similar instruments are used for non‑standard financial When provisions for restoration and rehabilitation are instruments held. initially recognised, the corresponding cost is capitalised the fair value of financial liabilities for disclosure purposes is as an asset, representing part of the cost of acquiring the estimated by discounting the future contractual cash flows future economic benefits of the operation. the capitalised at the current market interest rate that is available to the cost is amortised over the estimated economic life of economic entity for similar financial instruments. the operation. the value of the provision is progressively increased over time as the effect of the discounting the carrying amount of financial assets and liabilities unwinds, creating an expense which is recognised as a approximate their fair value, except for borrowings, the fair finance cost. the amortisation or ‘unwinding’ of the discount value of which is disclosed in note 23. applied in establishing the net present value of provisions is charged to the profit and loss in each accounting period. (z) Presentation of financial statements the amortisation of the discount is shown as a financing the economic entity applies revised aaSB 101 Presentation cost, rather than as an operating cost. of Financial Statements (2007), which became effective the costs for the restoration of site damage which as of 1 January 2009. as a result, the economic entity arises during production are provided at their net present presents in the consolidated statement of changes in equity values and charged against operating profits as the all owner changes in equity, whereas all non‑owner changes extraction progresses. in equity are presented in the consolidated statement of comprehensive income. (x) Goods and services tax Comparative information has been re‑presented so that it revenues, expenses and assets are recognised net of the also is in conformity with the revised standard. amount of Goods and Services tax (GSt), except where the amount of GSt incurred is not recoverable from the taxation (aa) New accounting standards and interpretations not authority. In these circumstances, the GSt is recognised as yet adopted part of the cost of acquisition of the asset or as part of the following standards, amendments to standards and the expense. interpretations have been identified as those which receivables and payables are stated inclusive of the amount may impact the economic entity in the period of initial of GSt. the net amount of GSt recoverable from, or payable application. they are available for early adoption at to, the taxation authority is included with other receivables 30 June 2010, but have not been applied in preparing or payables in the balance sheet. this financial report.
78 79 Notes to the financial statements(continued) For the year ended 30 June 2010
1 Summary of significant accounting (iv) a a SB 9 Financial Instruments and aaSB 2009‑11 policies (continued) Amendments to Australian Accounting Standards arising from AASB 9 (effective for annual reporting (aa) New accounting standards and interpretations not periods beginning on or after 1 January 2013) yet adopted (continued) a a SB 9 includes requirements for the classification and (i) a a SB 2009‑5 Further Amendments to Australian measurement of financial assets. the standard is not Accounting Standards arising from the Annual applicable until 1 January 2013 and the economic entity Improvements Project (effective for annual periods has not yet completed its assessment of the impacts. beginning on or after 1 January 2010) (v) a a SB Interpretation 19 Extinguishing financial t he amendments affect various aaSBs resulting in liabilities with equity instruments and aaSB 2009‑13 minor changes for presentation, disclosure, recognition Amendments to Australian Accounting Standards and measurement purposes. the amendments, which arising from Interpretation 19 (effective 1 July 2010) will become mandatory for the economic entity’s 30 a a SB Interpretation 19 clarifies the accounting when an June 2011 financial statements, are not expected to entity renegotiates the terms of its debt with the result have a significant impact on the financial statements. that the liability is extinguished by the debtor issuing its (ii) r evised aaSB 124 Related Party Disclosures and own equity instruments to the creditor (debt for equity aaSB 2009‑12 Amendments to Australian Accounting swap). It requires a gain or loss to be recognised in Standards (effective for annual reporting periods the profit and loss which is measured as the difference beginning on or after 1 January 2011) between the carrying amount of the financial liability and the fair value of the equity instruments issued. In december 2009 the aaSB issued a revised the economic entity will apply the interpretation from aaSB 124 Related Party Disclosures. It is effective 1 July 2010 and it is not expected to have any impact for accounting periods beginning on or after 1 on the economic entity’s or the Parent entity’s January 2011 and must be applied retrospectively. financial statements. the amendment removes the requirement for Government‑related entities to disclose details of 2 Financial risk management all transactions with the Government and other Government‑related entities and clarifies and simplifies the economic entity’s activities expose it to a variety of the definition of a related party. the economic entity financial risks: market risk (including interest rate risk will apply the amended standard for the 30 June 2012 and electricity commodity price risk), credit risk, liquidity financial statements. this is expected to reduce the risk, and foreign exchange risk. the economic entity’s economic entity’s and the Parent entity’s related party overall risk management program focuses mainly on the disclosures. unpredictability of the electricity and financial markets and seeks to minimise potential adverse effects on the financial (iii) a a SB 2009‑14 Amendments to Australian performance of the economic entity. the economic entity Interpretation ‑ Prepayments of a Minimum Funding uses derivative financial instruments to hedge certain risk Requirement (effective 1 January 2011) exposures. the economic entity uses different methods to In december 2009, the aaSB made an amendment measure different types of risk to which it is exposed. these to Interpretation 14 The Limit on a Defined Benefit methods include sensitivity analysis in the case of interest Asset, Minimum Funding Requirements and their rate and electricity commodity price risks, a counterparty Interaction. the amendment removes an unintended credit ratings analysis for credit risk and a contracts aging consequence of the interpretation related to voluntary analysis for liquidity risk. prepayments when there is a minimum funding financial risk management is carried out by the energy requirement in regard to the economic entity’s defined risk Management and Settlements department under benefit scheme. It permits entities to recognise an policies approved by the Board. the Marketing and trading asset for a prepayment of contributions made to cover department identifies, evaluates and hedges electricity minimum funding requirements. the economic entity market risks. the Board provides guidance for overall does not make any such prepayments. the amendment risk management and approves policies covering specific is therefore not expected to have any impact on the areas, such as mitigating interest rate and credit risk, use economic entity’s financial statements. the economic of derivative financial instruments and investment of entity intends to apply the amendment for the 30 June excess liquidity. 2012 financial statements.
78 79 Notes to the financial statements(continued) For the year ended 30 June 2010
2 Financial risk management (continued)
the economic entity holds the following financial instruments:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Financial assets Cash and cash equivalents 9,983 78,661 9,927 78,185 trade and other receivables 97,226 93,647 642,167 384,300 electricity derivatives ‑ cash flow hedges 180,803 112,590 180,803 112,590 electricity derivatives ‑ held for trading 255,779 130,683 255,779 130,683 543,791 415,581 1,088,676 705,758 Financial liabilities trade and other payables 78,359 78,615 44,012 69,507 Borrowings 449,567 445,009 449,567 445,009 electricity derivatives ‑ cash flow hedges ‑ 3,285 ‑ 3,285 electricity derivatives ‑ held for trading 145,099 116,873 145,099 116,873 673,025 643,782 638,678 634,674
(a) Market risk Foreign exchange risk
Electricity commodity price risk the economic entity incurs foreign exchange exposure primarily as a result of imported components and the economic entity is exposed to electricity price equipment. Contracts to supply these items at times include movements in the national electricity Market. to manage a currency rise and fall clause in which the economic entity its electricity commodity price risk the economic entity has is exposed to foreign exchange risk. the economic entity has entered into a number of electricity derivatives (including no material exposure to foreign exchange risk on financial over the counter swaps, futures, cap and option contracts) instruments held as at 30 June 2010. in accordance with the Board approved risk management policy. for the majority of these contracts the economic Diesel commodity price risk entity receives from counterparties a fixed price per the economic entity incurs exposure to diesel price megawatt hour and in return pays the actual observed pool movements through operating its vehicle fleet and price. these contracts assist the economic entity to provide equipment at its coal mine and power station. to manage certainty in relation to revenue received. its diesel price risk the economic entity has entered into electricity price risk is measured weekly through the review a number of diesel derivatives. two types of transactions of the economic entity’s mark to market exposure of the net have been entered into, either the economic entity pays a derivative asset and liability position. fixed australian dollar (aud) price to counterparties and in return receives a floating aud price referenced to actual Environmental commodity price risk observed daily closing oil price in united States dollars the economic entity is exposed to environmental certificate (uSd) and foreign exchange prices, or the economic entity price movements through its requirement to comply with pays a fixed uSd price to counterparties and a separate various regulatory environmental schemes as part of its foreign exchange forward contract is used to hedge the normal business operations. to manage its environmental foreign currency exposure. under both transaction types, the certificate price risk the economic entity buys these derivative settlement receipts/payments are offset against certificates in both the spot and forward markets. the actual physical consumption which is settled monthly. these economic entity has no material exposure to environmental contracts assist the economic entity to provide certainty in commodity price risk on financial instruments held as at relation to diesel consumption costs. the economic entity 30 June 2010. has no material exposure to diesel commodity price risk on financial instruments held as at 30 June 2010.
80 81 Notes to the financial statements(continued) For the year ended 30 June 2010
2 Financial risk management (continued) risk. the analysis is based on similar information to that which would be provided to management and reflects (a) Market risk (continued) the impact on the economic entity’s financial instruments should certain price movements occur. Cash flow and fair value interest rate risk the sensitivity in the mark to market of the electricity the economic entity has interest rate risk on its debt. the derivative portfolio at balance date was investigated by economic entity manages its cash flow interest rate risk by observing the price relative impact of annualised volatility maintaining a spread of maturities. the debt duration is in the forward curve over a selected period under selected with reference to the cash flow profile of the assets. observable market conditions. the analysis assumes an Interest rate risk is measured monthly through the upward movement of 16% (2009: 20%) and a downward monitoring of changes in yields over the debt movement of 16% (2009: 20%), which reflects the market duration profile. sensitivity of positions held by the economic entity at balance date. Summarised sensitivity analysis the economic entity has assumed a +/‑100 basis point the following commentary and tables summarise the (bpt) movement in interest rates applicable to its borrowings sensitivity of the economic entity’s financial assets and as a reasonable expectation based on historical patterns for financial liabilities to commodity price risk and interest rate the type of debt facility held.
Consolidated Interest rate risk Commodity price risk
‑100 bpt +100 bpt ‑16% +16% Carrying Profit equity Profit equity Profit equity Profit equity amount
30 June 2010 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Financial assets Cash and cash 9,983 (100) (100) 100 100 ‑‑ ‑ ‑ equivalents electricity derivatives ‑ 180,803 ‑ ‑ ‑ ‑ ‑ 124,304 ‑ (110,857) cash flow hedges electricity derivatives ‑ 255,779 ‑‑‑‑ 109,873 109,873 (89,666) (89,666) held for trading
Financial liabilities electricity derivatives ‑ ‑‑‑‑‑‑‑ ‑ (28,904) cash flow hedges electricity derivatives ‑ 145,099 ‑ ‑ ‑ ‑ (59,483) (59,483) 29,202 29,202 held for trading
Borrowings ‑ current 28,656 287 287 (287) (287) ‑ ‑ ‑ ‑
Borrowings non‑current 420,911 403 403 (403) (403) ‑ ‑ ‑ ‑
Total increase/ 590 590 (590) (590) 50,390 174,694 (60,464) (200,225) (decrease)
80 81 Notes to the financial statements(continued) For the year ended 30 June 2010
2 Financial risk management (continued)
(a) Market risk (continued)
Consolidated Interest rate risk Commodity price risk
‑100 bpt +100 bpt ‑20% +20%
Carrying Profit equity Profit equity Profit equity Profit equity amount
30 June 2009 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Financial assets Cash and cash 78,661 (787) (787) 787 787 ‑ ‑ ‑ ‑ equivalents electricity derivatives ‑ 112,590 ‑ ‑ ‑ ‑ ‑ 113,358 ‑ (68,572) cash flow hedges electricity derivatives ‑ 130,683 ‑ ‑ ‑ ‑ 128,645 128,645 (30,153) (30,153) held for trading
non‑current receivable 5,059 (51) (51) 51 51 ‑ ‑ ‑ ‑
Financial liabilities derivatives ‑ cash flow 3,285 ‑ ‑ ‑ ‑ ‑ 2,860 ‑ (47,451) hedges electricity derivatives ‑ 116,873 ‑ ‑ ‑ ‑ (117,508) (117,508) 19,203 19,203 held for trading
Borrowings 445,009 426 426 (426) (426) ‑ ‑ ‑ ‑
Total (decrease)/ (412) (412) 412 412 11,137 127,355 (10,950) (126,973) increase
the sensitivity of the Parent entity’s financial instruments is not materially different to the amounts disclosed above.
(b) Credit risk the Corporation transacts with the australian energy Market operator (aeMo), which is a company limited by Credit risk largely arises from the potential failure of guarantee. aeMo was incorporated under the Corporations counterparties to meet their obligations under the respective Act 2001 and is owned by the governments of the six contracts upon maturity. In relation to the economic entity, jurisdictions who are members of the australian energy credit risk arises largely from derivative financial instruments Market – Queensland, Victoria, South australia, new South (note 12) and trade receivables (notes 9 and 13). Wales, australian Capital territory and tasmania. aeMo the economic entity trades within defined parameters, is self‑funding and has an ability to recover its costs from sets credit limits and monitors the performance of fees that participants are required to pay. as effective counterparties. further, the economic entity has a rigorous power system operations are of great importance to the and independent credit assessment, taking into account governments involved, implied support from all owners is ratings of counterparties as provided by rating agencies and assumed. as a result credit risk with aeMo is not adopts a conservative approach to credit risk. considered significant.
82 83 Notes to the financial statements(continued) For the year ended 30 June 2010
2 Financial risk management (continued)
(b) Credit risk (continued)
the following table provides a summary of the credit quality of financial assets that are neither past due nor impaired as assessed by reference to external credit ratings where available or by internal management review:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Cash at bank and short‑term bank deposits aa 5,868 76,602 5,868 76,602 aa‑ 4,634 1,584 4,578 1,283 other ‑ non‑rated (519) 475 (519) 300 9,983 78,661 9,927 78,185
Trade and other receivables aa 10,758 7,858 10,758 7,858 aa‑ ‑ 248 ‑ 248 BBB+ 938 2,664 938 2,664 BBB 3,380 821 3,380 821 BBB‑ 972 ‑ 972 ‑ BB 20,894 ‑ ‑ ‑ aeMo 17,952 25,771 17,952 25,771 other ‑ non‑rated 42,332 56,285 608,167 346,938 97,226 93,647 642,167 384,300
Derivative financial assets aa 167,229 75,393 167,229 75,393 aa‑ ‑ 1,762 ‑ 1,762 BBB+ 3,976 7,105 3,976 7,105 BBB 29,420 59,043 29,420 59,043 BBB‑ 6,660 ‑ 6,660 ‑ other ‑ non‑rated 129,712 27,303 129,712 27,303 336,997 170,606 336,997 170,606
82 83 Notes to the financial statements(continued) For the year ended 30 June 2010
2 Financial risk management (continued)
(c) Liquidity risk
the economic entity is subject to cash flow volatility and prefers to minimise the risk by maintaining a highly contracted profile. to the extent that volatility still arises, the economic entity manages liquidity risk by maintaining sufficient cash and undrawn facilities to meet any unexpected volatility. the economic entity uses stress testing to measure extreme cash flow risk. the economic entity has access to QtC funds as required once shareholding Ministers’ approval for the borrowing purpose has been received and subject to meeting credit criteria set by QtC. the QtC borrowings have no fixed repayment date however the facility is assessed by QtC annually.
the following table provides a summary of contractual maturities of financial liabilities:
Less than Greater than Nominal 5 months 5 months amount
$’000 $’000 $’000
As at 30 June 2010 Non‑derivatives trade and other payables 78,359 ‑ 78,359 Derivatives electricity derivatives ‑ cash flow hedges ‑ ‑ ‑ electricity derivatives ‑ held for trading 34,178 91,841 126,019 Total derivatives 34,178 91,841 126,019
As at 30 June 2009 Non‑derivatives trade and other payables 78,615 ‑ 78,615 Derivatives electricity derivatives ‑ cash flow hedges 231 3,027 3,258 electricity derivatives ‑ held for trading 30,107 67,118 97,225 Total derivatives 30,338 70,145 100,483
details of the maturity of borrowings are provided in note 23.
the electricity derivatives designated as cash flow hedges are expected to impact the profit and loss in the same period in which the cash flows occur.
(d) Fair value measurements (b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either the fair value of financial assets and financial liabilities directly (as prices) or indirectly (derived from prices) must be estimated for recognition and measurement or for (Level 2); and disclosure purposes. (c) inputs for the asset or liability that are not based on as of 1 July 2009, tarong energy Corporation Limited observable market data (unobservable inputs) adopted the amendment to aaSB 7 Financial Instruments: (Level 3). Disclosures which requires disclosure of fair value measurements by level of the following fair value the following table presents the economic entity’s and measurement hierarchy: the Parent entity’s assets and liabilities measured and recognised at fair value as at 30 June 2010. Comparative (a) quoted prices (unadjusted) in active markets for information has not been provided as permitted by the identical assets or liabilities (Level 1); transitional provisions of the amended standard.
84 85 Notes to the financial statements(continued) For the year ended 30 June 2010
2 Financial risk management (continued)
(d) Fair value measurements (continued)
Economic Entity ‑ as at 30 June 2010 Level 1 Level 2 Level 3 Total
$’000 $’000 $’000 $’000 Assets derivative financial assets 31,717 337,863 69,898 439,478 Liabilities derivative financial liabilities (30,918) (91,246) (5,050) (127,214) Net derivative financial assets 799 246,617 64,848 312,264
although the economic entity believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. for fair value measurements in Levels 2 and 3 of the fair value hierarchy, changing one or more of the derived or unobservable inputs used could lead to a reasonably alternative fair value being reached. for fair value measurements in Level 3 of the fair value hierarchy, changing one or more of the unobservable inputs used to reasonably possible alternative assumptions would have the following effects:
Effect on profit or loss Effect on hedging reserve
Favourable (Unfavourable) Favourable (Unfavourable)
$’000 $’000 $’000 $’000 derivative financial assets 11,137 (11,357) 1,042 (1,048) derivative financial liabilities 113 (109) ‑ ‑ Total 11,250 (11,466) 1,042 (1,048)
the following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements of derivative financial instruments in Level 3 of the fair value hierarchy:
Net derivative Economic Entity ‑ as at 30 June 2010 financial assets
$’000 opening balance as at 1 July 23,243 total gains recognised in: Profit and loss1 45,326 other comprehensive income 16,210 transfers out of Level 32 (19,931) Closing balance as at 30 June 64,848
1 total gains and losses included in profit and loss for the period are included in the statement of comprehensive income in “change in fair value of derivative instruments that do not qualify for hedge accounting”.
2 during the year certain derivative financial assets and liabilities were transferred out of Level 3 of the fair value hierarchy when significant inputs used in their fair value measurement which were previously unobservable become observable.
84 85 Notes to the financial statements(continued) For the year ended 30 June 2010
3 Critical accounting estimates and useful life of the asset may have a significant impact on the judgements cash flow projections and materially affect the impairment assessment. refer to note 17 for details of assumptions estimates and judgements are continually evaluated and are used in value‑in‑use calculations and the potential impact of based on historical experience and other factors, including changes to the assumptions. expectations of future events that may have a financial impact on the economic entity and that are believed to be Fair value of financial instruments reasonable under the circumstances. the fair value of financial instruments that are not traded the economic entity makes estimates and assumptions in an active market (for example, certain types of electricity concerning the future. the resulting accounting estimates derivatives) is determined by using valuation techniques. will, by definition, seldom equal the related actual results. the economic entity uses its judgement to select a variety of the estimates and assumptions that have a significant risk methods and makes assumptions that are mainly based on of causing a material adjustment to the carrying amounts market conditions existing at each balance sheet date. of assets and liabilities within the next financial year are Rehabilitation provisions discussed below: the economic entity has to provide for site closure and Estimated impairment of non‑current assets restoration in accordance with the accounting policy stated the economic entity tests annually whether non‑current in note 1(w). this calculation requires the use of key assets (including goodwill) have suffered any impairment in assumptions including the timing of restoration work, legal accordance with the accounting policy stated in note 1(h). requirements and the use of a discount rate. the recoverable amounts of cash‑generating units have Retirement benefits been determined based on either fair value less cost to sell or value‑in‑use calculations. these calculations require the Various actuarial assumptions underpin the determination of use of assumptions which may contain information that is the economic entity’s retirement benefit obligations. these uncertain or subject to fluctuation over time. any change in assumptions and the related carrying amounts are outlined the assumptions selected by management or change in the in note 26.
4 Revenue
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Sales revenue Sale of electricity 474,916 439,921 416,814 388,034 energy services revenue 15,902 ‑ 15,902 ‑ Sale of by‑product 4,088 3,818 3,979 3,737 494,906 443,739 436,695 391,771 Other revenue Interest 2,296 4,505 2,431 4,489 497,202 448,244 439,126 396,260
86 87 Notes to the financial statements(continued) For the year ended 30 June 2010
5 Other income
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 net gain on change in rehabilitation liability1 11,535 14,205 ‑ ‑ other income 6,813 4,785 6,652 4,254 Insurance proceeds received 2,359 ‑ ‑ ‑ net present value gain on contingent consideration in business 1,080 14,531 ‑ ‑ combination 21,787 33,521 6,652 4,254
1 during the period ended 30 June 2010 the Meandu Mine rehabilitation provision was reassessed and reduced to reflect a change in estimated outflows to settle the obligation. In accordance with the requirements of australian accounting Standards, the amount of the change in the rehabilitation liability in excess of the carrying value of the related assets was recognised in the profit and loss.
6 Expenses
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Profit before income tax includes the following specific expenses: Depreciation and amortisation1 Generation assets 55,383 54,610 45,146 47,655 Capitalised overhauls 19,254 17,262 15,331 14,429 non‑generation assets 8,051 6,674 7,847 6,505 operational mining assets 7,355 7,675 ‑ ‑ Buildings 2,160 2,306 1,698 2,004 92,203 88,527 70,022 70,593 Finance costs Interest and finance charges paid/payable on borrowings 28,285 33,104 28,284 26,307 amount capitalised (5,032) (8,299) (5,032) (3,910) Interest associated with increase in provisions due to the passage 7,343 10,154 3,859 3,967 of time 30,596 34,959 27,111 26,364 Transaction costs on acquisition of business 14,925 ‑ ‑ ‑ (included in other expenses) (note 36)
1 the depreciation and amortisation expense includes a credit adjustment of $7,207,000 to reflect the reassessment of the useful life of tarong Power Station
86 87 Notes to the financial statements(continued) For the year ended 30 June 2010
7 Income tax expense
(a) Income tax expense
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Current tax (798) 25,250 16,735 21,724 deferred tax 38,597 9,849 23,406 6,241 over provided in prior years (781) (1,693) (962) (1,521) 37,018 33,406 39,179 26,444
Income tax expense is attributable to: Profit before income tax expense 37,018 33,406 39,179 26,444 deferred income tax expense included in income tax expense comprises: (Increase)/decrease in deferred tax assets (note 16) (4,108) 9,174 (8,847) 7,181 Increase/(decrease) in deferred tax liabilities (note 24) 42,705 675 32,253 (940) 38,597 9,849 23,406 6,241
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Profit before income tax expense 128,570 118,509 136,377 93,939 tax at the australian tax rate of 30% (2009: 30%) 38,571 35,553 40,913 28,182 tax effect of amounts which are not taxable in calculating taxable income: Sundry items (772) (454) (772) (218) 37,799 35,099 40,141 27,964 over provision in prior years (781) (1,693) (962) (1,520) Income tax expense 37,018 33,406 39,179 26,444
(c) Amounts recognised directly in equity
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 aggregate current and deferred tax arising in the reporting period and not recognised in the profit and loss but directly debited or credited to equity: Cash flow hedges (note 28) 21,052 63,637 21,052 63,637 defined benefit plan (note 28) 776 (2,623) 776 (2,623) 21,828 61,014 21,828 61,014
88 89 Notes to the financial statements(continued) For the year ended 30 June 2010
7 Income tax expense (continued)
(d) Tax consolidation
tarong energy Corporation Limited and its wholly‑owned australian controlled entities entered into a tax sharing and funding agreement from 1 July 2005 in relation to their participation in the tax consolidation regime. under the terms of this agreement, the wholly‑owned entities reimburse tarong energy Corporation Limited for any current income tax payable by tarong energy Corporation Limited arising in respect of their activities. the reimbursements are payable at the same time as the associated income tax liability is due. In the opinion of the directors, the tax sharing agreement is also a valid agreement under the tax consolidation legislation and limits the joint and several liabilities of the wholly‑owned entities in the case of a default by tarong energy Corporation Limited.
8 Current assets ‑ Cash and cash equivalents
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Cash at bank and on hand 4,634 1,584 4,578 1,108 deposits at call 5,868 76,602 5,868 76,602 Margin call account ‑ available funds (519) 475 (519) 475 9,983 78,661 9,927 78,185
(a) Cash at bank and on hand
Cash held with banks is bearing an interest rate of 2.6% (2009: 4.1%).
(b) Deposits at call
the deposits yielded floating interest rates between 3.3% and 5.2% during the year ended 30 June 2010 (2009: 3.2% to 8.3%).
(c) Fair value
the carrying amount for cash and cash equivalents equals the fair value.
9 Current assets ‑ Trade and other receivables
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Net trade receivables trade receivables 54,697 52,472 54,697 53,378
Net other receivables other receivables 41,349 35,416 19,577 18,304
Prepayments Insurance 117 108 75 69 other prepayments 1,063 592 1,025 536 1,180 700 1,100 605 97,226 88,588 75,374 72,287
there are no material receivables that are past due.
88 89 Notes to the financial statements(continued) For the year ended 30 June 2010
9 Current assets ‑ Trade and other receivables (continued)
(a) Bad and doubtful trade receivables
the economic entity did not recognise any material losses in respect of bad and doubtful trade receivables during the year ended 30 June 2010 (2009: $nil).
(b) Other receivables
these amounts generally arise from non‑electricity related transactions of the economic entity. repayment terms are generally 30 days from invoice date. no interest is charged on outstanding balances. Collateral is not normally obtained.
(c) Effective interest rates and credit risk
Information concerning the effective interest rate and credit risk of non‑current receivables is set out in note 12 and note 13.
(d) Fair value
the carrying amounts of trade and other receivables equal their fair values.
10 Current assets ‑ Inventories
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Raw materials Stores at lower of cost or net realisable value 17,898 15,503 11,292 11,970
Fuel Coal stocks at cost (work in progress) 5,587 13,370 ‑ ‑ Coal stocks at cost (complete) 40,628 40,090 40,628 40,090 oil at cost 1,452 1,431 1,452 1,435 47,667 54,891 42,080 41,525
Environmental certificates renewable energy Certificates 13,775 3,738 13,775 3,738 Gas electricity Certificates 994 6 994 6 nSW Greenhouse abatement Certificates 980 873 980 211 15,749 4,617 15,749 3,955 81,314 75,011 69,121 57,450
Write‑downs of inventories to net realisable value recognised as an expense during the year ended 30 June 2010 amounted to $960,000 (2009: $nil) in the economic entity and $542,000 (2009: $nil) for the Parent entity. the expense has been included in ‘raw materials and consumables used’ in the profit and loss.
11 Current assets ‑ Other current assets
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 deferred stripping 56,134 29,695 ‑ ‑ other 217 ‑ 217 ‑ 56,351 29,695 217 ‑
90 91 Notes to the financial statements(continued) For the year ended 30 June 2010
12 Derivative financial instruments
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Current assets electricity derivatives ‑ held for trading 112,164 56,837 112,164 56,837 electricity derivatives ‑ cash flow hedges 81,889 49,267 81,889 49,267 other financial derivatives ‑ held for trading 943 ‑ 943 ‑ total current derivative financial instrument assets 194,996 106,104 194,996 106,104
Non‑current assets electricity derivatives ‑ held for trading 142,672 73,846 142,672 73,846 electricity derivatives ‑ cash flow hedges 98,914 63,323 98,914 63,323 total non‑current derivative financial instrument assets 241,586 137,169 241,586 137,169
total derivative financial instrument assets 436,582 243,273 436,582 243,273
Current liabilities electricity derivatives ‑ held for trading 79,401 68,502 79,401 68,502 electricity derivatives ‑ cash flow hedges ‑ 1,647 ‑ 1,647 total current derivative financial instrument liabilities 79,401 70,149 79,401 70,149
Non‑current liabilities electricity derivatives ‑ held for trading 65,698 48,371 65,698 48,371 electricity derivatives ‑ cash flow hedges ‑ 1,638 ‑ 1,638 total non‑current derivative financial instrument liabilities 65,698 50,009 65,698 50,009
total derivative financial instrument liabilities 145,099 120,158 145,099 120,158
net derivative financial instrument assets 291,483 123,115 291,483 123,115
(a) Instruments used by the Economic Entity the contracts are recognised at trade date and are settled on a net basis each week. the settlement dates coincide the economic entity is party to derivative financial with the dates on which revenue is received on the instruments in the normal course of business primarily underlying electricity sales (generally 20 business days from to hedge exposures to fluctuations in the spot price of the end of the settlement week). electricity. Some trading occurs to profit from short‑term movements in the electricity derivative forward market these contracts are fair valued by comparing the contracted in accordance with the economic entity’s energy risk rate to the current market rate for an identical contract. the Management Policy (refer to note 2). gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the Electricity derivatives ‑ cash flow hedges extent that the hedge is effective, and recycled into the profit the economic entity enters into derivative contracts and loss when the hedged electricity revenue is recognised. (generally swaps) to fix the price of electricity sales. the the ineffective portion is recognised in the profit and loss volume of generation hedged by contracts is determined immediately. In the year ended 30 June 2010 a gain of in accordance with the economic entity’s energy risk $107,755,000 (2009: loss of $85,416,000) was reclassified Management Policy. the cash flows are expected to occur from the cash flow hedge reserve to the profit and loss and within three years of balance date. included in the measurement of electricity revenue.
90 91 Notes to the financial statements(continued) For the year ended 30 June 2010
12 Derivative financial instruments at balance date for both the economic entity and the Parent (continued) entity these contracts constituted a net asset with a fair value of $110,680,000 (2009: net asset of $13,810,000). (a) Instruments used by the Economic Entity all contracts expire by 31 december 2015. (continued) these contracts are fair valued by comparing the contracted at balance date for both the economic entity and the Parent rate to the current market rate for an identical contract. entity these contracts constituted a net asset with a fair any changes in fair values are taken to the profit and loss value of $180,803,000 (2009: net asset of $109,305,000). immediately. due to the nature of the electricity derivative contracts, most ineffectiveness arises at the time when the hedged (b) Credit risk exposures electricity is generated. the ineffective portion of the hedge Credit risk arises from the potential failure of counterparties is recognised in the profit and loss at the time when the to meet their obligations under the respective contracts effective portion of the hedge is recycled to the profit at each settlement date as well as any unrealised and loss. mark‑to‑market losses from derivative contracts. Management have established limits using external Electricity derivatives ‑ held for trading credit ratings where available or by internal management trading contracts are entered into for the purposes of assessment to measure credit risk arising from derivative profiting from short‑term movements in the electricity financial instruments. Controls are also in place to limit derivative forward market in accordance with the economic the amount of exposure, by groupings of counterparties. entity’s energy risk Management Policy. Maturities are Measurement of credit risk is monitored on a daily basis and unrelated to outstanding hedging contracts. however, the reported on a weekly basis. amount and rate of hedging transactions are considered the economic entity has historically undertaken the in the determination of the positions taken. In addition to majority of its transactions in electricity derivatives contracts these contracts designated as held for trading, an accounting with counterparties owned by the State of Queensland. reclassification is made to contracts entered into as a hedge With the sale of the Government‑owned contestable for portfolio purposes that do not meet the requirements of retail businesses, and with full retail Contestability, new a cash flow hedge under aaSB 139 Financial Instruments: counterparties have emerged or are emerging, presenting a Recognition and Measurement. changing landscape with regard to credit risk. Management conducts regular credit reviews of all counterparties.
13 Non‑current assets ‑ Trade and other receivables
Consolidated Parent Entity 2010 2009 2010 2009 $’000 $’000 $’000 $’000 Related party receivables Loans to subsidiaries ‑ ‑ 566,793 306,954 Secured loan to third party ‑ accrued shortfall balance ‑ 5,059 ‑ 5,059 ‑ 5,059 566,793 312,013
the Corporation’s non‑current receivables include loans provided to subsidiaries for their net cash requirements. these loans are non‑interest bearing and are eliminated upon consolidation.
under the terms of the tarong north electricity agreement, the Corporation was required to advance funds to the external joint venture party tM energy (australia) Pty Ltd. funds advanced were secured and interest was paid at the rate specified in the agreement. the loan was repaid on termination of the joint venture during the year.
92 93 Notes to the financial statements(continued) For the year ended 30 June 2010 ‑ Total ‑ (500) ‑ 6,397 ‑ 8,299 ‑ 140,677 ‑ (1,832) ‑ (9,775) deferred Overhaul expenditure ‑ ‑ ‑ ‑ ‑ Non‑ assets generation ‑ (40) ‑ ‑ ‑ ‑ (6,674) (17,262) (88,527) ‑ (37,937) (38,601) (550,146) ‑ assets Mining development ‑ ‑ ‑ ‑ ‑ (9,217) assets mining Operational ‑ ‑ ‑ ‑ assets Generation ‑ (16) (444) ‑ 6,397 ‑ ‑ ‑ ‑ Freehold Freehold buildings ‑ ‑ ‑ ‑ ‑ (19,672) (443,003) (10,933) ‑ (2,306) (54,610) (7,675) ‑ land Freehold Freehold ‑ ‑ ‑ ‑ (558) 8,299 62,796 10,854 48,362 1,054,650 95,761 50,801 12,291 31,790 1,367,305 129,157 11,674 66,404 1,474,555 102,827 67,391 52,285 67,897 1,972,190 140,677 129,157 11,674 46,732 1,031,552129,157 91,894 11,674 46,732 67,391 1,031,552 14,348 91,894 29,296 1,422,044 67,391 14,348 29,296 1,422,044 (81,904) 2,499 676 25,131 4,252 25,807 8,771 14,768 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Work in Work progress 1 Write‑down of previously capitalised Write‑down amounts disposals Increase in rehabilitation asset transfers from work in progress transfers Borrowing costs capitalised additions through normal operations Year ended 30 June 2009 ended 30 Year opening net book amount Closing net book amount June 2009 As at 30 Cost accumulated depreciation Net book amount depreciation and amortisation charge transferred to exploration and evaluationtransferred (153) (1,679) Consolidated 14 14 plant and equipment Non‑current assets ‑ Property,
92 93 Notes to the financial statements(continued) For the year ended 30 June 2010 ‑ Total ‑ (3,505) ‑ 6,711 ‑ (96) ‑ 23,585 ‑ 5,032 ‑ 135,472 deferred Overhaul expenditure ‑ ‑ ‑ ‑ 32 Non‑ assets generation ‑ (38,213) (36,160) (546,224) ‑ (8,051) (19,254) (92,203) ‑ ‑ (45) ‑ ‑ ‑ 515 7,150 208,840 ‑ assets Mining development ‑ (3,505) ‑ ‑ ‑ ‑ ‑ assets mining Operational ‑ ‑ (51) ‑ ‑ assets Generation ‑ ‑ ‑ 23,585 ‑ ‑ 48 76,016 21,963 16,028 16,373 44,257 Freehold Freehold buildings ‑ (19,415) (434,196) (18,240) ‑ (2,160) (55,383) (7,355) ‑ ‑ 298 6,381 ‑ ‑ ‑ ‑ 9,048 188,847 ‑ ‑ land Freehold Freehold ‑ ‑ ‑ ‑ ‑ ‑ 5,032 98,256 11,674 73,381 1,705,194 124,691 79,914 61,385 97,609 2,252,104 98,256 11,674 53,966 1,270,998 106,451 79,914 23,172 61,449 1,705,880 98,256 11,674 53,966 1,270,998 106,451 79,914 23,172 61,449 1,705,880 135,472 129,157 11,674 46,732 1,031,552 91,894 67,391 14,348 29,296 1,422,044 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 (174,685) Work in Work progress Consolidated Net book amount accumulated depreciation As at 30 June 2010 As at 30 Cost Closing net book amount depreciation and amortisation charge Contribution from joint venture partner for mine development costs reversal of impairment charge in profit and loss disposals Increase in site rehabilitation Borrowing costs capitalised additions through business combinations from work in progress transfers 3,280 Year ended 30 June 2010 ended 30 Year opening net book amount additions through normal operations 14 14 plant and equipment (continued) Non‑current assets ‑ Property,
94 95 Notes to the financial statements(continued) For the year ended 30 June 2010 ‑ Total ‑ (54) ‑ 4,410 ‑ 137,419 ‑ 3,910 ‑ (1,832) ‑ (9,775) deferred Overhaul expenditure ‑ ‑ ‑ ‑ ‑‑ Non‑ assets generation ‑ (39) ‑ ‑ (36,165) (32,911) (476,600) ‑ ‑ ‑ (6,505) (14,429) (70,593) ‑ assets Mining development ‑ ‑ ‑ ‑ (9,217) assets Generation ‑ (15) ‑ 4,410 ‑ ‑ ‑ ‑ Freehold Freehold buildings ‑ ‑ ‑ (17,382) (390,142) ‑ ‑ ‑ (2,004) (47,655) ‑ land Freehold Freehold ‑ ‑ ‑ ‑ 3,910 (153) (1,679) (558) 57,584 10,854 41,711 912,154 50,801 11,933 23,635 1,108,672 137,419 122,554 11,674 57,743 1,283,207 67,391 50,199 55,989 1,648,757 122,554 11,674 40,361 893,065 67,391 14,034 23,078 1,172,157 122,554 11,674 40,361 893,065 67,391 14,034 23,078 1,172,157 (75,648) 2,499 654 24,171 25,807 8,645 13,872 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Work in Work progress 1 Parent Entity Parent during the year ended 30 June 2009, the Corporation performed June 2009, a review of its primary fuel source for the portfolioduring the year ended 30 of generation assets and extension the Meandu Mine life. expenditure incurred in connection with a full‑scale Write‑down of previously capitalised amounts Write‑down disposals Net book amount transfers from work in progress transfers Increase in rehabilitation asset As at 30 June 2009 As at 30 Cost accumulated depreciation Borrowing costs capitalised additions through normal operations Closing net book amount Year ended 30 June 2009 ended 30 Year opening net book amount depreciation and amortisation charge transferred to exploration and evaluation transferred 1 transition to the Kunioon coal resource was identified as no longer providing future economic benefits to the entity and was written off accordingly. coal resource was identified as no longer providing future economic transition to the Kunioon 14 14 plant and equipment (continued) Non‑current assets ‑ Property,
94 95 Notes to the financial statements(continued) For the year ended 30 June 2010 ‑ Total ‑ (3,505) ‑ (45) ‑ 22,827 ‑ 2,688 ‑ 95,892 deferred Overhaul expenditure ‑ ‑ ‑ ‑ Non‑ assets generation ‑ (38,110) (33,408) (517,349) ‑ (7,847) (15,331) (70,022) ‑ (42) ‑ ‑ ‑ assets Mining development ‑ (3,505) ‑ ‑ (3) assets Generation ‑ ‑ ‑ 22,827 ‑ ‑ 48 75,223 16,028 16,319 37,498 Freehold Freehold buildings ‑ (19,080) (426,751) ‑ (1,698) (45,146) ‑ ‑ ‑ ‑ ‑ ‑ land Freehold Freehold ‑ ‑ ‑ ‑ ‑ 2,688 76,018 11,674 57,791 1,372,717 79,914 60,574 78,653 1,737,341 76,018 11,674 38,711 945,966 79,914 22,464 45,245 1,219,992 76,018 11,674 38,711 945,966 79,914 22,464 45,245 1,219,992 95,892 122,554 11,674 40,361 893,065 67,391 14,034 23,078 1,172,157 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 (145,116) Work in Work progress Parent Entity Parent accumulated depreciation net book amount As at 30 June 2010 As at 30 Cost Closing net book amount depreciation and amortisation charge Contribution from joint venture partner for mine development costs disposals Increase in rehabilitation asset transfers from work in progress transfers Borrowing costs capitalised additions through normal operations Year ended 30 June 2010 ended 30 Year opening net book amount an asset impairment of $32,500,000 was recognised in the year ended 30 June 2007 in relation to the Corporation’s 50% share of tarong north Power Station assets. this reduction in the north Station assets. this Power share of tarong in relation to the Corporation’s 50% June 2007 was recognised in the year ended 30 an asset impairment of $32,500,000 recoverable amount of the assets reflected revised assessments key revenue and expense inputs, including electricity prices, fuel costs water at that time. on acquisition of the initially recognised impairment was reversed. the Corporation reassessed its estimates and $6,711,000 november 2009, north Station on 30 Power of the tarong additional 50% 14 14 plant and equipment (continued) Non‑current assets ‑ Property, (a) Impairment reversal
96 97 Notes to the financial statements(continued) For the year ended 30 June 2010
15 Non‑current assets ‑ Exploration and evaluation
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Costs carried forward in respect of areas of interest in the exploration and evaluation phases: opening balance 49,476 47,644 49,476 47,644 expenditure incurred ‑ 1,832 ‑ 1,832 Closing balance 49,476 49,476 49,476 49,476
the ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the areas of interest.
16 Non‑current assets ‑ Deferred tax assets
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
The balance comprises temporary differences attributable to: Amounts recognised in the income statement tax losses1 798 ‑ 798 ‑ Provisions 60,187 51,517 35,867 25,818 accruals 837 2,507 286 1,785 fixed assets 7,534 10,723 ‑ ‑ deferred income ‑ ‑ ‑ ‑ renewable energy Certificates ‑ 87 ‑ 87 other 811 ‑ 811 ‑ 70,167 64,834 37,762 27,690
Amounts recognised directly to equity defined benefit plan 151 927 151 927 total deferred tax assets 70,318 65,761 37,913 28,617
Set‑off of deferred tax liabilities pursuant to set‑off provisions (note 24) (70,318) (65,761) (37,913) (28,617) net deferred tax assets ‑ ‑ ‑ ‑ Movements: opening balance as at 1 July 65,761 129,681 28,617 90,544 Credited/(charged) to the profit or loss 4,108 (9,174) 8,847 (7,181) (Charged)/credited to equity (776) (29,532) (776) (29,532) tax losses (used)/created in current year 798 (22,801) 798 (22,801) under provision in prior year 427 (2,413) 427 (2,413) Closing balance as at 30 June 70,318 65,761 37,913 28,617
1the deferred tax asset attributable to tax losses does not exceed taxable amounts arising from the reversal of existing assessable temporary differences.
96 97 Notes to the financial statements(continued) For the year ended 30 June 2010
17 Non‑current assets ‑ Intangible assets
Mining Mining Consolidated Goodwill lease ‑ information Total Kunioon ‑ Kunioon
$’000 $’000 $’000 $’000
Year ended 30 June 2009 opening net book amount 8,111 62,037 4,785 74,933 reduction in goodwill (8,111) ‑ ‑ (8,111) Closing net book amount ‑ 62,037 4,785 66,822
As at 30 June 2009 Cost ‑ 62,037 4,785 66,822 accumulated amortisation and impairment ‑ ‑ ‑ ‑ net book amount ‑ 62,037 4,785 66,822
Year ended 30 June 2010 opening net book amount ‑ 62,037 4,785 66,822 acquisition of business 44,669 ‑ ‑ 44,669 Closing net book amount 44,669 62,037 4,785 111,491
As at 30 June 2010 Cost 44,669 62,037 4,785 111,491 accumulated amortisation ‑ ‑ ‑ ‑ net book amount 44,669 62,037 4,785 111,491
Goodwill
Goodwill recognised during the period ended 30 June 2010 relates to the acquisition of the tarong north Power Station and is attributable to the synergies expected to be achieved from integrating the business into the Corporation’s existing business (note 36).
the prior year’s goodwill represented the value over and above the value of identifiable business assets acquired from rio tinto Coal australia (rtCa) in february 2008. reductions in the 2009 financial year included an adjustment to employee provision balances of $4,500,000 as part of the finalisation of the purchase price allocation. the remaining $3,600,000 related to movements in the estimate in the contingent consideration under the terms of the acquisition. Changes to the net present value of the contingent consideration were recorded against goodwill up to the point where the value of goodwill was reduced to nil, with subsequent adjustments recognised in the profit and loss.
Mining Lease ‑ Kunioon
additional economic coal reserves at the Meandu Mine were confirmed during the 2009 financial year which enabled the Corporation to defer a full scale development and transition to the Kunioon coal resource. activities relating to the transition to the Kunioon coal resource have been deferred, however the resource continues to be part of the Corporation’s long‑term fuel supply plan. amortisation of the Kunioon mining lease and mining information will occur over the life of the Kunioon Mine using a ‘units of production’ method and reflecting the pattern of economic benefit to the economic entity in accordance with note 1(o). amortisation will commence once the mine is operational.
98 99 Notes to the financial statements(continued) For the year ended 30 June 2010
17 Non‑current assets ‑ Intangible assets (continued)
(a) Impairment tests for goodwill
for the purposes of impairment testing, goodwill is allocated to the economic entity’s cash‑generating units (CGus) as follows:
Consolidated 2010 2009
$’000 $’000
Generation and mining 44,669 ‑
the goodwill balance arose on acquisition of the remaining 50% interest in the tarong north Power Station and has been allocated in full to the generating and mining CGu. the Generation and mining CGu is tested for impairment annually or more frequently if required in accordance with the accounting policy outlined in note 1(h).
(b) Key assumptions used for value‑in‑use calculations
Discount rate1
2010 2009
% % Generation and mining CGu 11.2 11.2
1In performing the value‑in‑use calculations for each CGu, the economic entity has applied post‑tax discount rates to discount the forecast future post‑tax cash flows. the equivalent pre‑tax discount rates are disclosed above.
In carrying out the impairment tests at 30 June 2010, the recoverable amount of the Generation and mining CGu was estimated using value‑in‑use calculations. the value‑in‑use calculations use cash flow projections based on internally approved mine plans, price curves and capital expenditure programs. Key assumptions required in these calculations include:
• forecast electricity pool and contract prices; • forecast fuel prices; • forecast water costs; • timing and value of sustaining capital expenditure; and • assessment of discount rates.
the impact of any carbon policy changes has not been included in future cash flows at this time given the current policy uncertainty.
18 Non‑current assets ‑ Other non‑current assets
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
deferred stripping 10,972 28,875 ‑ ‑ other 1,756 ‑ 1,756 ‑ 12,728 28,875 1,756 ‑
98 99 Notes to the financial statements(continued) For the year ended 30 June 2010
19 Current liabilities ‑ Trade and other payables
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
trade payables 23,365 27,979 21,742 26,918 accrued expenses 43,356 42,752 15,139 25,576 other payables 11,638 7,884 7,131 7,515 amounts payable to subsidiaries ‑ ‑ ‑ 9,498 78,359 78,615 44,012 69,507
trade and other payables are generally due within 30 days.
the carrying value of trade payables approximates their fair value.
20 Current liabilities ‑ Borrowings
Unsecured Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Loans from Queensland treasury Corporation (QtC) 28,656 ‑ 28,656 ‑
the borrowings are used for short‑term funding and the terms of the facility are reviewed annually. Interest is charged based on an interest rate that changes daily based on the reserve Bank of australia official cash rate.
further details on loans from QtC are provided in note 23.
21 Current liabilities ‑ Provisions
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
employee benefits 23,273 21,727 21,909 20,621 onerous contracts 339 ‑ 339 ‑ dividends 17,401 45,541 17,401 45,541 Site rehabilitation 10,252 ‑ 2,100 ‑ 51,265 67,268 41,749 66,162
(a) Dividends
Provision is made for the amount of any dividend declared on or before the end of the financial year but not distributed at balance date. dividends provided for at balance date will be paid by 31 december 2010.
100 101 Notes to the financial statements(continued) For the year ended 30 June 2010
21 Current liabilities ‑ Provisions (continued)
(b) Movements in provisions
Movements in each class of provision during the financial year, other than employee benefits, are set out below:
Onerous Site Dividends contracts rehabilitation
$’000 $’000 $’000
Consolidated ‑ 2010 Carrying amount as at 1 July ‑ 45,541 ‑ amounts paid during the year ‑ (45,541) ‑ additional provisions recognised 339 17,401 ‑ reassessment of provision ‑ ‑ 10,252 Carrying amount as at 30 June 339 17,401 10,252
Parent ‑ 2010 Carrying amount at as 1 July ‑ 45,541 ‑ amounts paid during the year ‑ (45,541) ‑ additional provisions recognised 339 17,401 ‑ reassessment of provision ‑ ‑ 2,100 Carrying amount as at 30 June 339 17,401 2,100
22 Current liabilities ‑ Other current liabilities
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
other current liabilities 4,364 295 1,114 295 unearned income 589 883 217 ‑ 4,953 1,178 1,331 295
23 Non‑current liabilities ‑ Borrowings
Unsecured Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Loans from Queensland treasury Corporation (QtC) 420,911 445,009 420,911 445,009
(a) Loans from QTC
the QtC non‑current borrowings have no fixed repayment date and the terms of the facility are reviewed by QtC annually. Interest is charged based on a fixed rate which is set annually.
the total interest rate payable includes a Competitive neutrality fee payable to Queensland treasury, representing the difference between the cost at which QtC is able to source debt and the estimated cost of debt for the economic entity were it to be a stand‑alone entity not owned by the Queensland Government. the Competitive neutrality fee can be adjusted up or down according to changes in credit quality of the economic entity and market changes to the relative cost of debt compared with a highly‑rated government issuer.
100 101 Notes to the financial statements(continued) For the year ended 30 June 2010
23 Non‑current liabilities ‑ Borrowings (continued)
(b) Fair value
the carrying amounts and fair values of interest bearing liabilities at balance date are:
2010 2009
Carrying Carrying Fair value fair value amount amount
$’000 $’000 $’000 $’000
Current borrowings 28,656 28,656 ‑ ‑ non‑current borrowings 420,911 435,391 445,009 450,640 449,567 464,047 445,009 450,640
fair value is inclusive of costs which would be incurred on settlement of a liability.
(c) Financing arrangements
the economic entity and the Parent entity had access to the following undrawn borrowing facilities at balance date:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Credit standby arrangements Bank overdrafts total facilities 1,000 1,000 1,000 1,000 used at balance date ‑ ‑ ‑ ‑ unused at balance date 1,000 1,000 1,000 1,000
QTC loan facilities total facilities 470,911 495,009 470,911 495,009 used at balance date 449,567 445,009 449,567 445,009 unused at balance date 21,344 50,000 21,344 50,000
the bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. Subject to the continuance of satisfactory credit ratings, the QtC loan facilities may be drawn at any time.
In addition to the unrestricted access to funds as noted above, the Corporation has a $165,000,000 facility with QtC which is able to be drawn to support the Corporation’s australian financial Services License requirements.
(d) Interest rate risk exposures
the table below sets out the economic entity’s exposure to interest rate risk at balance date.
the QtC borrowings have no fixed repayment date as noted in (a) above. after consideration of future funding requirements and in accordance with the 5 year Corporate Plan, the economic entity does not expect to repay the QtC loan within 5 years of balance date. accordingly, the amounts shown in the ‘1 year or less’ column and ‘over 1 to 5 years’ column below consist of interest only repayments.
102 103 Notes to the financial statements(continued) For the year ended 30 June 2010
23 Non‑current liabilities ‑ Borrowings (continued)
(d) Interest rate risk exposures (continued)
Fixed interest securities maturing in:
Over 1 to 5 1 year or less Over 5 years Total years
$’000 $’000 $’000 $’000
2010 Loans from QtC 36,495 145,943 396,642 579,080 Weighted average interest rate 8.1% 8.1% 8.1%
2009 Loans from QtC 28,332 113,401 445,009 586,742 Weighted average interest rate 6.4% 6.4% 6.4%
24 Non‑current liabilities ‑ Deferred tax liabilities
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
The balance comprises temporary differences attributable to: Inventories 36,936 27,791 16,188 14,400 receivables 10,129 6,451 3,417 5,120 research and development ‑ 5,038 ‑ 5,038 fixed assets 240,156 231,512 233,893 228,953 Mining costs 20,047 20,046 ‑ ‑ derivatives held for trading 33,212 10,977 33,212 10,977 other 28,291 24,961 26,223 16,900 368,771 326,776 312,933 281,388
Other revaluation of property, plant and equipment 7,044 7,044 7,044 7,044 Cash flow hedges 54,226 33,174 54,226 33,174 61,270 40,218 61,270 40,218
total deferred tax liabilities 430,041 366,994 374,203 321,606 Set‑off of deferred tax assets pursuant to set‑off provisions (70,318) (65,761) (37,913) (28,617) (note 16) net deferred tax liabilities 359,723 301,233 336,290 292,989
Movements: opening balance as at 1 July 366,994 338,938 321,606 291,102 Charged/(credited) to the profit or loss (note 7) 42,705 675 32,253 (940) Charged/(credited) to equity 21,052 31,336 21,052 31,336 (over)/under provision in prior year (710) (3,955) (707) 108 Closing balance as at 30 June 430,041 366,994 374,204 321,606
102 103 Notes to the financial statements(continued) For the year ended 30 June 2010
25 Non‑current liabilities ‑ Provisions
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
employee benefits 1,118 1,396 1,094 1,396 Site rehabilitation 161,805 153,659 94,075 69,104 162,923 155,055 95,169 70,500
(a) Site rehabilitation
Provision is made for site rehabilitation costs expected to be incurred upon the closure of each generation site and the mine site. the estimated costs include reclamation, plant closure, waste site closure and monitoring activities. the costs have been determined on the basis of current costs, current legal requirements and current technology. the calculation of the provision is in accordance with note 1(w).
(b) Movements in provisions
Movements in the site rehabilitation provision during the financial year are set out below:
Site rehabilitation
$’000
Consolidated ‑ 2010 Carrying amount as at 1 July 153,659 Increase in discounted amount arising from passage of time 7,343 effect of change in discount rate1 11,631 reassessment of provision (9,423) rehabilitation works undertaken in the year (1,405) Carrying amount as at 30 June 161,805
Parent ‑ 2010 Carrying amount as at 1 July 69,104 Increase in discounted amount arising from passage of time 3,859 effect of change in discount rate1 6,307 reassessment of provision 14,819 rehabilitation works undertaken in the year (14) Carrying amount as at 30 June 94,075
1this change reflects a reassessment of the discount rate to be used in calculating the present value of future rehabilitation obligations.
104 105 Notes to the financial statements(continued) For the year ended 30 June 2010
26 Non‑current liabilities ‑ Retirement benefit obligations
(a) Superannuation plan
the Corporation’s superannuation contributions include contributions to its default superannuation fund, the electricity Supply Industry Superannuation fund (Qld) (eSI Super), an industry multiple employer superannuation fund. the fund has defined Benefit and defined Contribution accounts. employer contributions to the defined Benefit account are based on the advice of the fund’s actuary. after serving a qualifying period, members are entitled to lump sum benefits from the defined Benefit account on retirement, retrenchment, disability or death, based on years of service and final average salary. employees are given the choice of converting their benefits into the defined Contribution account of this fund. from 10 June 2001 new employees are only entitled to join the defined Contribution account of the default fund. the defined Contribution account receives fixed contributions from the economic entity and the economic entity’s legal or constructive obligation is limited to these contributions.
eSI Super has reported that the most recent actuarial assessment of the defined Benefit portion of the fund, as at 30 June 2008, was carried out by Mr Shane Mather, fellow of the Institute of actuaries of australia, on 22 May 2009. the actuary concluded that the assets of the plans were sufficient to meet all benefits payable to all defined Benefit members in the event of the plan’s termination, or voluntary or compulsory termination of employment.
the actuary has certified that the fund is in a satisfactory financial position as at 30 June 2010. the actuary has utilised the experience rated approach to determine the financial position of tarong energy’s notional interest in the fund. the contribution rate for each employer under this approach is determined based on the movement in that employer’s notional assets and benefit liabilities.
(b) Balance sheet amounts
the amounts recognised in the balance sheet are determined as follows:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Present value of the defined benefit obligation 39,740 36,424 39,740 36,424 fair value of defined benefit plan assets (39,724) (33,797) (39,724) (33,797) 16 2,627 16 2,627
net liability before adjustment for contributions tax 16 2,627 16 2,627 adjustment for contributions tax 3 464 3 464 Net liability in the balance sheet 19 3,091 19 3,091
(c) Categories of plan assets
the major categories of plan assets are as follows:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Cash 1,986 2,366 1,986 2,366 equity instruments 27,807 20,954 27,807 20,954 debt instruments 5,959 5,407 5,959 5,407 Property 3,972 5,070 3,972 5,070 39,724 33,797 39,724 33,797
104 105 Notes to the financial statements(continued) For the year ended 30 June 2010
26 Non‑current liabilities ‑ Retirement benefit obligations(continued)
(d) Reconciliations
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000 Reconciliation of the present value of the defined benefit obligation, which is partly funded: Balance as at 1 July 36,424 30,439 36,424 30,439 Current service cost 1,820 1,591 1,820 1,591 Interest cost 1,682 1,613 1,682 1,613 Contributions by plan participants 641 496 641 496 actuarial (gains)/losses (1,391) 3,919 (1,391) 3,919 Change in tax 461 (1,312) 461 (1,312) Benefits paid 103 (322) 103 (322) Balance as at 30 June 39,740 36,424 39,740 36,424
Reconciliation of the fair value of plan assets: Balance as at 1 July 33,797 35,243 33,797 35,243 expected return on plan assets 2,048 2,276 2,048 2,276 actuarial gains/(losses) 1,195 (4,360) 1,195 (4,360) Contributions by the economic entity 1,940 464 1,940 464 Contributions by plan participants 641 496 641 496 Benefits paid, insurance and net transfers 103 (322) 103 (322) Balance as at 30 June 39,724 33,797 39,724 33,797
(e) Amounts recognised in profit or loss
the amounts recognised in the profit and loss are as follows:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Current service cost 1,820 1,591 1,820 1,591 Interest cost 1,682 1,613 1,682 1,613 expected return on plan assets (2,048) (2,276) (2,048) (2,276) total included in employee benefits expense 1,454 928 1,454 928
actual return on plan assets 3,243 (2,084) 3,243 (2,084)
106 107 Notes to the financial statements(continued) For the year ended 30 June 2010
26 Non‑current liabilities ‑ Retirement benefit obligations(continued)
(f) Amounts recognised in other comprehensive income
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
actuarial gain/(loss) recognised in the year 1,810 (5,656) 1,810 (5,656) Cumulative actuarial (losses)/gains at 1 July (4,618) 1,038 (4,618) 1,038 (2,808) (4,618) (2,808) (4,618)
(g) Actuarial assumptions
the principal actuarial assumptions used (expressed as weighted averages) were as follows:
Consolidated Parent Entity 2010 2009 2010 2009 % % % % discount rate 5.1 4.7 5.1 4.7 expected return on plan assets 6.0 6.0 6.0 6.0 future salary increases 4.5 4.5 4.5 4.5
the expected rate of return on assets has been based on historical and future expectations of returns for each of the major categories of asset classes as well as the expected and actual allocation of plan assets to these major categories. this resulted in the selection of a 6.0% per annum (2009: 6.0% per annum) rate of return net of tax and expenses.
(h) Employer contributions to the defined benefit plan
employer contributions to the defined Benefit section of the plan are based on recommendations by the plan’s actuary. actuarial assessments are made at no more than three yearly intervals, and the last such assessment was made as at 30 June 2008.
the objective of funding is to ensure that the benefit entitlements of members and other beneficiaries are fully funded by the time they become payable. to achieve this objective, the actuary has adopted a method of funding benefits known as the aggregate funding method. this funding method seeks to have benefits funded by means of a total contribution which is expected to be a constant percentage of members’ salaries over their working lifetime.
using the funding method described above and particular actuarial assumptions as to the plan’s future experience (as detailed below), the actuary recommended in the actuarial review as at 30 June 2008, the payment of employer contributions to the fund of 18% of salaries for employees who are members of the defined Benefit section. these contribution rates have been adopted by the economic entity for the period ended 30 June 2010. the contribution rate for defined Benefit members adopted by the economic entity for the year ended 30 June 2009 was 3%, plus a lump sum additional payment of $150,000 as recommended by the actuary.
the increase in the employer contribution rate is primarily due to a reduction in the investment return on plan assets at the time of the last actuarial review.
total employer contributions expected to be paid by the economic entity companies for the year ending 30 June 2011 are approximately $1,886,000 (Parent entity: $1,886,000).
the economic assumptions used by the actuary to make the funding recommendations were a long‑term investment earning rate of 6.0% per annum (net of fees and taxes), a salary increase rate of 4.5% per annum together with an age related promotional scale, and an inflation rate of 3.0% per annum.
106 107 Notes to the financial statements(continued) For the year ended 30 June 2010
26 Non‑current liabilities ‑ Retirement benefit obligations(continued)
(i) Net financial position of plan
In accordance with aaS 25 Financial Reporting by Superannuation Plans the plan’s net financial position is determined as the difference between the present value of the accrued benefits and the net market value of plan assets. this has been determined as at the date of the most recent financial report of the Superannuation fund (30 June 2008), and a surplus of $3,488,000 was reported.
(j) Historic summary
2010 2009 2008 2007 2006
$’000 $’000 $’000 $’000 $’000
defined Benefit Plan obligations (39,740) (36,424) (30,439) (28,416) (29,911) Plan assets 39,724 33,797 35,243 41,004 36,508 (deficit)/surplus (16) (2,627) 4,804 12,588 6,597
experience adjustments arising on plan liabilities (930) 2,607 (472) (2,616) 2,495 experience adjustments arising on plan assets 1,195 (4,360) (8,146) 3,965 2,486
27 Contributed equity
(a) Share capital
Consolidated and Consolidated and Parent Entity Parent Entity
2010 2009 2010 2009
Number of number of $’000 $’000 Shares Shares ordinary shares Voting (a class) shares of $1.50 fully paid 4 4 ‑ ‑ non‑voting (B class) shares fully paid 661,965,442 661,965,442 986,965 711,965 661,965,446 661,965,446 986,965 711,965
(b) Movements in ordinary share capital:
Consolidated and Consolidated and Parent Entity Parent Entity
2010 2009 2010 2009
Number of number of $’000 $’000 Shares Shares Balance as at 1 July 661,965,446 661,965,446 711,965 711,965 equity contribution ‑ ‑ 275,000 ‑ Balance as at 30 June 661,965,446 661,965,446 986,965 711,965
108 109 Notes to the financial statements(continued) For the year ended 30 June 2010
27 Contributed equity (continued)
(c) Ordinary shares
ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held.
on a show of hands every holder of a class ordinary shares present at a meeting in person or by proxy, is entitled to one vote and upon a poll each share is entitled to one vote.
the Corporation received an equity contribution of $275,000,000 on 7 october 2009 from its shareholders in order to facilitate the purchase of the additional 50% interest in the tarong north Power Station. no additional shares were issued in relation to the equity contribution received.
(d) Capital risk management
the economic entity’s objective when managing capital is to safeguard the ability to continue as a going concern and to provide returns for shareholders and benefits for other stakeholders. Ideally the aim is to maintain an optimal capital structure in order to minimise the cost of capital.
Consistent with industry practice, the economic entity monitors capital structure using the gearing ratio. this ratio is calculated as gross debt divided by total capital. total capital is calculated as ‘equity’ as shown in the balance sheet plus gross debt.
during 2010, the economic entity’s strategy, which was unchanged from 2009, was to maintain a gearing ratio within a 40% upper limit. the gearing ratios at balance date were as follows:
Consolidated 2010 2009 $’000 $’000 total borrowings from QtC 449,567 445,009 total equity 1,313,536 913,449 total capital 1,763,103 1,358,458
Gearing ratio 26% 33%
the decrease in the gearing ratio for the year ended 30 June 2010 resulted primarily from the equity contribution received during the year.
108 109 Notes to the financial statements(continued) For the year ended 30 June 2010
28 Reserves and retained earnings
(a) Reserves
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Property, plant and equipment revaluation reserve 16,434 16,434 16,434 16,434 hedging reserve ‑ cash flow hedges 126,542 77,416 126,542 77,416 142,976 93,850 142,976 93,850 Movements: Property, plant and equipment revaluation reserve Balance as at 1 July and 30 June 16,434 16,434 16,434 16,434
Hedging reserve ‑ cash flow hedges Balance as at 1 July 77,416 (71,071) 77,416 (71,071) revaluation ‑ gross 177,933 126,708 177,933 126,708 deferred tax on revaluation (53,379) (38,012) (53,379) (38,012) transfer to net (profit)/loss ‑ gross (107,755) 85,416 (107,755) 85,416 deferred tax on transfers 32,327 (25,625) 32,327 (25,625) Balance as at 30 June 126,542 77,416 126,542 77,416
(b) Retained earnings
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000 Movements are as follows: Balance as at 1 July 107,634 73,727 108,867 92,568 net profit for the year 91,552 85,103 97,198 67,495 dividends (17,401) (45,541) (17,401) (45,541) actuarial gains/(losses) on defined benefit plans recognised 2,586 (8,278) 2,586 (8,278) directly in other comprehensive income deferred tax relating to actuarial movements on defined (776) 2,623 (776) 2,623 benefit plans Balance as at 30 June 183,595 107,634 190,474 108,867
(c) Nature and purpose of reserves
Property, plant and equipment revaluation reserve
the property, plant and equipment revaluation reserve was used to record increments and decrements on the revaluation of non‑current assets when these were carried at fair value prior to the transition to australian equivalents to International financial reporting Standards.
Hedging reserve ‑ cash flow hedges
the hedging reserve is used to record gains or losses on cash flow hedges that are recognised directly in equity, as described in note 1(l). amounts are recognised in the profit and loss when the associated hedged transaction affects income.
110 111 Notes to the financial statements(continued) For the year ended 30 June 2010
29 Dividends
Parent Entity
2010 2009
$’000 $’000
total dividends provided 17,401 45,541
Pursuant to the national tax equivalents regime the economic entity is not required to maintain a franking account.
30 Key management personnel disclosures
(a) Directors
the following persons were directors of tarong energy Corporation Limited during the financial year:
Chair ‑ non‑executive Mr G J Carpenter
Non‑executive directors Mr r a Barton Ms L K Bond Ms K L Collins Ms e M Jameson Mr J h Pegler Ms K e Smith‑Pomeroy
(b) Other key management personnel
the following positions, all of which are employed by tarong energy Corporation Limited, had the authority and responsibility for planning, directing and controlling the activities of the economic entity during the financial year:
Chief executive officer General Manager Generation operations General Manager Mining operations Chief financial officer General Manager Marketing and trading General Manager People and Communications General Manager Corporate Governance
(c) Remuneration of key management personnel
a summary of the remuneration of the directors of tarong energy Corporation Limited and other key management personnel of the economic entity is set out in the following table:
Parent Entity
2010 2009
$’000 $’000
Short‑term employee benefits 2,243 2,112 Post‑employment benefits 257 218 termination benefits 70 ‑ 2,570 2,330
110 111 Notes to the financial statements(continued) For the year ended 30 June 2010
30 Key management personnel disclosures (continued)
(c) Remuneration of key management personnel (continued)
Directors
directors’ remuneration is determined by the shareholding Ministers. In addition, the shareholding Ministers have determined remuneration payable to directors who are members of various Board committees. directors’ remuneration comprises cash salary, committee fees, superannuation contributions and car parking benefits. no other benefits are payable to directors.
Other key management personnel
tarong energy Corporation’s remuneration policy has three distinct objectives:
• to ensure all employees are recognised and rewarded for their performance in a fair and equitable way; • to ensure the remuneration paid to employees is competitive, enabling the Economic Entity to attract and retain employees capable of meeting the economic entity’s needs; and • to reward employees for achieving pre‑determined corporate, business unit and personal performance targets.
remuneration packages for the Chief executive officer and other key management personnel comprise the following components:
• base salary, which is payable in cash. Base salaries are based on the general market rate, as assessed by external consultants, Mercer hr Consulting; • other benefits, including motor vehicle allowances, private health insurance and car parking; • retirement benefits delivered under defined contribution superannuation funds nominated by the key management personnel apart from one key management person who is provided defined lump sum benefits based on years of service and final salary; and • at‑risk performance incentives, that may be payable annually in cash, depending upon satisfaction of key criteria.
Link between remuneration paid and the performance of the Corporation
directors’ remuneration is not directly linked to the performance of the Corporation, with any remuneration increases being determined by the shareholding Ministers. directors do not receive any performance‑related remuneration.
the rate of remuneration increase for the Chief executive officer and other key management personnel is determined with regard to wage movements and individual performance. remuneration increases are applied after personal performance reviews, consideration of the Corporation’s performance and review and approval by the Board.
at‑risk performance incentive payments of the Chief executive officer and other key management personnel are capped at 15% of total fixed remuneration (base salary, motor vehicle allowance, superannuation, and parking benefit where applicable). the amounts payable are tied to the achievement of pre‑determined Corporation and individual performance targets as approved by the Board.
Service Agreements
Service agreements are not in place for directors.
the Chief executive officer’s appointment is approved by the shareholding Ministers upon recommendation of the Board. the remuneration and other terms of employment for the Chief executive officer are specified in an employment contract. the contract provides for the provision of performance‑related cash bonuses and other benefits including motor vehicle allowance, health insurance and car parking. other major provisions of the contract relating to remuneration are set out below:
• term of contract – three years, commencing 29 January 2007 and extended on 29 January 2010 for a further two years (with no further option to extend); • payment of termination benefit on early termination by the Economic Entity, except for serious misconduct or poor performance, equal to two weeks’ salary (with a minimum of 13 weeks and maximum of 52 weeks salary) for each year of continuous service, 20% of residual salary value of the contract and any accrued entitlements; and • payment of 12 weeks’ salary upon expiry of the agreement, and any accrued entitlements.
112 113 Notes to the financial statements(continued) For the year ended 30 June 2010
30 Key management personnel disclosures (continued)
(c) Remuneration of key management personnel (continued)
all Senior executive appointments have been approved by the shareholding Ministers upon the recommendation of the Board. the remuneration and other terms of employment for these roles are specified in employment contracts. the contracts provide for the provision of performance‑related cash bonuses and other benefits including motor vehicle allowance, health insurance and car parking.
all senior executives other than the General Manager Marketing and trading are employed on fixed term employment contracts. the Chief financial officer and General Managers Corporate Governance, Generation operations, Mining, and People and Communications are subject to these contracts. Contract provisions include:
• three‑year terms, with the option to extend the term for a maximum of two years by mutual agreement. Commencement date for the General Manager Corporate Governance was 1 June 2007, for the General Manager Generation operations was 1 September 2008, for the General Manager Mining operations was 11 September 2008 (ceased employment 8 July 2009), and for the Chief financial officer and the General Manager People and Communications was 2 March 2009;
• a payment of termination benefit on early termination by the Economic Entity, except for serious misconduct or poor performance, equal to two weeks salary (with a minimum of four weeks and maximum of 52 weeks salary) for each year of continuous service, 20% of the residual salary value of the contract and any accrued entitlements; and
• a severance payment equal to 12 weeks of salary, only in circumstances where employment terminates upon expiry of the contract and where the economic entity has not offered further employment beyond the expiry date for reasons other than for serious misconduct or poor performance, and any accrued entitlements.
the General Manager Marketing and trading, who commenced in the role on 23 July 2008, is employed under another contract arrangement which is not for a fixed term and therefore does not provide for the payment of a termination benefit on early termination. Should the position become redundant, the contract provides for payment of a redundancy amount comprising six months salary, and as for all employees, an additional amount payable for each year of service subject to a cap of 75 weeks salary, an additional notice payment of 17 weeks salary, and accrued entitlements.
the acting General Manager Mining operations, who commenced in an acting capacity on 8 July 2009, is employed under another contract arrangement consistent with the substantive position. When the position is filled the contract terms will conform with contract arrangements applied to Senior executive appointments.
At‑risk performance incentive remuneration
the terms and conditions for each category of at‑risk performance incentive remuneration in this or future reporting periods are set out in note 31.
112 113 Notes to the financial statements(continued) For the year ended 30 June 2010
30 Key management personnel disclosures (continued)
(d) Details of remuneration (continued)
details of the remuneration of each director of tarong energy Corporation Limited and each of the other key management personnel of the economic entity are set out in the following tables:
Directors of Tarong Energy Corporation Limited
Post‑ 2010 Short‑term employee benefits employment Committee Non‑monetary Super‑ Name Cash salary Total fees benefits annuation $’000 $’000 $’000 $’000 $’000 Mr G J Carpenter 66 8 11 7 92 Mr r a Barton 27 6 ‑ 3 36 Ms L K Bond 27 8 ‑ 4 39 Ms K L Collins 27 8 ‑ 4 39 Ms e M Jameson 27 9 ‑ 4 40 Mr J h Pegler 27 6 ‑ 3 36 Ms K e Smith‑Pomeroy 27 6 ‑ 3 36
Post‑ 2009 Short‑term employee benefits employment Committee Non‑monetary Super‑ Name Cash salary Total fees benefits1 annuation $’000 $’000 $’000 $’000 $’000 Mr G J Carpenter 64 8 10 7 89 Mr r a Barton 26 4 ‑ 3 33 Ms L K Bond 26 8 ‑ 3 37 Ms K L Collins 26 8 ‑ 3 37 Ms e M Jameson 26 9 ‑ 4 39 Mr J h Pegler 26 5 ‑ 3 34 Ms K e Smith‑Pomeroy 26 5 ‑ 3 34 1 Prior year figures have been updated to include car parking benefits
114 115 Notes to the financial statements(continued) For the year ended 30 June 2010 78 281 252 328 248 282 292 493 Total ‑ ‑ ‑ ‑ ‑ ‑ ‑ 70 Payments Termination Termination 1 Post‑employment Super‑ annuation ‑ 8 27 8 36 17 27 17 31 20 25 20 30 28 53 1 $’000 $’000 $’000 $’000 benefits Non‑monetary ‑ ‑ ‑ ‑ ‑ ‑ ‑ 8 Car parking allowance 1 Motor vehicle allowance Short‑term employee benefits 6 174 33 173 31 211 33 221 25 199 33 238 38 359 53 $’000 $’000 $’000 Cash salary Name 2010 acting General Manager Mining operations (appointed 8 July 2009) and Communications General Manager People General Manager Corporate Governance General Manager Mining operations (until 8 July 2009) General Manager Generation operations General Manager Marketing and trading Chief executive officer Chief financial officer (d) Details of remuneration (continued) other key management personnel of the economic entity 30 30 management personnel disclosures (continued) Key
114 115 Notes to the financial statements(continued) For the year ended 30 June 2010 278 127 226 73 236 23 265 245 32 90 440 440 Total ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ Payments Termination Termination ‑ 9 7 2 Super‑ annuation ‑ ‑ 24 4 12 7 2 2 3 25 2 11 14 26 10 26 16 48 1 $’000 $’000 $’000 $’000 benefits Non‑monetary ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ ‑ 1 1 Car parking allowance ‑ ‑ 2 3 Motor vehicle allowance 14 53 11 26 68 11 170 30 191 30 114 180 30 193 31 325 51 250 $’000 $’000 $’000 Cash salary 4 2 3 2 Name 2009 the benefits include private health insurance, car parking, relocation payments and associated fringe benefits benefits include private health insurance, car parking, relocation payments and associated the tax. People and Communications were employed under a contract through recruitment agency before they formally appointed to their positions during the acting Chief financial officer and General Manager the Chief operating officer position was renamed to General Manager Generation operations. the June 2009. executive position during the period ended 30 General Manager Mining operations was an existing role which appointed as a Senior the General Manager Mining operations (appointed 11 September 2008) General Manager Mining operations (appointed 11 General Manager Marketing and trading (appointed 28 July 2008) (appointed 28 General Manager Marketing and trading Chief operating officer (until 26 July 2008) 26 July Chief operating officer (until General Manager Generation operations (appointed 1 September 2008) July 2008) (until 27 acting General Manager Marketing and trading Chief financial officer (appointed 2 March 2009) Chief financial officer (appointed 2 March General Manager Corporate Governance and Communications (from 8 September acting General Manager People until 1 March 2009) 2008 General Manager People and Communications (appointed 2 March 2009) General Manager People acting Chief financial officer (until 1 March 2009) acting Chief financial officer (until 1 March Chief executive officer (d) Details of remuneration (continued) other key management personnel of the economic entity 1 2 3 4 Comparative information is only required to be disclosed for those executives specified the current reporting period who were also specified in the preceding reporting period. executives may also earn performance31 (b). based at‑risk incentive payments. payments made to the Chief executive officer and Senior executives are disclosed in note period ended 30 June 2009. period ended 30 30 30 management personnel disclosures (continued) Key
116 117 Notes to the financial statements(continued) For the year ended 30 June 2010
30 Key management personnel disclosures (continued)
(e) Other transactions with directors and other key management personnel
all transactions in the years ended 30 June 2010 or 30 June 2009 between the economic entity and directors or other key management personnel, including their related parties, were on normal commercial terms and conditions and were immaterial in nature.
31 Employee benefits
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000 aggregate employee benefit liability (including on‑costs): Current 23,273 21,727 21,909 20,621 non‑current 1,118 1,396 1,094 1,396 24,391 23,123 23,003 22,017
average number of employees during the reporting period (full‑time equivalent) 506 452 500 452
(a) Long service leave
the present values of long service leave not expected to be settled within 12 months of balance date have been calculated using the following assumptions:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
assumed rate of increase in wage and salary rates 4.5% 4.5% 4.5% 4.5% discount rate 5.1% 5.6% 5.1% 5.6% Settlement term 13 years 13 years 13 years 13 years
116 117 Notes to the financial statements(continued) For the year ended 30 June 2010
31 Employee benefits(continued)
(b) Performance payments for the Economic Entity
the following discloses the aggregate at‑risk performance bonuses and salary and wages paid to all employees who received an at‑risk performance payment:
Parent Entity
2010 2009
$’000 $’000 Aggregate at‑risk performance incentive remuneration1: Chief executive officer and Senior executives 270 182 Contract and enterprise Bargaining agreement employees 5,421 4,366 5,691 4,548
aggregate remuneration (including at‑risk performance incentive remuneration) paid or payable to employees to whom a performance payment is paid or payable2 60,222 51,754 number of employees to whom a performance payment is paid or payable 537 490
1 Performance payments accruing in respect of the relevant year, regardless of the payment date.
2 total remuneration includes base salary, overtime payments, motor vehicle and other work related allowances and performance payments but excludes superannuation and non‑cash benefits.
the terms and conditions for each category of at‑risk performance incentive remuneration in this or future reporting periods are set out below:
Employee category Grant date1 Nature of remuneration granted at‑risk performance incentive payable in cash (cap of 15% of total fixed Chief executive officer 17 august 2010 remuneration) at‑risk performance incentive payable in cash (cap of 15% of total fixed Senior executives 17 august 2010 remuneration) Contract employees 17 august 2010 at‑risk performance incentive payable in cash (cap of 15% of base salary) enterprise Bargaining 17 august 2010 at‑risk performance incentive payable in cash (cap of 12% of base salary) agreement employees 1approval of the final component of the 2009/10 incentive payments for all employees will be sought at the Board meeting held on 17 august 2010.
at‑risk performance incentive payments are provided for annually and align with the economic entity’s financial year ending 30 June. all employees are eligible for participation but a minimum service period of three months is required before entitlement commences. for employees with a service period of less than one year, full year incentive amounts are pro‑rated based on the proportion of the financial year in employment with the economic entity. the amount of a contract or enterprise Bargaining agreement (eBa) employee’s incentive payment is determined as a percentage of base salary, capped at the percentages provided in the preceding table. the amount of the Chief executive officer’s and Senior executives’ incentive payments are determined as a percentage of total fixed remuneration (base salary, motor vehicle allowance, superannuation and parking benefit where applicable), capped at the percentages provided in the preceding table. the incentive percentage is calculated by reference to actual performance compared to predetermined targets, with weightings for corporate results, business unit results, personal/team results and for non‑eBa employees, a personal assessment as part of the annual performance review process.
there has been no alteration to the terms or conditions of the incentive payments to be paid for the year ended 30 June 2010 year since the grant date.
118 119 Notes to the financial statements(continued) For the year ended 30 June 2010
32 Remuneration of auditors
during the year the following fees were paid or payable for services provided by the auditor of the Parent entity:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Audit services audit of financial reports and other audit work under the 281 241 281 241 Corporations Act 2001 Prior year under provision 21 46 21 46 total remuneration for audit services 302 287 302 287
33 Contingencies
Claims
a number of claims by or against the economic entity are pending as at 30 June 2010. It is not practical to estimate the potential effects of these claims however the economic entity has concluded that any asset or liability that may arise from these claims will not be significant.
a federal Court action was received by the economic entity on 15 July 2010 regarding the purchase of certain land in relation to the Kunioon Coal Project which did not proceed. this claim has not yet been quantified by the applicant and it is not yet possible for the economic entity to form an opinion on the potential outcome of this action.
Contingent consideration
tarong energy acquired the Meandu Mine on 31 January 2008. In the event that the actual electricity pool price differs from the forecast electricity pool price used in the consideration calculations, additional consideration may be payable or receivable in february 2011. Initially the additional consideration was brought to account as a component of goodwill arising on the acquisition, however since goodwill has been utilised in full it is now brought to account through the profit and loss. for the period ended 30 June 2010 a receivable of $20,894,000 has been recognised, of which $1,080,000 (2009: $14,531,000) has been recorded in the profit and loss. no adjustment has been made against goodwill in the current year.
Guarantees
Cross guarantees given by tarong energy Corporation Limited, tn Power Pty Ltd, tarong north Pty Ltd, tarong fuel Pty Ltd, teC Coal Pty Ltd and Glen Wilga Coal Pty Ltd are described in note 38.
In addition to the above, in specific transactions with third parties tarong energy Corporation Limited also guarantees subsidiaries independently.
these guarantees may give rise to liabilities in the Parent entity if the subsidiaries do not meet their obligations under the terms of the overdrafts, loans, leases or other liabilities subject to the guarantees.
Bank Guarantees
the economic entity has provided a bank guarantee to the State of Queensland in respect of mining tenements issued under the Mineral Resources Act 1989 (Qld).
the maximum amount payable under the guarantee is $44,931,000 (2009: $44,931,000).
Indemnity Deed
the economic entity has provided an indemnity deed to the State of Queensland in respect of the agreement for Lease dated 20 June 2008 in relation to the lease of floors 12‑14 of 60 albert Street, Brisbane, Queensland. the maximum amount payable under the indemnity deed is $2,052,000 (2009: $nil).
no material losses are anticipated in respect of any of the above contingent liabilities. 118 119 Notes to the financial statements(continued) For the year ended 30 June 2010
34 Commitments
Capital commitments
Capital expenditure (GSt exclusive) contracted for at the reporting date but not recognised as liabilities is as follows:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Payable: Within one year 30,871 41,880 14,147 36,744 Later than one year but not later than five years 2,587 3,428 2,587 3,428 Later than five years ‑ ‑ ‑ ‑ 33,458 45,308 16,734 40,172
Operating leases
the economic entity leases property and motor vehicles under operating leases with terms ranging from one to four years. Leases generally provide the economic entity with a right of renewal, at which time all terms are renegotiated. Property lease payments comprise a base amount plus an incremental contingent rental. Contingent rentals are based on movements in the Consumer Price Index.
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Payable: Within one year 3,521 3,177 3,325 2,959 Later than one year but not later than five years 9,801 10,539 9,723 10,264 Later than five years 10,381 12,755 10,381 12,755 23,703 26,471 23,429 25,978
Other commitments
other operating expenditure (GSt exclusive) contracted for at the reporting date but not recognised as liabilities is as follows:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Payable: Within one year 77,227 50,412 44,990 23,783 Later than one year but not later than five years 105,320 65,676 56,420 46,770 Later than five years 108,800 93,450 56,100 63,200 291,347 209,538 157,510 133,753
120 121 Notes to the financial statements(continued) For the year ended 30 June 2010
35 Related party transactions (d) Key management personnel compensation disclosures relating to key management personnel are set (a) Parent Entity out in note 30. ultimate control of the economic entity resides with the State of Queensland. the ultimate Parent entity within the (e) Transactions with related parties
economic entity is tarong energy Corporation Limited. tarong energy Corporation Limited is a Queensland Government owned Corporation, with all shares held (b) Directors by the shareholding Ministers on behalf of the State of the names of persons who were directors of the company Queensland. all State of Queensland controlled entities at any time during the financial year are as follows: Mr r a meet the definition of a related party of tarong energy Barton, Ms L K Bond, Mr G J Carpenter, Ms K L Collins, Ms e Corporation Limited. M Jameson, Mr J h Pegler and Ms K e Smith‑Pomeroy. the economic entity transacts with other State of Queensland controlled entities. all transactions are (c) Subsidiaries negotiated on normal terms and conditions offered by the Interests in subsidiaries are set out in note 37. respective related party or as disclosed in note 40.
the following transactions occurred with related parties:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Sales ‑ State of Queensland controlled entities Settlements relating to electricity derivatives 49,706 73,847 49,706 73,847
Expenses ‑ State of Queensland controlled entities raw materials and consumables used 29,622 11,239 28,865 11,239 employee benefits expense 3,405 2,666 3,346 2,666 finance costs 27,840 30,592 25,496 26,202 Income tax 37,018 33,406 39,179 26,444 other expenses 16,263 19,405 15,677 10,782 114,148 97,308 112,563 77,333
Loans to related parties Loans advanced to subsidiaries ‑ ‑ 282,497 22,573
Loans from related parties Loans advanced from State of Queensland controlled entities 54,069 101,374 54,069 101,374 Loan repayments to State of Queensland controlled entities 49,511 49,476 49,511 49,476
Superannuation contributions Contributions to superannuation funds on behalf of employees 8,624 5,722 8,624 5,722
Interest revenue Subsidiaries ‑ ‑ 12 16
Other transactions dividends paid to the State of Queensland 45,541 50,750 45,541 50,750
120 121 Notes to the financial statements(continued) For the year ended 30 June 2010
35 Related party transactions (continued)
(f) Outstanding balances arising from sales/purchases of goods and services
the following balances are outstanding at the end of the reporting period in relation to transactions with related parties:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Current receivables Subsidiaries ‑ ‑ ‑ 506 State of Queensland controlled entities ‑ current tax asset 6,505 ‑ 6,505 ‑ State of Queensland controlled entities ‑ other 17,798 8,496 17,798 8,496 24,303 8,496 24,303 9,002
Non‑current receivables (loans) Subsidiaries ‑ ‑ 566,793 306,954
Current payables State of Queensland controlled entities ‑ loans 28,656 ‑ 28,656 ‑ State of Queensland controlled entities ‑ current tax liabilities ‑ 2,448 ‑ 2,448 State of Queensland controlled entities ‑ other 4,272 1,570 4,272 1,570 State of Queensland controlled entities ‑ dividend provision 17,401 45,541 17,401 45,541 Subsidiaries ‑ ‑ ‑ 9,498 50,329 49,559 50,329 59,057
Non‑current payables (loans) State of Queensland controlled entities ‑ loans 420,911 445,009 420,911 445,009
no expense has been recognised in respect of bad or doubtful debts due from related parties.
36 Business combination
(a) Summary of acquisition
on 30 november 2009 tn Power Pty Ltd (tn Power), a subsidiary of the Corporation, obtained control of the tarong north Power Station, a business which principally operates to generate and sell electricity. Prior to the acquisition the tarong north Power Station was operated as an unincorporated joint venture whose participants were tn Power (50% interest) and tM energy (australia) Pty Ltd (tM energy). tn Power purchased the additional 50% interest in the tarong north Power Station and the share in the joint venture manager entity, tarong north Pty Ltd, increasing the Corporation’s equity interest from a 50% joint venture participant to a 100% owned subsidiary.
the tarong north Power Station is a single unit 443 megawatt supercritical coal‑fired power station, located adjacent to the tarong Power Station. the acquisition is expected to enable the Corporation to better manage market risks and provide increased flexibility in dispatch of its generation portfolio. the Corporation also expects to reduce costs through economies of scale.
the acquired business contributed external revenues of $26,367,000 and net profit of $680,000 to the economic entity for the period from 30 november 2009 to 30 June 2010. If the acquisition had occurred on 1 July 2009, management estimates that consolidated revenue and consolidated net profit for the year ended 30 June 2010 would have been $524,940,000 and $86,401,000 respectively. In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 July 2009.
122 123 Notes to the financial statements(continued) For the year ended 30 June 2010
36 Business combination (continued)
(a) Summary of acquisition (continued)
the following summarises the major classes of consideration transferred, and the recognised amounts of assets acquired and liabilities assumed at the acquisition date:
$’000 Purchase consideration Cash paid 254,938
(b) Cash flow information
Outflow of cash to acquire subsidiary, net of cash acquired Cash consideration 254,938 Less: Cash balances acquired (1,476) outflow of cash 253,462
(c) Assets and liabilities acquired
the assets and liabilities recognised as a result of the acquisition are as follows:
Cash 1,476 trade and other receivables 1,367 Prepayments 252 Inventories 4,250 Property, plant and equipment 208,840 trade payables (5,633) Provision for employee benefits (283) net identifiable assets acquired 210,269
add: Goodwill 44,669 net assets acquired 254,938
the goodwill is attributable mainly to the synergies expected to be achieved from integrating the operations of the tarong north Power Station into the Corporation’s existing business. none of the goodwill recognised is expected to be deductible for income tax purposes.
Transactions separate from the acquisition
the Corporation incurred acquisition related costs of $14,925,000 (2009: $785,000) relating to external legal fees, due diligence costs and stamp duty. these costs have been included in other expenses in the Corporation’s consolidated statement of comprehensive income.
the Corporation and the previous joint venture parties were subject to an electricity agreement under which the Corporation was required to guarantee the supply of water and coal to the tarong north Power Station and were subject to a number of penalty provisions in the instance that certain requirements were not met. at the acquisition date this pre‑existing relationship was effectively terminated. the value assigned to the termination of this agreement was $18,875,000 and represents management’s estimate of the reduction in risks and future cash outflows as a result of extinguishing the electricity agreement. this amount has been recognised in the profit and loss as a cost to terminate contractual obligations.
122 123 Notes to the financial statements(continued) For the year ended 30 June 2010
37 Subsidiaries and associates
the consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b):
Equity holding Country of Name of entity Class of shares 2010 2009 incorporation % %
tn Power Pty Ltd1 australia ordinary 100 100
tarong north Pty Ltd1, 2 australia ordinary 100 ‑
tarong fuel Pty Ltd1 australia ordinary 100 100
Glen Wilga Coal Pty Ltd1 australia ordinary 100 100
teC Coal Pty Ltd1 australia ordinary 100 100
1 t hese subsidiaries have been granted relief from the necessity to prepare financial reports in accordance with Class order 98/1418 issued by the australian Securities and Investments Commission.
2 d uring the year ended 30 June 2010 tn Power Pty Ltd acquired the additional 50% of the ordinary shares in tarong north Pty Ltd, the management company associated with the previously unincorporated tarong north joint venture which was deemed to be an associate in 2009. tarong north Pty Ltd is now a 100% owned subsidiary.
the financial results of the subsidiaries are detailed below:
Total Revenue Expenses Total Assets Equity Liabilities
$’000 $’000 $’000 $’000 $’000
2010 tn Power Pty Ltd 61,524 (72,174) 408,678 (430,642) (21,964) teC Coal Pty Ltd 156,393 (153,732) 133,109 (120,149) 12,960 tarong north Pty Ltd 14,088 (14,088) 21,849 (22,005) (156)
2009 tn Power Pty Ltd 52,306 (48,132) 165,161 (176,475) (11,314) teC Coal Pty Ltd 169,989 (157,130) 122,398 (112,098) 10,300
tarong fuel Pty Ltd is a holding company and Glen Wilga Coal Pty Ltd is dormant and as such no results are shown.
38 Deed of cross guarantee
the Corporation has entered into a deed of Cross Guarantee with its subsidiaries tn Power Pty Ltd, tarong north Pty Ltd, tarong fuel Pty Ltd, teC Coal Pty Ltd and Glen Wilga Coal Pty Ltd under which each company guarantees the debts of the others.
By entering into the deed, the wholly‑owned entities have been relieved from the requirement to prepare a financial report and directors’ report under Class order 98/1418 issued by the australian Securities and Investments Commission.
the above companies represent a ‘Closed Group’ for the purposes of the Class order, and, as there are no other parties to the deed of Cross Guarantee that are controlled by tarong energy Corporation Limited, they also represent the ‘extended Closed Group’.
124 125 Notes to the financial statements(continued) For the year ended 30 June 2010
39 Interests in joint ventures
during the year the economic entity held an interest in the tn Power unincorporated joint venture. the joint venture, whose participants were tn Power Pty Ltd (50% interest), a subsidiary of the Corporation and tM energy (australia) Pty Ltd, owned the tarong north Power Station. tarong north Pty Ltd, an associated entity of the Corporation (50% interest), manages the operation of the tarong north Power Station as agent for the joint venture. on 30 november 2009, tn Power Pty Ltd acquired the additional 50% interest in the tarong north Power Station and additional 50% share in the management company tarong north Pty Ltd. the entity is now a 100% owned subsidiary.
the Corporation holds a 20.30% (2009: 20.94%) interest in the output of a joint venture named Private forestry Plantation Joint Venture whose principal activity is the commercial production of timber from plantations.
as at 30 June 2009, the Corporation held a 7.7% interest in the Centre for Low emission technology Joint Venture whose principal activity was to facilitate research and other activities directed to the generation of electricity from coal with lower greenhouse gas emissions. the Centre for Low emission technology successfully completed its research program on 31 July 2009 and closed effective 01 august 2009.
the economic entity’s interest in the assets employed in joint ventures are in the consolidated balance sheet, in accordance with the accounting policy described in note 1(b), under the following classifications:
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Current assets Cash and cash equivalents ‑ 770 ‑ 294 receivables ‑ 5,500 ‑ ‑ Inventories ‑ 2,842 ‑ ‑ other ‑ 1,224 ‑ ‑ Total current assets ‑ 10,336 ‑ 294
Non‑current assets Property, plant and equipment ‑ carrying value 1,027 152,727 1,027 1,027 Total non‑current assets 1,027 152,727 1,027 1,027
Share of assets employed in joint venture 1,027 163,063 1,027 1,321
124 125 Notes to the financial statements(continued) For the year ended 30 June 2010
40 Economic dependency
the economic entity relies upon the australian energy Market operator (aeMo) to determine the regional reference Price used in calculating the economic entity’s electricity sales revenue.
the economic entity’s customers are predominantly Queensland based due to limitations of physical delivery to other australian energy Market regions.
the economic entity is reliant on Queensland electricity transmission Corporation Limited (Powerlink Queensland) to provide fully available and functioning transmission lines to enable physical delivery of electricity.
the economic entity’s tarong and tarong north Power Stations are dependent upon the supply of water for the production of demineralised water as cooling water, for the production of drinking water and for water for general use. Wivenhoe Power Station is dependent upon a supply of water to operate as a pumped storage hydro‑electric power station, but this water is returned to the natural waterways.
from 1 July 2008, the economic entity, on a directive from the Queensland Government, has entered into contractual agreements with the South east Queensland Water Grid Manager for long‑term water supply from the water grid for both the tarong north and tarong Power Stations. Grid water will include dam water and recycled water. annual maximum contract volumes and contract charges for the first ten years to 2017/18, have been set by the Queensland Government. the economic entity will be able to continue sourcing water from Boondooma dam.
41 Events occurring after the reporting period
no matter or circumstance has arisen since 30 June 2010 that has significantly affected, or may significantly affect:
• the Economic Entity’s operations in future financial years;
• the results of those operations in future financial years; or
• the Economic Entity’s state of affairs in future financial years.
126 127 Notes to the financial statements(continued) For the year ended 30 June 2010
42 Reconciliation of profit after income tax to net cash inflow from operating activities
Consolidated Parent Entity
2010 2009 2010 2009
$’000 $’000 $’000 $’000
Profit for the year 91,552 85,103 97,198 67,495
depreciation and amortisation charge 92,203 88,527 70,022 70,593
non‑cash retirement benefits (credit)/expense (486) 465 (486) 465
Write down of Kunioon asset ‑ 9,775 ‑ 9,775
non‑cash onerous contract expense 339 ‑ 339 ‑
non‑cash stock obsolescence expense 1,061 ‑ 642 ‑
reversal of impairment (6,711) ‑ ‑ ‑
net (gain)/loss on sale of non‑current assets 87 211 36 36
Purchase price allocation adjustment to employee provisions ‑ 4,549 ‑ ‑
revenue share agreement adjustment to goodwill ‑ 3,562 ‑ ‑
net gain on contingent consideration (1,079) 14,531 ‑ ‑
net gain on change in rehabilitation liability (11,535) ‑ ‑ ‑
unrealised fair value gain on derivative financial instruments (98,190) (18,362) (98,188) (18,362) through the profit and loss
Change in operating assets and liabilities, net of effects from ‑ ‑ ‑ ‑ sale of controlled entity
Increase in inventories (3,114) (13,424) (12,312) (12,013)
(Increase)/decrease in receivables (5,938) (49,415) 14,511 (27,243)
Increase in other current assets (217) ‑ (217) ‑
(Increase)/decrease in deferred stripping (8,536) 862 ‑ ‑
Increase in other operating assets (1,756) ‑ (1,756) ‑
(decrease)/increase in deferred income (294) (722) 217 (170)
(decrease)/increase in payables (6,984) (2,812) (16,759) 10,938
Increase/(decrease) in other current liabilities 4,405 (343) 1,155 (273)
(Increase)/decrease in current tax asset (6,505) 4,395 (6,505) 4,395
(decrease)/increase in current tax liabilities (2,448) 2,448 (2,448) 2,448
Increase in deferred tax liabilities 36,662 30,966 21,471 31,421
Increase in rehabilitation provisions 7,343 8,922 3,859 3,937
Increase in other provisions 985 2,006 986 2,027
Increase in other current liabilities 1,756 ‑ 1,756 ‑
Net cash inflow from operating activities 82,600 171,244 73,521 145,469
126 127 Directors’ declaration 30 June 2010
In the directors’ opinion:
(a) the financial statements and notes set out on pages 59 to 127 are in accordance with theCorporations Act 2001, including:
(i) complying with accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
(ii) giving a true and fair view of the Corporation’s and economic entity’s financial position as at 30 June 2010 and of its performance, as represented by the results of its operations and its cash flows, for the financial year ended on that date; and
(b) there are reasonable grounds to believe that the Corporation will be able to pay its debts as and when they become due and payable; and
(c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in note 38 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 38.
this declaration is made in accordance with a resolution of the directors.
Mr G J Carpenter Ms K e Smith‑Pomeroy director director
Brisbane august 2010
128 129 Independent Auditor’s Report 30 June 2010
to the Members of tarong energy Corporation Limited
Report on the Financial Report
I have audited the accompanying financial report of tarong energy Corporation Limited, which comprises the balance sheets as at 30 June 2010, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report
the directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with australian accounting Standards (including the australian accounting Interpretations) and the Corporations Act 2001. this responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In note 1, the directors also state, in accordance with accounting Standard aaSB 101 Presentation of Financial Statements, that the financial report of the group and the company, comprising the financial statements and notes, complies with International financial reporting Standards.
Auditor’s Responsibility
My responsibility is to express an opinion on the financial report based on the audit. the audit was conducted in accordance with the Auditor‑General of Queensland Auditing Standards, which incorporate the australian auditing Standards. these auditing standards require compliance with relevant ethical requirements relating to audit engagements and that the audit is planned and performed to obtain reasonable assurance whether the financial report is free from material misstatement.
an audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. the procedures selected depend on the auditor’s judgement, including the assessment of risks of material misstatement in the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. an audit also includes evaluating the appropriateness of accounting policies and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report.
I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for my audit opinion.
Independence
the Auditor‑General Act 2009 promotes the independence of the auditor‑General and all authorised auditors. the auditor‑General is the auditor of all Queensland public sector entities and can only be removed by Parliament.
the auditor‑General may conduct an audit in any way considered appropriate and is not subject to direction by any person about the way in which audit powers are to be exercised. the auditor‑General has for the purposes of conducting an audit, access to all documents and property and can report to Parliament matters which in the auditor‑General’s opinion are significant.
In conducting the audit, the independence requirements of the Corporations Act 2001 have been complied with.
128 129 Independent Auditor’s Report (continued) 30 June 2010
Auditor’s Opinion
In my opinion –
(a) the financial report of tarong energy Corporation Limited is in accordance with theCorporations Act 2001, including
(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2010 and of their performance for the year ended on that date; and
(ii) complying with australian accounting Standards (including the australian accounting Interpretations) and the Corporations Regulations 2001; and
(b) the financial report also complies with International financial reporting Standards as disclosed in note 1.
J f adams Queensland audit office delegate of the auditor‑General of Queensland Brisbane
17 august 2010
130 131 Glossary
availability: the total energy available to the system, allowing for planned maintenance and breakdowns, as a percentage of maximum possible energy available
Carbon intensity: emissions of carbon dioxide equivalents per megawatt hour generated (kgCo2e/MWh generated) output: dispatched generation
Pool price: the average half‑hour trading price of five minute dispatch prices set by marginal generation
Abbreviations
aaSB a ustralian accounting Standards Board ILua Indigenous Land use agreement aCICC a boriginal Community Interest Consultative ISo 14001 International standard for environmental Committee management aIfr all Injury frequency rate LtI Lost time Injury aS/nZS a ustralian/new Zealand Standard LtIfr Lost time Injury frequency rate Ceo Chief executive officer ML megalitre (one ML = one million litres)
Co2 carbon dioxide MtIfr Medical treatment Injury frequency rate CPrS Carbon Pollution reduction Scheme MW megawatt (one MW = one million watts) CSG coal seam gas MWh megawatt hour CSIro Commonwealth Scientific and Industrial research nGaC n ew South Wales Greenhouse abatement organisation Certificate derM d epartment of energy and resource nGerS n ational Greenhouse and energy reporting Management System eBa enterprise Bargaining agreement neM national electricity Market
eMS e nvironmental Management System nox nitrogen oxide GeC Gas energy Certificate PCC post‑combustion capture GW gigawatt (one GW = one thousand megawatts) Qao Queensland audit office GWh gigawatt hour QtC Queensland treasury Corporation IaSB International accounting Standards Board reC r enewable energy Certificate IfrS International financial reporting Standards rIfr recordable Injury frequency rate
Calculations
dIVIdend Payout ratIo return on aVeraGe ProduCtIVe aSSetS dividends Paid x 100 earnings Before Interest and tax excluding fair value gains of derivative instruments x 100 operating Profit after tax excluding tax‑effected fair value gains of derivative instruments average Productive assets1
return on aVeraGe eQuIty GearInG operating Profit after tax x 100 debt x 100
average total equity debt + equity
1 a verage Productive assets = average total assets ‑ average uncommissioned assets ‑ average total derivative Instrument assets ‑ average Cash and cash equivalents.
132 www.tarongenergy.com.au
Tarong Energy Tarong Power Station Tarong North Power Station Corporation Limited PO Box 15 PO Box 708 ABN 52 078 848 736 Nanango QLD 4615 Nanango QLD 4615 Registered Office Telephone 61 7 4160 9444 Telephone 61 7 4163 4200 Level 13 Facsimile 61 7 4160 9305 Facsimile 61 7 4163 4226 42 Albert St Brisbane GPO Box 800 Wivenhoe Power Station Meandu Mine Brisbane QLD 4001 PO Box 38 PO Box 1165 Telephone 61 7 3228 4333 Fernvale QLD 4306 Kingaroy QLD 4610 Facsimile 61 7 3228 4300 Telephone 61 7 5427 1100 Telephone 61 7 4160 9208 Facsimile 61 7 5426 7800 Facsimile 61 7 4160 7236