Babcock & Brown Power Limited · ABN 67 116 665 608 Babcock & Brown Power Services Limited · ABN 37 118 165 156 As responsible entity for Babcock & Brown Power Trust ·ARSN 122 375 562 Level 7 · 50 Pitt Street · Sydney NSW 2000 Australia T +612 9372 2600 · F +612 9372 2610 Level 25 Waterfront Place · Eagle Street · Brisbane QLD 4000 Australia T +617 3011 7600 · F +6107 3011 7610 www.bbpower.com

ASX Release

27 October 2009

BBP ANNUAL REPORT 2009

Babcock & Brown Power (ASX: BBP) advises that the attached BBP Annual Report for the year ending 30 June 2009 has been dispatched to Securityholders today.

ENDS

Further Information: Ross Rolfe Peter Brook Chief Executive Officer Chief Financial Officer Babcock & Brown Power Babcock & Brown Power Ph + 61 2 9372 2627 Ph + 61 2 9372 2623

About Babcock & Brown Power Babcock & Brown Power (ASX:BBP) is a power generation business, with assets diversified by geographic location, fuel source, customers, contract types and operating mode.

The portfolio has interests in 12 operating power stations representing approximately 2,800MW1 of installed generation capacity. BBP also owns the Alinta retail business in WA.

For further information please visit our website: www.bbpower.com

1 Some assets have minority shareholders.

outside back cover 6.5 outside front cover Annual Report 2009 BABCOCK Report & BROWN POWER – Annual

Babcock & Brown Power Annual Report 2009 inside front cover 6.5 inside back cover

Contents CORPORATE DIRECTORY

1 Chairman’s Report BABCOCK & BROWN POWER LIMITED REGISTRY 3 CEO’s Report (ACN 116 665 608) Link Market Services Limited Level 7 Locked Bag A14 6 Industry Overview 50 Pitt Street Sydney South NSW 1235 7 Asset Summary Sydney NSW 2000 Telephone: 1800 260 668 8 Asset Reports Telephone: +61 2 9372 2600 Fax: +61 2 9287 0303 12 sustainability www.bbpower.com Email: [email protected] Website: www.linkmarketservices.com.au 15 Board of Directors DIRECTORS 16 Corporate Governance Statement Len Gill (Independent Chairman) AUDITOR 35 Financial Statements John Fletcher PRICEWATERHOUSECOOPERS Peter Kinsey Darling Park Tower 2 122 Additional Information Ross Rolfe (CEO & Managing Director) 201 Sussex Street 123 Investor Information Sydney NSW 2000 IBC Corporate Directory COMPANY SECRETARY John Remedios ANNUAL GENERAL MEETING The Annual General Meeting of Babcock & Brown Power RESPONSIBLE ENTITY FOR BABCOCK & BROWN will be held at Customs House, Level 1, 31 Alfred Street, POWER TRUST (ARSN 122 375 562) Circular Quay, Sydney, NSW Australia at 10.00am on BABCOCK & BROWN POWER SERVICES LIMITED Friday, 18 December 2009. (ACN 118 165 156, AFSL 299943) Level 7 ABOUT BBP AND THIS ANNUAL REPORT 50 Pitt Street Each Stapled Security in Babcock & Brown Power Sydney NSW 2000 (ASX:BBP) comprises one share in Babcock & Brown Telephone: +61 2 9372 2600 Power Limited, an Australian public company, and one unit in Babcock & Brown Power Trust, an Australian registered managed investment scheme whose responsible entity is Babcock & Brown Power Services Limited. All amounts expressed in dollars ($) in this annual report are Australian Dollars, unless otherwise specified.

DISCLAIMER Investments in BBP are subject to investment risk including possible loss of income and capital invested. Neither Babcock & Brown Power Limited nor any member of the BBP Group guarantees the performance of BBP or the payment of a particular rate of return on BBP securities. This report is not an offer or invitation for subscription. CHairman’s report

Dear Securityholders,

2009 has been another exceptionally challenging year for Babcock & Brown Power (BBP). The year has been characterised by the unceasing efforts of the company’s staff, management team and Board in working towards resolving our over-geared capital structure in difficult debt and equity market conditions. Negotiations with our two key lending groups – the BBPF Syndicate of senior lenders and the Babcock & Brown Group (B&B Group) – have been underway for a number of months and are now well advanced. At the time of writing,1 our expectation was for a resolution to be reached in the coming weeks.

With regard to the management agreement, it is important to highlight that, in practice, management of the company by B&B has not been in effect for much of the financial year. A number of steps were taken during FY09 to enable full separation from B&B. These included the appointment of Ross Rolfe as CEO, the cessation of B&B representation on the BBP Board in December 2008 and direct employment by the BBP group of its management and corporate personnel from January 2009. Furthermore, in September, the head office moved to more suitable and lower cost premises on Pitt Street in Sydney.

The ongoing and advanced negotiations with our lenders are the product of over a year’s work pursuing various options to stabilise the group’s capital structure. The efforts of the management team and staff in carrying out this work must be acknowledged. Critically, we are approaching a point at which we expect to have a stable capital structure that will allow the management team to fully focus its efforts on operations and to re-establishing BBP as one of Australia’s leading power and gas companies.

Strategic Review In October 2008, following completion of a strategic review by UBS, the Board announced that distributions would be suspended and that UBS had been instructed to canvas the market on a full range of potential transaction alternatives.

While initial indications from the sale process were encouraging, the deepening global economic crisis, coupled with the deterioration in the company’s underlying performance, made it extremely difficult to complete a transaction that, in the view of the Board, would have been in the best interests of securityholders. As a result, in February 2009, it was announced that alternatives to the sale process were being considered, including a longer-term work-through. The advanced stage of negotiations with the BBPF Syndicate and the B&B Group is evidence of the considerable progress that has been made in taking this option towards a successful conclusion.

Asset Sales In March 2009, full paydown of our third major debt facility, the BBPH Facility, was achieved. This was an important milestone in the debt reduction process and was achieved through a series of asset sales that included Uranquinty (July 2008), Ecogen (July 2008), Neerabup (February 2009) and Kwinana (March 2009). The aggregate sale values for these assets exceeded book value by $94 million, a pleasing result given the potential for constrained interest due to external market conditions.

In addition to these asset sales, two other important transactions were concluded in 2009 – the Alinta EATM (AEATM) sale and the novation of the Flinders Osborne Trading (FOT) contracts. At acquisition, appropriate t

accounting provisions were made for the negative cash flows expected from these businesses. The sale of AEATM r o

in February dealt with gas shipping contracts that were no longer an appropriate fit for our business. The novation p of the FOT contracts, agreed in May for a nominal sum, led to the release of an approximately $120 million provision. The combination of these transactions has improved BBP’s cash flow and reduced the need for credit lines to support these businesses. n’s Re a m r

Operating Conditions i

In addition to the challenges faced in resolving the company’s over-extended balance sheet, 2009 was also a characterised by weak operating conditions and a series of unplanned outages. The principal drivers of the much lower than expected operating result in 2009 were the adverse impacts on gas and electricity demand and electricity sales prices arising from the sharp contraction in economic activity; mild weather in both eastern and Western Australia; and unplanned outages at our Flinders station during periods of peak demand over the summer. t 2009 – ch

The CEO’s Report provides a more detailed assessment of the company’s operating performance in 2009. r o Improving our operational performance is an ongoing and key focus of management and the Board. A number of p initiatives have been implemented, which are expected to contribute to earnings and cash flow during the latter l Re part of FY10 and beyond. A recovery in general economic conditions will also assist. a BBP Annu

1 21 October 2009. 1 CHairman’s report

North West Shelf Gas Price Dispute During FY09, arbitration commenced to determine the gas price relating to a major gas supply contract with the North West Shelf Joint Venture that was entered into in 1998 and acquired as part of the Alinta acquisition. Based on advice from independent expert advisors, BBP is confident of an outcome within its expected range. However, an outcome significantly outside this range is possible and may impact BBP’s future as a going concern.

Carbon Pollution Reduction Scheme BBP supports an early transition to a lower carbon economy. However, it is vital that this is implemented in a manner that delivers ongoing security of electricity supply. The current Morgan Stanley review commissioned by the Federal Government is welcomed and is expected to confirm sector-specific concerns. BBP looks forward to the establishment of a Carbon Pollution Reduction Scheme that provides a clear path to lower carbon emissions and includes appropriate transition assistance to the electricity generation sector.

Summary and Outlook During FY09, significant progress has been made in addressing the challenges facing BBP. Substantial debt reduction has occurred and discussions are well advanced with the BBPF Syndicate and the B&B Group. Resolution of the North West Shelf gas price is expected in the coming months. Greater clarity regarding the final form of legislation of the Carbon Pollution Reduction Scheme and its impact is also expected by the end of 2009, or early 2010 at the latest.

BBP has strong asset positions in the Perth and Pilbara regions in Western Australia, as well as in eastern Australia. While 2009 was undoubtedly a disappointing year for BBP and its securityholders, I believe it will be regarded as a pivotal year in setting the foundations for a stabilised capital structure and an independent future. This will enable BBP, and most importantly its securityholders, to benefit through growing cash flows and energy market opportunities as energy and broader market conditions improve. I thank securityholders for their understanding and endurance during this very difficult year.

The uncertainties of FY09 have imposed a significant burden on staff, management and the Board. I would like to express my thanks to all staff for their dedication and efforts during the year. I particularly thank our CEO, Ross Rolfe, for his leadership, personal contribution and tireless effort in addressing our numerous challenges. Finally, I would like to publicly recognise my fellow non-executive directors, John Fletcher and Peter Kinsey, with whom I have shared some 70 Board and Board Committee meetings. Their continued dedication, and that of the CEO, has significantly contributed to the Board maintaining vigilant attention to its fiduciary duties as the company navigated through its many challenges.

I look forward with confidence to a more prosperous FY10.

Yours faithfully

LEN GILL Independent Chairman Babcock & Brown Power Limited and Babcock & Brown Power Services Limited

2 CEO’s Report

Dear Securityholders,

The focus for much of this year has been on dealing with the challenges associated with our over-levered balance sheet. The restructuring of the BBPF senior syndicated loan and the Babcock & Brown Group loan are well advanced. This follows a protracted period of negotiation with our lenders and their advisors, who have played a constructive and supportive role in delivering the work-through. The progress made to date owes a great deal to the dedication of BBP’s people, the Board and my executive team and, as outlined in the Chairman’s Report, we expect this process to conclude in the near term.

Regrettably, the financial and operating performance of the business this year was particularly disappointing. Over recent months, we have devoted considerable time, effort and resources to stabilising our operating platform and reducing earnings volatility where possible.

While there are still challenges to overcome, not least of which is resolving the North West Shelf gas contract dispute, BBP is better positioned than it was at the conclusion of 2008 as a result of having removed a number of key business risks that confronted the company.

FY09 Performance Review Our earnings performance in 2009 was particularly disappointing. Earnings guidance was downgraded twice during the course of the year, driven by the deteriorating economic climate, milder than expected weather and a series of unplanned plant outages at Northern and Playford. Statutory EBITDA for the year was $325 million, marginally below last year’s figure of $331 million. Normalised EBITDA,1 however, was $262 million down by over 23% against the $342 million recorded in 2008.

There were a number of one-off items that impacted our operating result in 2009. Adjustments to statutory EBITDA included an increase in provisions for onerous contracts of approximately $120 million; the release of provisions resulting from the disposal of Alinta EATM and the FOT contracts totalling $167 million; and a number of other smaller one-off adjustments totalling $17 million.

Generation Our generation segment is made up of 11 operating power stations located across the east and west coasts of Australia, and one station located in New Zealand. Statutory EBITDA for the segment rose to $315 million from $241 million in 2008. This increase was largely driven by the release of the FOT provision in May. On an underlying basis, the Generation segment’s earnings fell in 2009, driven principally by materially lower wholesale prices in South Australia and Queensland, as well as a number of unplanned outages at both Northern and Playford power stations during periods of peak demand. Reduced demand in Queensland largely resulted from milder than expected weather conditions. It also appears that reduced industrial demand resulting from the economic downturn may explain the low demand levels. In addition, Redbank Power Station suffered an extended unplanned outage through the first quarter of FY09. With the exception of Redbank, our contracted assets within the Generation segment performed largely in line with expectations.

Over the course of the year, we have put in place a number of initiatives to improve the stability of the Generation segment’s earnings. In June we announced a two-year contract with BHP Billiton for the supply of power to its Olympic Dam operations in South Australia. In addition, we announced the novation of the FOT contracts in May, which eliminated a series of contracts that were, in aggregate, expected to be cash flow negative over the coming years. t r o

We remain focused on improving the performance of the Generation segment and will continue to p implement initiatives that reduce the volatility of our market-exposed assets and ensure the stability of our contracted portfolio. ’s Re EO t 2009 – c r o p l Re a BBP Annu

1 Adjusted for disposals and one-off items. 3 CEO’s Report

Energy Markets The Energy Markets segment is made up of the Alinta business, which includes 660MW of generation, the Wesfarmers LPG Joint Venture, and the Neighbourhood Energy business. In line with the earnings performance of the Generation segment, Energy Markets was adversely impacted by weaker industrial and commercial demand, as well as milder than expected weather conditions. This was exacerbated by higher churn than expected in the Commercial and Industrial segment. The combination of these factors and the increase in provisions for onerous contracts led to a marked decline in the earnings contribution from the segment – EBITDA fell to $60 million from $125 million in 2008.

Looking forward, we expect the Energy Markets business to benefit from the nascent recovery in economic activity that is apparent across most of the country and particularly in WA. Furthermore, the WA gas tariff increase announced in June will serve to offset the impact of sharply higher gas costs in the region.

Impairment BBP recognised a non cash asset impairment charge of $57 million against its assets in FY09. This compares to an impairment charge in FY08 of $410 million. The FY09 impairment charge relates primarily to a diminution in value of the Alinta LPG business as a result of changes to recontracting assumptions in respect of a major customer. In addition, there was a charge against software development assets held in BBP’s service company.

CPRS While BBP strongly believes in the importance of transitioning to a low-carbon economy, it is vital that this does not occur at the expense of security of supply, nor increase the risk of volatile energy prices, which would be detrimental to business and the broader community. We look forward to the establishment of an emissions trading scheme that delivers a clear path to a less emissions-intensive future in Australia, but that also delivers adequate compensation to ensure a stable transition process.

BBP’s People I am fortunate to lead a talented and dedicated team of people who manage and operate a complex business with a diverse range of assets across a wide geographic area. This year has been extremely difficult for BBP’s staff, dealing with a range of stakeholders as well as continuing to operate the assets in a professional manner in challenging circumstances. I would like to take this opportunity to thank the staff for their dedication to the business and for their unwavering support for management and the Board as we have dealt with the issues facing the company.

The nature of BBP’s business is that it operates a number of potentially hazardous assets which can present risks to our employees. It is for this reason that we maintain an unrelenting focus and priority on the safety of our employees. Our highest priority is to ensure that our staff and their families can have confidence in the company’s commitment to providing a safe and healthy workplace. This principle is therefore central to our company’s culture and our policies and procedures reflect that commitment. In light of our strong commitment to a safe workplace, we were devastated to learn of the death of one of our people who operated a bulldozer at Leigh Creek mine. This is a matter that is currently the subject of a coronial enquiry. We look forward to the findings of that enquiry and will implement its recommendations to the extent they relate to our business operations. We extend our heartfelt condolences to the family of the employee.

Sustainability, Community and Environment We recognise our activities have broad implications on the society, environment and communities in which we operate and that we have a responsibility to minimise any adverse impacts. As a publicly listed entity, BBP also has an obligation to operate profitably while seeking to grow securityholder value over the long term. We believe these two key objectives are mutually supporting and that BBP can prosper financially over the long term, in a responsible and sustainable way.

4 On a day-to-day basis, BBP strives to minimise adverse impacts on the environment and to continually improve our environmental performance operationally. BBP’s Environment and Community Policy focuses on a number of core objectives, including:

• the efficient use of natural resources; • establishment of an integrated environmental management system; • reduction in carbon emissions across all assets (approximately 74% of BBP’s power portfolio is gas‑fired generation); • utilisation of research for commercially viable technologies wherever practical; and • compliance with all relevant legislation, codes of practice, standards and other statutory obligations. As a power generation business with assets spread across Australia and New Zealand, we have a significant level of involvement with the local communities in which we operate. The longevity and sustainability of BBP are very much dependent on the strength of our relationships with these communities and an awareness of the potential impacts we can have at a social, cultural, environmental and economic level.

Outlook The emerging recovery in the domestic economy, coupled with the initiatives in place to improve our earnings stability, provides a solid platform for growth. This puts our company in a strong position to take advantage of the opportunities for expansion that exist within our portfolio, as well as to consider those within the regions in which we operate. From an earnings perspective, we intend to provide guidance at our AGM that will be held on 18 December 2009.

Yours faithfully

ROSS ROLFE AO Chief Executive Officer Babcock & Brown Power Limited and Babcock & Brown Power Services Limited t r o p s Re ’ t 2009 – CEO r o p l Re a BBP Annu

5 INDUSTRY OVERVIEW

WHOLESALE ELECTRICITY In Western Australia (WA), the WESTERN AUSTRALIAN MARKETS IN AUSTRALIA Wholesale Electricity Market (WEM) ENERGY RETAILING There are two separate major for the SWIS commenced operation Ownership of Alinta (formerly wholesale electricity markets on 21 September 2006. This market AlintaAGL), provides BBP with operating in Australia: consists of a capacity market a strong position within the WA • National Electricity Market (NEM), and an energy (bilateral contract gas retail market. Alinta currently covering the interconnected and energy balancing) market. has approximately 595,000 retail eastern states of Queensland, The WEM is relatively small, with a gas customers in WA. Full retail New South Wales, the Australian large proportion of the electricity contestability (FRC) in gas in WA Capital Territory, Victoria, South demand for mining and industrial was introduced in May 2004, Australia and Tasmania; and use. This is typically supplied meaning that any gas retailer can under long‑term contract. Over enter the WA market. An exception • South West Interconnected 90% of energy sales in the SWIS is to gas FRC is that Synergy is System (SWIS), which covers traded through bilateral contracts restricted by the Gas Market the Western Australian that closely follow customer Moratorium to only sell gas to electricity market. loads. Revenue streams in the customers that consume more than Electricity prices in the NEM are WEM include capacity payment 180GJ per annum, because Synergy determined by a dispatch procedure revenues, energy contract revenues would have a competitive advantage whereby generators compete to and balancing market revenues/ over other gas retailers in the supply the electricity required purchases. In addition to the SWIS, absence of electricity FRC. by retailers and large customers. there is an electricity grid in the Electricity retailing in WA is Under this procedure, generators north-west of WA linking Karratha to dominated by Synergy, the provide daily dispatch offers to the Port Hedland, known as the North corporation established by the market operator, which specifies West Interconnected System (NWIS). Electricity Corporation Act 2005 each half hour output deliverable The Independent Market Operator (WA). This market has been by the generator at certain prices. (IMO) was established in WA restructured in recent years to allow As such, all electricity is traded in December 2004 following a greater competition and is currently into the spot market in the first Government initiative to privatise under review for further reform. instance. Prices are not subject the electricity industry and open At present, regulation restricts to material regulation except for the market to wider competition. Alinta to compete for electricity the application of a price cap of The IMO is an independent customers that consume between $10,000/MWh. Bilateral contractual organisation funded by industry, 50MWh and 160MWh per annum. arrangements, such as power whose role is to administer and This represents approximately purchase agreements, swaps operate the WEM. 15,000 out of a total of one million (i.e. fixed price contracts) and customers. caps (i.e. hedge contracts against ELECTRICITY SUPPLY ’price spikes’), are entered into by AND DEMAND OUTLOOK participants in order to manage The need for generation capacity exposure to pool price volatility. is generally driven by the level Therefore, revenue streams in of peak demand in an electricity the NEM include spot revenues system. The level of peak demand and contract receipts/payments. typically occurs during hot days in summer or cold days in winter, On 1 July 2009, market operations when a large proportion of air performed by the National conditioners or heaters are running. Electricity Market Management Electricity system planners expect Company (NEMMCO) were peak demand to grow strongly in amalgamated into the Australian Australia, particularly in summer, Energy Market Operator (AEMO). with the implication that further generation investment will be required to avoid supply shortfalls. AEMO is projecting that the NEM states’ average annual electricity demand over the next 10 years will grow by 1.9% per annum under a medium growth scenario.

6 Asset summary

BRAEMAR (100%) OAKEY (50%) PORT HEDLAND (100%)

NEWMAN (100%)

GOLDFIELDS GAS PIPELINE (11.8%)

REDBANK (100%) ALINTA (100%) includes: LEIGH CREEK BAIRNSDALE (100%) PINJARRA COGENERATION COALFIELD WAGERUP COGENERATION (100%) CAWSE (100%) FLINDERS – GLENBROOK (100%) PLAYFORD AND NORTHERN (100%)

Equity Date of Capacity Operating Location Interest Fuel Commissioning (MW)1 Mode Offtake/revenue Operating Power Stations Braemar QLD 100% Gas 2006 502 Intermediate Origin/Market Oakey QLD 50% Gas 2000 318 Peak AGL Redbank NSW 100% Coal 2001 151 Baseload Energy Australia Bairnsdale VIC 100% Gas 2001 94 Peak SP Ausnet

Flinders – Northern SA 100% Coal 1985 540 Baseload Rolling hedges y

Flinders – Playford SA 100% Coal 1963 240 Intermediate Rolling hedges ar Cawse WA 100% Gas 1998 21 Baseload Norilsk Nickel Pinjarra WA 100% Gas 2006 and 2007 280 Baseload Retail customers Wagerup WA 100% Gas 2007 380 Peak Retail customers Newman WA 100% Gas 1996 and 2009 184 Intermediate Mt Newman Joint Venture sset summ Port Hedland WA 100% Gas 1995 and 1998 210 Intermediate Various Glenbrook NZ 100% Gas 1987 and 1997 112 Baseload New Zealand Steel Other Assets view & a

Alinta WA 100% Retailer of natural gas and electricity in WA. r Goldfields Gas Pipeline WA 11.80% Natural gas pipeline supplying the Newman Power Station, the Pilbara iron ore mines and the Kalgoorlie mining region in WA. y ove

NE VIC 99.9% Neighbourhood Energy (NE) is a start-up electricity retailer servicing r metropolitan Melbourne. Wesfarmers (LPG) contract WA N/A BBP has a contract with Wesfarmers to supply gas to its LPG plant in Kwinana, WA.

1 Capacity (MW) is consistent with the definitions used by the Electrical Supply Association of Australia (ESAA). Gas turbines installed capacity constitutes gross installed capacity with reference to ISO name plates; Gas turbine capacity factors are with reference to site/design conditions – sent out. Steam turbines installed capacity constitutes gross installed capacity at design conditions; steam turbine capacity factors are with reference to site/design conditions – sent out. t 2009 – indust r o p l Re a BBP Annu

7

ASSET REPORTS Power GENERATION

Braemar REDBANK FLINDERS – PLAYFORD POWER STATION POWER STATION AND NORTHERN Braemar Power Station is a Redbank Power Station is a 151MW POWER STATION 502MW open-cycle gas turbine coal-fired power station located Flinders comprises the 540MW (OCGT) power station located in near Singleton in the Hunter Valley, Northern and 240MW Playford southern Queensland. Braemar’s New South Wales. It is fuelled by coal-fired power stations, as well location is close to competing gas beneficiated dewatered coal tailings as the dedicated Leigh Creek supply sources. It is adjacent to (BDT), which are a waste product of Coalfield assets, which include the Queensland coal seam gas the neighbouring Warkworth coal the Leigh Creek township and fields and connected to the Cooper mine’s washery operation. Redbank rail infrastructure. Playford Basin via the Ballera to Wallumbilla was commissioned in April 2001 and was commissioned in 1963 and and Roma to Brisbane pipelines. operates as a baseload generator. underwent a mid-life refit and Braemar was commissioned in In July 2008, Redbank experienced refurbishment program in 2005. August 2006 and operates as an a turbine blade failure, causing It operates as an intermediate intermediate generator. an unplanned outage. Redbank’s generator. Northern was Due to subdued electricity prices revenue performance fell short of commissioned in 1985 and operates experienced in Queensland, the contractual obligations, with an as a baseload generator. FY09 financial performance was availability of 58.7% and a capacity During the year, Playford and below expectations. Braemar factor of 58.5% during FY09. The Northern performance fell short achieved a capacity factor of turbine was returned to service in of revenue budgets as a result of 46%, with availability increasing October 2008. The turbine outage unplanned outages and lower than to 94% from 88% in FY08. Gas allowed for further inspection of the expected market prices. Northern turbine A & B inspections were turbine, resulting in the replacement achieved a capacity factor of 89%, completed during the year on all gas of other blades with higher quality with 92% availability, generating turbine sets, with the first major C materials. A two-week outage 3,870GWh of electricity. Playford inspection scheduled for October previously planned for October was achieved a capacity factor of 31% 2009. A new water treatment plant undertaken during the unplanned and generated 614GWh. was installed and commissioned outage, eliminating the need for any Northern Power Station is currently during the year which utilises further planned outages in FY09. undergoing a control system water from coal seam methane BAIRNSDALE upgrade with works recently wells. This water treatment plant POWER STATION completed on the water treatment will satisfy the gas turbine water Bairnsdale Power Station is a 94MW plant and coal and ash systems. consumption requirements. OCGT power station located in CAWSE Braemar maintains an excellent Victoria’s East Gippsland region. POWER STATION safety record, having remained Bairnsdale was commissioned in Cawse Power Station is a 21MW lost-time injury (LTI) free since 2001 and operates as a peak load gas-fired cogeneration plant handover post construction generator. located 55km north-west of completion. The Bairnsdale plant derives Kalgoorlie, Western Australia. OAKEY its revenues through a tolling The plant supplies electricity, POWER STATION arrangement. This tolling steam and desalinated water to the Oakey Power Station is a dual- arrangement is currently held Cawse nickel project. Cawse was fuel fired 318MW OCGT power with Aurora Energy, a Tasmanian commissioned in 1998 and operates station located in Oakey, west of Government owned electricity retail as a baseload generator. Brisbane, Queensland. It is situated and distribution company. Cawse Power Station performed close to the Roma to Brisbane gas During FY09, Bairnsdale achieved a below budget due to the fact that pipeline and a number of coal seam 26% capacity factor, an availability the owner of the nickel mine it gas fields which provide ready of 96% and a 99.6% start reliability services placed its operations into access to gas supplies. Oakey was over 864 starts. The site maintained care and maintenance. commissioned in January 2000 and its excellent safety record and operates as a peak load generator. remains LTI free. During 2009 a minor inspection was successfully performed on the GT11 gas turbine sets. Full contract capacity payments were received with an availability factor of 99.8%, a capacity factor of 1.1% and a start reliability of 99% for the year. Oakey maintains an excellent safety record, having remained LTI free.

8 PORT HEDLAND GLENBROOK POWER STATION POWER STATION Port Hedland Power Station is a Glenbrook Power Station is a 210MW gas-fired power station 112MW cogeneration plant located located in the Pilbara region of at Glenbrook, south of Auckland, north-west WA. It is connected to in New Zealand. The power the North West Interconnected station is fully integrated into System (NWIS) electricity grid. the New Zealand Steel Plant and Three Port Hedland units were currently supplies around 60% commissioned in 1995 and a further of its electricity requirements. two were commissioned in 1998. Glenbrook has two cogeneration Port Hedland operates as a low plants, commissioned in 1987 capacity factor baseload generator and 1997, and operates as a due to the high levels of redundancy baseload generator. in generating plant at the facility. Major outages progressed during For the duration of the power the course of the year, with specific shortages caused by the Varanus enhancements made to further Island gas explosion, Port Hedland increase the reliability of the Power Station supported the plant. The station achieved 96% NWIS using diesel fuel for power contract availability for the year, but generation. generation was below plan with a A major inspection was completed capacity factor of 56%. Glenbrook on the TG301 gas turbine and also maintained its excellent safety generator set during the year. record, remaining LTI free. Availability for the year was 95%, GOLDFIELDS GAS PIPELINE with 100% contractual requirement gas pipeline compliance. Port Hedland The Goldfields Gas Pipeline (GGP) maintained its excellent safety is 11.8% owned by BBP with the record, remaining LTI free. remaining 88.2% owned by APA. NEWMAN GGP is 1,300km long and transports POWER STATION gas from the Carnarvon Basin to Newman Power Station is a 3 x Kalgoorlie in Western Australia. Frame 6 GE 42MW OCGT power The GGP services industrial and station located within the Mt power generation customers along Newman Joint Venture mining lease this route and is connected to the in the Pilbara region of Western Newman Power Station by a 50km Australia. The plant provides lateral pipeline that was constructed electricity to the Newman grid. in 1996. Newman was commissioned in 1996 As a result of its equity interest, and operates as a low capacity BBP has the right to transport 25TJ factor baseload generator due to per day into Newman through the the high levels of redundancy in GGP at no transportation cost. generating plant at the facility. S t

The Newman Expansion Project r o

began in June 2008 and was p completed in the second half of FY09. It comprises one Rolls‑Royce Trent 60 Wet Low Emissions machine with dual-fuel capability. SSET Re The station achieved 100% contract availability for the year and generated 331GWh. Newman t 2009 – A also maintained its excellent safety r o

record, having remained LTI free p since it was commissioned. l Re a BBP Annu

9 ENERGY MARKETS

The Energy Markets group comprises the retail and trading businesses and the fuel management and portfolio development activities of BBP. The segment also includes the Pinjarra cogeneration power station and the Wagerup peaking units. The group delivered EBITDA of $60.1 million

10 in FY09. ASSET REPORTS energy markets

ALINTA Weak demand has also adversely WESFARMERS LPG CONTRACT Alinta is the largest retailer impacted the performance of the Alinta has a contract with of natural gas in Western electricity retail business. As a result Wesfarmers LPG wherein both Australia, serving approximately of lower than expected industrial parties extract and sell LPG from 590,000 customers. It also customer consumption, higher than the gas stream delivered at Kwinana supplies electricity to more than anticipated volumes of electricity Western Australia. Under this 1,400 commercial and industrial have been sold into the STEM2 and arrangement, Alinta manages the customers. The Alinta business Balancing Market. Prices in both gas and transport components includes the cogeneration plants these markets have been low across and Wesfarmers LPG manages located at Alcoa’s Pinjarra and the year due to the contraction in the extraction operations and LPG Wagerup alumina refineries. With economic activity. marketing. Alinta’s share of the a combined capacity of 640MW, PINJARRA POWER STATION profit contribution outperformed Alinta’s generation portfolio is the The 280MW Pinjarra Power Station expectations for the year, primarily second largest generation operation comprises two co-generation driven by higher LPG content, in WA. Alinta also buys power plants situated at Alcoa’s Pinjarra and a depreciating AUD/USD from the 80MW Walkaway wind refinery in south-west WA. exchange rate. Some of this gain farm located south of Geraldton Under an agreement between was offset by lower Saudi Contract under a long‑term power purchase Alcoa and Alinta, BBP owns the Price (SCP) per tonne. agreement which complements co-generation units and takes all NEIGHBOURHOOD ENERGY Alinta’s low emission gas-fired of the electricity production for As at 30 June 2009, BBP owned generation fleet. sale to its customers, while Alcoa 65% of Neighbourhood Energy A number of factors have had an is responsible for operating the (NE). BBP will acquire the residual adverse effect on the performance units and utilises all of the steam ownership of NE during 2009. of Alinta in FY09, most notably produced by the facilities for use NE is a start-up electricity retailer weak economic conditions, milder in its refinery. Pinjarra has two servicing customers throughout than expected weather and the units, commissioned in 2006 and Victoria. NE has successfully Varanus Island gas disruption. 2007 respectively, and operates established retail operating Varanus Island is a major supplier as a baseload generator. Revenue processes and systems and of gas to Alinta for its peak demand is underpinned by a PPA with continued to build upon the new requirements. Alinta Retail and fuel is sourced residential electricity customer ALINTA RETAIL from various upstream providers. base established during the last The contraction in economic activity The units performed at availability financial year. The NE customer combined with milder than expected levels of approximately 92%. load is fully backed by a wholesale weather resulted in the gas retail WAGERUP POWER STATION electricity hedge. business experiencing lower than The 360MW Wagerup Power Station expected demand during FY09. comprises two co-generation plants The residential customer base grew situated at Alcoa’s Wagerup refinery to 581,000 during the year; the in south-west WA. These units positive effect of this increase was, are currently configured as open however, offset by lower average cycle dual-fuelled peaking units. consumption. The negative impact The units can be reconfigured into on earnings of weaker demand co-generation format at a time that was partially offset by tariff best suits the market conditions. S increases for both residential and Under an agreement between Alcoa t r

SME customers. The interim gas and BBP, BBP owns the generation o tariff review undertaken by the units and takes all of the electricity p government in late 2007 and early production for sale to its customers, 2008 resulted in a 9% increase while Alcoa is responsible for in residential gas tariffs and a operating the units. Wagerup was SSET Re 5.6% increase for non‑residential commissioned in 2007 and operates customers.1 as a peak load generator. Revenue Alinta has worked proactively is underpinned by a PPA with with the WA Office of Energy on Alinta Retail and reserve capacity t 2009 – A payments from the IMO. Fuel is r its further ’interim Report’ gas o tariff review to adjust tariffs to sourced from Alinta’s gas portfolio p more cost‑reflective levels. The and various upstream suppliers on an opportunistic basis. l Re Government subsequently approved a a 20% increase in residential gas tariffs to take effect from 1 July 2009, with an additional

3% increase allowed for the partial BBP Annu recovery of Varanus Island costs. 1 Mid-West/South-West Area. 2 Short Term Energy Market. 11 Sustainability

Sustainability reporting is aimed at providing information about BBP’s non-financial performance indicators and encouraging stakeholder support for current and future business activities. BBP’s commitment to health and safety, environment and community, and the wellbeing of our employees is an integral part of our

12 overall business strategy. Health and Safety BBP has continued to pursue the Occupational Health and Safety (OHS) objectives set out in its OHS Policy, through the development and promulgation of a portfolio–wide OHS Management Framework. The BBP OHS Management Framework is consistent with the Australian and New Zealand Standard 4801 – Occupational Health and Safety Management Systems (AS/NZS 4801), and is an integral part of the overarching BBP Risk Management Framework. It was developed with consultation from across BBP operations and with expert safety advice, and details BBP’s approach to driving sustained delivery of its ’zero harm’ objective for employees, contractors and all people associated with its workplaces. The Framework also clearly sets out OHS responsibilities across BBP for the development and delivery of a safety conscious culture within BBP, at a time of organisational change. The overarching Framework is supported by a suite of OHS Management and specific Hazard Standards which are being progressively developed by the BBP OHS and Executive Sustainability Committees, with the oversight of the Audit Risk & Compliance Committee. The Standards provide detail, guidance and associated tools to support a consistent implementation of the key elements of the BBP OHS Management Framework. In FY08–09, BBP achieved an improvement in the combined Lost Time Injury Frequency Rate (LTIFR) for both employees and contractors. The BBP Executive Sustainability and OHS Leadership Committees support the continuous improvement of OHS management across the portfolio through the development and implementation of an audit program to assess compliance with the BBP OHS Framework and AS/NZS 4801 across the business, and to identify areas for additional focus. Environment The BBP Board has endorsed an Environment & Community Policy with a commitment to continual improvement and excellence in the environmental performance of all BBP operations. To support the policy commitment, BBP has developed and promulgated an Environmental Management Framework which details the expectations, key elements and methods for environmental management across the business. The Framework was developed by the BBP Environmental Leadership & Executive Sustainability Committees, with representation from across the portfolio, and with oversight of the Audit Risk & Compliance Committee. The Framework also defines responsibilities and accountabilities for environmental management across BBP’s business units, projects, regions, and assets, to ensure protection both of the environment and of BBP’s operations. Climate Change BBP recognises that the key environmental issue of climate change is also a critical business management issue for all fossil fuelled power generators. The BBP power station portfolio has both gas and coal-fired power stations with, at the end of the financial year and following the sale of BBP’s interests in Newgen Kwinana and Neerabup Power Stations, 60% of generation based on gas, and 40% based on coal, in terms of installed capacity. The BBP portfolio of operations is widely spread across Australia, providing base load, intermediate and peaking generation. BBP has been active in preparing for the first mandatory reporting period under the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act), with expert assistance from consultant Energetics to develop and test NGER Act data collection and reporting systems. BBP has registered under the Act for the first year of reporting data for submission by 31 October 2009. The system development and trials have prepared BBP to meet the mandatory reporting requirements.

BBP also has a significant project, coordinated by its Energy Markets Group, and integrated across the BBP ility portfolio, to monitor, prepare for and manage the impact of the Commonwealth Government’s Carbon Pollution ab

Reduction Scheme on its business operations. in a ust t 2009 – S r o p l Re a BBP Annu

13 Sustainability

Training and Development BBP aims to attract and retain employees by offering a stimulating and fulfilling workplace, which includes opportunities for ongoing development. To this end, all BBP employees, including part-time employees, have the same opportunities to participate in development activities. BBP’s Graduate Development Program entered its second year. The program, which has been designed to ensure the ongoing development and retention of engineering skills within the business, provides a framework for facilitating technical, professional and personal development through on-the-job experience and structured training opportunities. It is anticipated that participants will achieve Chartered Engineer status within a three-year period. Each of the participants is progressing well. These programs and processes are a key step in the ongoing focus of management to combine the operating systems and workplace cultures of the various BBP-owned businesses into one.

14 Board of directors

Leonard (Len) Gill John Fletcher Peter Kinsey ROSS ROLFE AO Independent Chairman Independent Non-Executive Independent Non-Executive Chief Executive Officer Director Director Ross Rolfe is the Chief Len Gill was appointed John Fletcher has extensive Peter Kinsey is the Regional Executive Officer of BBP. Independent Chairman of experience in the energy Legal & Compliance Manager Ross was appointed to this the Boards of BBP in July industry, having held South Asia for the global position in October 2008, 2008 after 18 months as numerous executive positions ABB Limited Group and a having worked as the acting Independent Non-Executive with The Australian Gas Light Director of ABB Australia Chief Executive Officer since Director. Company including that of Pty Limited and ABB Limited August 2008. Len has extensive knowledge Chief Financial Officer. (New Zealand). He has been a corporate lawyer for over Prior to his role with BBP, of, and over 30 years John is currently a Director 26 years in a number of Ross worked as a senior experience in, the Australian of APA Group and Sydney major corporations. Peter executive with Babcock & energy industry. He is the Water Corporation. His recent has been involved in the Brown from July 2007. His former Chief Executive experience includes board negotiation of various types role with Babcock & Brown Officer of TXU Australia positions with Foodland of commercial contacts, was of a strategic nature (now TRUenergy) and prior Associated Limited, Integral including power projects and with a primary focus on to this appointment he Energy and NGC Limited transportation projects in infrastructure (predominantly headed TXU’s wholesale of New Zealand. in energy and transport). energy division for five years, countries such as Australia, John has a Bachelor of which included general New Zealand, the United Previously, Ross held a range Science and a Master of management responsibility States, Sweden, Japan, China, of Chief Executive Officer Business Administration. for power generation and Thailand, Indonesia, Malaysia positions in the Queensland gas storage assets. He is a Fellow of the and India. Peter also gives Government and in industry Australian Institute of seminars on compliance and in Queensland over the last Len holds a Bachelor of Company Directors. business ethics throughout decade. He was the Director Engineering (Hons) and is Asia for ABB. General of the Department a member of the Australian of the Premier and Cabinet. Institute of Company Prior to joining ABB, Peter was General Counsel at He was also the Co-ordinator Directors. He is based General in Queensland – in Melbourne. David’s Holdings Pty Ltd and before this was Corporate a position he held for six Legal Manager of Alliance years. In this role Ross was Holdings Ltd. responsible for the delivery of the South Queensland Peter holds a Bachelor of Regional Infrastructure Law, Graduate Diploma in Plan and the design and

Financial Management and the implementation of s a Master of Commerce. the Water Grid. Ross has r also held the position of

Chief Executive Officer for ecto Stanwell Corporation (one of r

Queensland’s largest energy f di generation companies) for the period from January d o

2002 to July 2005. ar Ross is also a member of the Board of Infrastructure Australia, a member of the National Board of

Infrastructure Partnerships t 2009 – Bo r

Australia and a non-executive o Director of WDS Limited, p Evans & Peck Pty Ltd and the Thiess Group. l Re a BBP Annu

15 Corporate Governance Statement

INTRODUCTION This statement reflects Babcock & Brown Power’s (BBP) corporate governance framework as at 31 August 2009. A copy of this statement and other documents (or summaries thereof) can be accessed and downloaded from the Corporate Governance section on our website at www.bbpower.com. BBP comprises: • Babcock & Brown Power Limited ACN 116 665 608 (BBPL), an Australian public company; • Babcock & Brown Power Trust ARSN 122 375 562 (BBPT), an Australian trust of which Babcock & Brown Power Services Limited ACN 118 165 156, AFSL No 299943 (BBPS) is the responsible entity; and • the respective subsidiary entities of BBPL. The BBPL Board, together with the BBPS Board (the Boards), is responsible for overseeing the rights and interests of all investors and is accountable to them for the overall governance and management of BBP. The BBPL Board, in consultation and agreement with the BBPS Board, formulates and approves the strategic direction, investment objectives and goals of BBP. The establishment of a sound framework of corporate governance and the implementation of the corresponding governance culture and processes throughout BBP is one of the primary responsibilities of the Boards. The Boards recognise that they are accountable to securityholders for the performance of BBP and, to that end, are responsible for instituting and ensuring BBP maintains a system of corporate governance that operates in the best interests of securityholders whilst also addressing the interests of other key stakeholders. A comprehensive corporate governance framework and good governance policies and procedures can add to the performance of BBP, the creation of securityholder value and engender the confidence of the investment community. The ASX Limited’s Corporate Governance Council has issued a set of guidelines entitled Corporate Governance Principles and Recommendations. These guidelines articulate 8 core principles (ASX Principles) that the Council believes underlie good corporate governance, together with 27 recommendations (ASX Recommendations) for implementing effective corporate governance. The ASX Listing Rules require listed entities such as BBP to include a statement in their annual report disclosing the extent to which they have followed the 8 ASX Principles and 27 ASX Recommendations during the reporting period, identifying any ASX Recommendations that have not been followed and giving reasons for that variance. BBP’s Corporate Governance Statement is structured with reference to the ASX Recommendations. All of the corporate governance practices referred to were in place for the entire year ended 30 June 2009 unless otherwise indicated.

16 INTERACTION BETWEEN THE ROLES OF BBPL AND BBPS Although in practice BBPL was primarily responsible for conducting the day-to-day operations of BBP during the 2009 Financial Year, it did and will continue to consult and exchange information with, and seek the agreement of, BBPS when making decisions in relation to BBP in accordance with the terms of the stapling deed (Stapling Deed). The Stapling Deed sets out the terms and conditions of the relationship between BBPL and BBPS in respect of BBP, for so long as the units in BBPT and shares in BBPL remain stapled. In summary, the Stapling Deed provides that each of BBPL and BBPS must: • co-operate in respect of all matters relating to BBP and consult with the other prior to causing any act to be done or omission to be made which may materially affect the value of BBP Stapled Securities (including the announcement or payment of a dividend or trust distribution); • make available to the other all information in its possession necessary or desirable to fulfil its respective obligations under the Stapling Deed (e.g. making available to the other all information and providing all assistance in relation to the preparation of financial accounts); • co-operate with the other to ensure that each complies with its obligations under the ASX Listing Rules (including disclosure obligations), co-ordinate disclosure to the ASX and investors, and liaise with the ASX in relation to ASX Listing Rule matters; • perform its obligations under the Stapling Deed and its respective Constitution with a view to enhancing the market value of BBP Stapled Securities; • notify the other of an intention to acquire or sell assets where the value of those assets is greater than 5% of the entity’s net tangible assets; • act consistently with the investment strategy of BBP as agreed between them and consult with the other on implementation of this strategy and any changes to its implementation; • not borrow or raise any money unless the other agrees; • co-operate to ensure that BBPL securityholder and BBPT unitholder meetings are held concurrently or, where necessary, consecutively; • consult with the other in relation to any reorganisation or restructure of capital or any changes to stapling arrangements; • co-operate on the terms and timing of all new issues, bonus and rights issues, placements, redemptions, buy-backs and any dividend or distribution reinvestment plans; and • co-operate with the other to ensure that BBPL has a common subgroup of Directors with BBPS. Therefore, as indicated, it is by operation of the Stapling Deed that the Boards of BBPL and BBPS (as responsible entity of BBPT) are together responsible for overseeing the rights and interests of securityholders in BBP and accountable to securityholders for the overall corporate governance and management of BBP. COMPLIANCE WITH THE ASX RECOMMENDATIONS

As at the date of this Corporate Governance Statement, each of the Boards of BBP advise that their corporate tement governance practices are in compliance with the Recommendations. a e St c n a n r te Gove ra o rp t 2009 – Co r o p l Re a BBP Annu

17 Corporate Governance Statement

ASX Principle 1: Lay solid foundations for management and oversight Companies should establish and disclose the respective roles and responsibilities of board and management.

Role of the BBP Boards and Management ASX Recommendation 1.1: Companies should establish the functions reserved to the Board and those delegated to senior executives and disclose those functions Each of the BBP Boards is assisted in the management of the affairs of BBP by a dedicated management team directly employed by BBP. These services include managing BBP’s investments, advising in respect of any exit from those investments and specific operational duties relating to the day-to-day management of BBP’s assets. During the year, BBP took a number of steps to formally separate itself from its management arrangements with Babcock & Brown. This included the transfer of the employment arrangements of BBP’s key executives from the Babcock & Brown Group to BBP, with effect from 1 January 2009. The separation process is ongoing and has not yet fully completed. BBP’s dedicated management team comprises individuals performing the following functions: chief executive officer; chief financial officer and other accounting, tax and treasury personnel; chief operating officer and other operations management personnel; corporate counsel and company secretary; and risk and compliance personnel. The chief executive officer leads the management team which works exclusively on the provision of services to BBP and solely in the interests of BBP securityholders, and reports directly to the BBP Boards. The BBP Boards have each adopted a formal Board Charter which details the functions and responsibilities of the relevant Board and distinguishes such functions and responsibilities from those which have been delegated to management. A summary of the Board Charters is available in the Corporate Governance section on BBP’s website at www.bbpower.com. As outlined in the respective Board Charters, the BBP Boards are together responsible for the management of the affairs of BBP. In acquitting their functions, the Boards, amongst other things: a) contribute to and approve BBP’s corporate strategy; b) evaluate and approve capital expenditure, acquisitions, divestitures and other corporate transactions of BBP above the levels delegated to management; c) determine BBP’s distribution policy and the amount and timing of all distributions paid to BBP’s securityholders; d) approve major BBP policies, including BBP’s Code of Conduct, Security Trading Policy, Continuous Disclosure Policy and other compliance-related policies; e) approve all accounting policies, financial reports and material reporting by or on behalf of BBP; f) approve the appointment or removal of BBP’s Chief Executive Officer (CEO) and other key management personnel who report directly to the CEO; g) develop a succession plan for the CEO; h) monitor the performance of the CEO and other key management personnel; i) review BBP’s remuneration strategy and policies and the total level of remuneration for the CEO and other key management personnel; j) consider recommendations of Board Committees (e.g. Audit, Risk & Compliance Committees, Nomination & Remuneration Committee and Energy Trading & Risk Management Committee); k) approve the appointment and terms of appointment of the external auditor; l) consider, approve and monitor the effectiveness of BBP’s overall risk management and control framework, through, among other steps, regular reports to the Board through the Audit, Risk & Compliance Committees and regular updates (as required) from management on significant risk issues; m) review the performance and effectiveness of BBP’s corporate governance policies and procedures and consider any amendments to those policies and procedures; n) monitor BBP’s compliance with ASX continuous disclosure requirements; o) subject to the constituent document of the relevant BBP entity, approve the appointment of Directors to the relevant Board and to Committees established by the Board; and p) review and evaluate the performance and effectiveness of the Boards, each Board Committee and each individual Director against the relevant charters, corporate governance policies and agreed goals and objectives of BBP.

18 The Board has delegated a number of these responsibilities to its Committees. The Board Charters also set out the specific powers and responsibilities of the Chairman and the CEO. Some of the major responsibilities of the CEO are to: a) oversee the day-to day management of BBP; b) be the primary channel of communication and point of contact with the BBP Boards; c) consult with the Chairman to determine the agenda for Board meetings; and d) review and monitor all matters material to the interests of BBP (in conjunction with other key management personnel). Each of the two BBP Boards acts separately and independently from each other and where there is a joint responsibility between BBPL and BBPS over aspects of BBP’s operations, the BBP Boards will only have responsibility to the extent of their own specific involvement in those operations. However, the BBP Boards will co-operate to the extent required under the Stapling Deed in meeting those joint responsibilities to ensure that the interests of BBP securityholders are met. The Board Charters also include a summary of the responsibilities of each Director. To assist Directors to understand BBP’s expectations of them, all Independent Directors have entered into formal letters of appointment and been provided with copies of relevant Board Charters and policies. ASX Recommendation 1.2: Companies should disclose the process for evaluating the performance of senior executives The Nomination & Remuneration Committee has responsibilities relating to the review and monitoring of the performance of the BBP Boards, the Chairman and other individual members of the BBP Boards, and for establishing key performance indicators against which the performance of the CEO and other key management personnel in the BBP management team are evaluated. The process for evaluating the performance of the CEO and other key management personnel involves the following steps: • the key performance indicators for the CEO and each of BBP’s key management personnel are reviewed and endorsed by the Nomination & Remuneration Committee; • the Nomination & Remuneration Committee reviews and provides feedback on the respective performance of the CEO and BBP’s key management personnel against the key performance indicators; and • the Nomination & Remuneration Committee makes a recommendation to the BBP Boards regarding the remuneration payable to the CEO and BBP’s key management personnel based upon the review undertaken. The Remuneration Report contains further details of BBP’s remuneration policy and approach. A performance evaluation for the CEO and other key management personnel was undertaken in relation to the year ended 30 June 2009. tement a e St c n a n r te Gove ra o rp t 2009 – Co r o p l Re a BBP Annu

19 Corporate Governance Statement

ASX Principle 2: Structure the Board to add value Companies should have a Board of an effective composition, size and commitment to adequately discharge its responsibilities and duties.

Structure of the Board ASX Recommendation 2.1: A majority of the board should be Independent Directors The BBP Boards are structured so as to comprise Directors with a broad range of skills, expertise and experience from a diverse range of backgrounds. Both the BBPL Board and the BBPS Board comprise a majority of Independent Directors. The BBP Boards consider that collectively, the Directors have the range of skills, experience and expertise necessary to appropriately govern BBP. Details of the Directors’ skills, experience and expertise relevant to their position and their term in office, and details of their attendance at Board and/or Committee meetings are set out elsewhere in the 2009 Annual Report. The current Directors appointed to the respective BBP Boards, along with their appointment dates, are set out below: Name Position BBPL Board Appointment BBPS Board Appointment

Len Gill Independent Non-Executive Chairman 29/10/06 01/07/08 Peter Kinsey Independent Non-Executive Director 29/10/06 n/a John Fletcher Independent Non-Executive Director 29/10/06 29/10/06 Ross Rolfe CEO & Managing Director 8/12/08 8/12/08

Len Gill was appointed as Independent Chairman of BBP on 1 July 2008. The continued tenure of each individual Independent Director is subject to re-election from time to time in accordance with the Constitution of BBPL. The BBP Boards recognise the importance of Independent Directors, particularly the external perspective and advice that these Directors can provide.

Board Committees and Membership The BBP Boards have established Committees to support an effective governance framework and to advise and support the BBP Boards in carrying out their respective duties. The Chairman of each Committee reports on any matters of substance at the next full Board meeting and all Committee minutes are provided to the Board. The Committees in existence at the date of this report are as follows: • audit, Risk & Compliance Committee; • nomination & Remuneration Committee; • energy Trading & Risk Management Committee; and • the Committee of Independent Directors of each of the BBPL and BBPS Boards. Each Committee has its own Charter setting out the authority under which each Committee operates and the responsibilities as delegated by the BBP Boards. Charters are reviewed periodically and membership criteria are based on a Director’s skills and experience as well as their ability to add value to the Committee. The Board Committees and their membership as at 31 August 2009 are set out in the following table: Audit, Risk & Nomination & Energy Trading & Compliance Committees Remuneration Committee Risk Management Committee

Len Gill √ √ Chair Peter Kinsey √ Chair – John Fletcher Chair √ – Ross Rolfe – – √ Peter Brook* – – √ Andrew Bills* – – √

* Members of BBP Management, being CFO and General Manager Commercial respectively Throughout the 2009 Financial Year, the Committee of Independent Directors of each Board regularly met separately to review and discuss issues in the absence of the CEO and the wider BBP management team.

20 ASX Recommendation 2.2: The chairperson should be an independent Director Len Gill was appointed as Independent Chairman of BBP on 1 July 2008. In order to further promote the independence of the BBP Boards: • the Audit, Risk & Compliance Committee and the Nomination & Remuneration Committee are comprised exclusively of Independent Directors; • protocols are in place for dealing with conflicts of interest. In particular, the BBP Boards have approved a range of policies designed to ensure that the interests of securityholders are at all times paramount and that any actual or potential conflicts of interest are promptly disclosed and dealt with by the Directors. These include the Board Charter, the Code of Conduct and the Security Trading Policy; • significant matters affecting BBP are reserved for consideration by the full Board, for example, major strategic decisions, capital expenditure above specified thresholds and expenditure outside the ordinary course of business; and • any Director is entitled to seek independent professional advice (including, but not limited to, legal, accounting and financial advice) at BBP’s expense on any matter connected with the discharge of his or her responsibilities, in accordance with the procedures set out in the Board Charter. ASX Recommendation 2.3: The roles of chair and chief executive officer should not be exercised by the same individual. The roles of Chairman and CEO are not exercised by the same individual for BBP. The Board Charters provide that the roles of the Chairman and CEO must not be exercised by the same person. The respective roles and responsibilities of the Chairman and the CEO are described in the Board Charters. ASX Recommendation 2.4: The Board should establish a nomination committee A Nomination & Remuneration Committee has been established which is responsible for advising the BBP Boards on the composition of the Boards and their Committees, and reviewing the performance of the Boards, their Committees and individual Directors. In making recommendations to the BBP Boards regarding the appointment of Directors, the Nomination & Remuneration Committee periodically assesses the appropriate mix of skills, experience and expertise required on the relevant Board and assesses the extent to which those skills and experience are represented. As BBP responds to the challenges currently facing the business, the Nomination & Remuneration Committee will review the composition of the BBP Boards to ensure they remain appropriate. The Nomination & Remuneration Committee is comprised of all three Independent Directors of the BBPL Board. The Committee is chaired by Peter Kinsey, an Independent Non-Executive Director. The attendance of the Committee members at Committee Meetings is disclosed in the Directors’ Report. The Nomination & Remuneration Committee met six times during the 2009 Financial Year. The Nomination & Remuneration Committee has adopted a Charter, a copy of which is available in the Corporate Governance section on BBP’s website at www.bbpower.com. The responsibilities of the Committee pursuant to tement its Charter include: a Nomination e St

In relation to its nomination related function, the Committee will: c n

• critically review the performance and effectiveness of the Chairman, the Boards and the permanent Committees a n

of the Boards and their individual members; r • have oversight of the BBP Boards’ annual performance evaluation process; • review and make recommendations to the BBP Boards as appropriate on the composition, strategic function

and size of the BBP Boards; te Gove

• provide confirmation of the Directors to retire annually by rotation in accordance with the provisions of the ra Constitution of BBPL; o • having regard to the desired composition of and the skills represented on the BBP Boards, identify and make rp recommendations to the BBP Boards on candidates considered appropriate for appointment as Directors, and make recommendations to the BBP Boards on whether the Board should support the reappointment of any retiring Director; and • periodically assess the skills required to competently discharge the BBP Boards’ duties and obligations, and t 2009 – Co

make recommendations to the Chairman about how those skill levels could be enhanced. r o p l Re a BBP Annu

21 Corporate Governance Statement

Remuneration In relation to its remuneration related function, the Committee will: • review the key performance indicators for the CEO and other key management personnel in the BBP management team, and make recommendations to the BBP Boards in relation to their remuneration outcomes; • approve BBP’s remuneration disclosures; and • make recommendations to the BBP Boards in relation to the level of remuneration to be paid to Independent Directors. ASX Recommendation 2.5: Companies should disclose the process for evaluating the performance of the Board, its Committees and individual Directors. The Nomination & Remuneration Committee informs the BBPL Board of the names of Directors who are retiring in accordance with the provisions of the Constitution of BBPL and makes recommendations to the BBPL Board as to whether it should support the renomination of such retiring Directors. In order to make such recommendations, that Committee first reviews the retiring Director’s performance during the period in which the Director has been a member of the BBPL Board. The Nomination & Remuneration Committee also reviews the membership and performance of the various Committees established by the Board and makes recommendations to the BBP Boards in that regard. A member of the Committee will not participate in the review of their own performance and must not be present for discussions at a Committee meeting on, or vote on a matter regarding, his or her election, re-election or removal. The Chairman and the BBP Boards undertake both formal and informal processes to evaluate the performance of the Board, its Committees and individual Directors. A typical formal process has in the past involved the Company Secretary issuing a detailed questionnaire which is completed and returned by each Director. The results are consolidated by the Company Secretary and the Nomination & Remuneration Committee as a whole reviewed and discussed the findings. In view of the significant challenges which the BBP Boards have sought to address over the past 12 months, a formal questionnaire based evaluation did not occur during the 2009 Financial Year. It is the intention of the BBP Boards to undertake such a formal evaluation during the forthcoming Financial Year. The Nomination & Remuneration Committee is also responsible for establishing and facilitating an induction programme for new Directors and making available to them sufficient information and advice to allow them to participate fully and actively in board decision-making at the earliest opportunity. The BBP Boards and their Committees may seek advice from independent experts whenever it is considered appropriate. As noted above, individual Directors may seek independent professional advice on any matter connected with the discharge of their responsibilities, at BBP’s expense.

22 ASX Principle 3: Promote ethical and responsible decision-making Companies should actively promote ethical and responsible decision-making

Code of Conduct ASX Recommendation 3.1: Companies should establish a code of conduct and disclose the code or a summary of the code. The BBP Boards are committed to delivering strong returns and securityholder value whilst also promoting securityholder and general market confidence in BBP and to fostering an ethical and transparent culture within BBP. To this end, the BBP Boards have adopted a formal Code of Conduct which is designed to promote: • high standards of corporate and individual behaviour by all Directors, officers and employees of BBP in order to maintain confidence in BBP’s integrity; • awareness of all relevant legal obligations and responsibilities; and • behaviour consistent with acting in a highly ethical and professional manner and in the best interests of BBP securityholders. The Code of Conduct requires Directors, officers and employees of BBP to, among other things: • place the highest priority on health and safety at the workplace; • deal with securityholders, customers, suppliers, competitors and other employees in a manner that is lawful, diligent, fair and with honesty, integrity and respect; • avoid conflicts of interest between their personal interests and those of BBP and its securityholders; • not take advantage of opportunities arising from their position for personal gain or in competition with BBP; and • comply with BBP’s Security Trading Policy and other policies. The Code of Conduct requires Directors, officers and employees of BBP to report any actual or potential breach of the law, the Code of Conduct or other BBP policies. BBP promotes and encourages ethical behaviour and provides protection for those who report violations. A summary of the key aspects of the Code of Conduct is available in the Corporate Governance section on BBP’s website at www.bbpower.com. In addition to the Code of Conduct, the Board Charters require that all Directors conduct their duties with the highest level of honesty and integrity, observe the rule and spirit of the law, comply with any relevant ethical and technical standards, not make improper use of any confidential information, and set a high standard of fairness, diligence and competency in their position as a Director. BBP recognises that it has a number of legal and other obligations to its non-securityholder stakeholders, including employees, financiers, suppliers and the wider community. In accordance with its Code of Conduct, BBP aims to provide a work environment in which all employees can excel, regardless of race, religion, age, disability, gender, sexual preference or marital status. In this regard, BBP maintains tement various policies relating to the workplace, including in respect of non-discrimination, appropriate workplace a behaviour and occupational health and safety issues. e St

These principles of fairness, honesty and propriety are essential elements of the various policies which have been c n adopted by BBP. a n r te Gove ra o rp t 2009 – Co r o p l Re a BBP Annu

23 Corporate Governance Statement

Security Trading Policy ASX Recommendation 3.2: Companies should establish a policy concerning trading in company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy. BBP has implemented a formal Securities Trading Policy which regulates the manner in which Directors, all members of BBP’s Corporate Office and senior management across BBP’s various businesses can buy or sell BBP securities. The Policy requires that they conduct their personal investment activities in a manner that is lawful and avoids conflicts between their own interests and those of BBP. The Policy is specifically designed to raise awareness and minimise any potential for breach of regulations relating to insider trading contained in the Corporations Act. The Policy is also designed to minimise the chance of misunderstandings or suspicions arising of persons trading while in possession of non-public price-sensitive information. The Policy specifies trading windows as the periods during which trading in BBP stapled securities can occur. These trading windows will generally be: • two to six week periods following the release of BBP’s full-year or half-year results; • a period commencing on the second trading day following lodgement of BBP’s Annual Report with the ASX and continuing for up to one month after the holding of BBP’s Annual General Meeting; and • the offer period under any prospectus or similar offer document. Trading is prohibited despite a window being open if the relevant person is in possession of non-public price-sensitive information regarding BBP. The BBP Boards may authorise the opening of trading windows at other times. The CEO and other key management personnel are required to notify the Company Secretary (who in turn notifies the Chairman) of any proposed trading by them in securities issued by BBP and the details of any completed trades. A summary of the key aspects of BBP’s Securities Trading Policy is available in the Corporate Governance section on BBP’s website at www.bbpower.com.

24 ASX Principle 4: Safeguard Integrity in Financial Reporting Companies should have a structure to independently verify and safeguard the integrity of their financial reporting

Audit, Risk & Compliance Committee ASX Recommendation 4.1: The board should establish an audit committee The BBP Boards are committed to the basic principle that BBP’s financial reports are true and fair and comply with the relevant accounting standards. To assist the BBP Boards with this commitment, they have each established an Audit, Risk & Compliance Committee which are responsible for advising the BBP Boards on internal controls and appropriate standards for the financial management of BBP. It is the BBP Boards’ responsibility to ensure that an effective internal control system is in place across BBP. This includes internal controls to deal with both the effectiveness and the efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information. The BBP Boards have delegated the responsibility for overseeing the establishment and maintenance of BBP’s system of internal control to the Audit, Risk & Compliance Committees. Each Committee oversees the financial reporting process, the systems of internal control and risk management, the audit process and BBP’s processes for monitoring compliance with laws and regulations. The Audit, Risk & Compliance Committees provide advice to the BBP Boards and report on the status of the business risks to BBP through its risk management processes aimed at ensuring risks are identified, assessed and properly managed. Each Committee works on behalf of the BBP Boards with the external auditor and reviews non-audit services provided by the external auditor to confirm that they are consistent with maintaining external audit independence. ASX Recommendation 4.2: The audit committee should be structured so that it: • consists only of non-executive directors; • consists of a majority of independent directors; • is chaired by an independent chair, who is not the chair of the board; and • has at least three members The Audit, Risk & Compliance Committees are now currently comprised of all three Independent Directors. The Committee is chaired by John Fletcher, an Independent Non-Executive Director. The attendance of the Committee members at Committee Meetings is disclosed in the Directors’ Report. During the 2009 Financial Year, the composition of the Audit, Risk & Compliance Committees underwent some change as follows: Audit, Risk & Compliance Committee Member Status Appointed to the Committee resigned from the Committee

John Fletcher Independent Director remained a member of the Committee tement Committee Chairman throughout the 2009 Financial Year a

Peter Kinsey Independent Director remained a member of the Committee e St c

Committee Member throughout the 2009 Financial Year n a

Len Gill Independent Director 8 December 2008 – n r Committee Member Warren Murphy Non-Independent 21 December 2006 3 September 2008 Committee Member te Gove

John Bowyer Non-Independent 25 September 2008 8 December 2008 ra Committee Member o rp All members of the Audit, Risk & Compliance Committees possess the requisite financial expertise. The structure of each Audit, Risk & Compliance Committee accords with ASX Recommendation 4.2 in that the Committees comprise a majority of Independent Directors (and comprised exclusively of Independent Directors

from 8 December 2008), have an Independent Chairman who is not the Chairman of the BBP Boards and have t 2009 – Co at least three members. r o The Audit, Risk & Compliance Committees generally meet as required but normally meet not less than six times per p year. The Audit, Risk & Compliance Committees report to the full BBP Boards following each Committee meeting, l Re including making any recommendations that require Board approval or action. a BBP Annu

25 Corporate Governance Statement

ASX Recommendation 4.3: The audit committee should have a formal charter The Audit, Risk & Compliance Committees have each adopted a Charter. The responsibilities of the Committees pursuant to their Charters include:

Financial Reports for the half year and full year • review and consider the financial reports for the half year and full year; • consider in connection with the half year and full year financial reports the CEO and CFO letter of representation to the BBP Boards; • review the financial sections of the annual report and related regulatory filings before release; and • review with management and the external auditors the results of the financial audit. Internal Control • review the effectiveness of BBP’s internal controls regarding all matters affecting BBP’s financial performance and financial reporting, including information technology security and control; and • review the scope of internal and external auditor’s review of internal control, review reports on significant findings and recommendations, together with management’s responses, and recommend changes from time to time as appropriate. Internal Audit • review with the internal auditor, the charter, plans and activities of the internal audit function; • meet with the internal auditor to review reports and monitor management responses; • meet separately with the internal auditors, when necessary, to discuss any matters that the Committees or internal audit believes should be discussed privately; • review the effectiveness of the internal audit function; and • ensure there are no unjustified restrictions or limitations on the internal auditor, and review and concur in the appointment, replacement or dismissal of the internal auditor. External Audit • review the external auditor’s proposed audit scope and approach; • meet with the external auditors to review reports, and meet separately to discuss any matters that the Committees or auditors believe should be discussed privately; • establish policies, as appropriate, regarding independence of the external auditors; • review and confirm the independence of the external auditors; and • review the performance of the external auditors, and consider the reappointment and proposed fees of the external auditor and, if appropriate, conduct a tender of the audit. Any subsequent recommendation following the tender for the appointment of an external auditor will be put to the BBP Boards. Compliance • obtain regular updates from the Compliance Manager and management regarding compliance matters; • review the effectiveness of the system for monitoring compliance with laws and regulations affecting BBP and the results of management’s investigation and follow-up (including disciplinary action) of any instances of non-compliance; • monitor the extent to which BBP complies with its Compliance Plan; and • review the findings of any examinations by regulatory agencies. Risk Management • oversee the development of risk management policies and review BBP’s overall risk management framework and its effectiveness in meeting sound corporate governance principles and keep the BBP Boards informed of all significant business risks; • review with management the system for identifying, managing and monitoring the key risks of BBP; • review with management the operation of business continuity and disaster recovery plans; • obtain reports from management on the status of any key risk exposures or incidents; and • review the scope, status and cost of the insurance coverage for BBP. Reporting Responsibilities • regularly report to the BBP Boards about Committee activities, issues and related recommendations; • provide an open avenue of communication between internal audit, the external auditors and the BBP Boards. For the purpose of supporting the independence of their function, the external auditors and the internal auditor have a direct line of reporting access to the Committees; • report annually to the securityholders on matters relating to Committee responsibilities as required by law or the ASX Listing Rules; and • review any other reports BBP issues that relate to Committee responsibilities.

26 The Committees meet at least six times a year and report to the full BBP Boards following each meeting, including in respect of recommendations of the Committees that require BBP Board approval or action. To assist the BBP Boards and the Audit, Risk & Compliance Committees discharge their respective responsibilities, the CEO and the Chief Financial Officer are required to provide the BBP Boards with a letter of representation in connection with the half-year and full-year financial statements of BBP. Such letter of representation confirms to the BBP Boards that BBP’s financial reports present a true and fair view, in all material respects, of BBP’s financial condition and operational results and are in accordance with relevant accounting standards. The letter describes the process and evidence that the CEO and Chief Financial Officer have adopted to satisfy themselves on these matters. In respect of the 12 months ended 30 June 2009, the CEO and Chief Financial Officer provided such a letter to the Board. Internal Audit The BBP Boards have overall responsibility for BBP’s systems of internal control, supported by the Audit, Risk & Compliance Committees and BBP management. The BBP Boards are assisted in discharging this responsibility by BBP’s internal audit function which operates under a written charter approved by the Audit, Risk & Compliance Committees. The BBP Boards have outsourced the internal audit function to Ernst & Young who act as the BBP internal auditor. Given BBP’s focus upon the stabilisation of its capital structure, the scope of the internal audit function has presently been reduced so as to focus on specific priority areas identified by management. Accordingly, Ernst & Young is not at the current time providing a full coverage of all matters contemplated in the Internal Audit charter. This approach will be reviewed upon the stabilisation of BBP’s capital structure. The BBP internal auditor reports jointly to the Chairman of the Audit, Risk & Compliance Committees and the Chief Financial Officer. The BBP internal auditor discusses significant issues from Internal Audit Reports at meetings of the Audit, Risk & Compliance Committees and distributes Internal Audit Reports to Committee members and senior management of BBP. During the year, the internal audit programme reviewed a number of BBP’s internal controls with a view to ensuring that they are operating effectively and efficiently in accordance with financial reporting requirements, good operational and governance practices and in compliance with regulations, to assist BBP in achieving business objectives. Audit Governance BBP’s external auditor is PricewaterhouseCoopers who were appointed by securityholders at the 2007 Annual General Meeting in accordance with the provisions of the Corporations Act 2001. The BBP Boards have a policy whereby the responsibilities of the lead audit engagement partner and review audit partner cannot be performed by the same people for a period longer than five consecutive years. The present PricewaterhouseCoopers lead audit engagement partner is Marc Upcroft who assumed the role during 2007. The current audit review partner is Ross Gavin who also assumed the role during 2007. The external auditor receives all Audit, Risk & Compliance Committee papers and attends all meetings. tement

The Committees also periodically meet with the external auditor without management being present. a Committee members are able to contact the external auditor directly at any time. e St

Certification and discussions with the external auditor on independence c n

The Audit, Risk & Compliance Committees require that the external auditor confirm every six months that they a n

have maintained their independence and have complied with applicable independence standards promulgated by r regulators and professional bodies. The Audit, Risk & Compliance Committees annually review the independence of the external auditor and have confirmed this assessment with the BBP Boards. A copy of the external auditor’s certification of independence is set out in the BBP financial reports contained in the 2009 Annual Report. te Gove ra o rp t 2009 – Co r o p l Re a BBP Annu

27 Corporate Governance Statement

Restrictions on non-audit services by the external auditor To avoid possible independence or conflict issues, the external auditor is not permitted to carry out certain types of non-audit services for BBP, including: • bookkeeping or other services relating to the accounting records or financial statements; • appraisal or valuation services; • secondments to management positions; • internal audit of financial controls; • internal control design or implementation; • implementation or design of financial information systems or other information technology systems; • legal or litigation support services; and • strategic or structural tax planning. Further, PricewaterhouseCoopers will not provide unsolicited tax “products” or tax “solutions” for implementation in respect of the BBP corporate group. If any taxation advisory services are to be provided by PricewaterhouseCoopers, those services will generally be limited to providing independent taxation advice regarding transactions proposed by BBP. During the 2009 Financial Year, PricewaterhouseCoopers did not provide a material amount of taxation services in respect of the BBP corporate group. For all other non-audit services, use of the external audit firm must be assessed in accordance with our pre‑approval policy, which requires that all non-audit services be pre-approved by the Audit, Risk & Compliance Committees, or by delegated authority to a sub-committee consisting of one or more members where appropriate. The breakdown of the aggregate fees billed by the external auditor in respect of each of the two most recent financial years for audit, audit-related, tax and other services is provided in the BBP financial reports contained in the 2009 Annual Report A summary of the Audit, Risk & Compliance Committee Charters is available in the Corporate Governance section on BBP’s website at www.bbpower.com.

28 ASX Principle 5: Make Timely and Balanced Disclosure Companies should promote timely and balanced disclosure of all material matters concerning the company.

Continuous Disclosure Policy ASX Recommendation 5.1: Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. BBP is committed to complying with its continuous disclosure obligations pursuant to the Corporations Act and the ASX Listing Rules. BBP’s Continuous Disclosure Policy is designed to ensure that all investors have equal and timely access to material information concerning BBP. BBP has complied at all times with the ASX Listing Rules on continuous disclosure. The Policy is designed to ensure that material price sensitive information arising from any part of BBP is immediately notified to the ASX in a complete, balanced and timely manner, unless it falls within the scope of the limited exemptions contained in Listing Rule 3.1A. A Disclosure Committee comprising the CEO and Managing Director and various other senior executives operates pursuant to the Continuous Disclosure Policy. The members of the Disclosure Committee are accountable and responsible for reviewing information which is or may be material, making disclosures to the ASX and issuing media releases and other written public statements on behalf of BBP. In addition, the BBP Boards are actively and regularly involved in discussing disclosure obligations in respect of all major matters that come before it. The Company Secretary is primarily responsible for communications with the ASX. A summary of the Continuous Disclosure Policy is available in the Corporate Governance section on BBP’s website at www.bbpower.com. Continuous Disclosure Processes The specific processes adopted by BBP in relation to its continuous disclosure responsibilities are as follows: • website: all information released to the ASX is posted on the Investor Information section of BBP’s website as soon as practicable; • authorised spokespersons: communication with the media, share analysts and the market generally in relation to BBP activities will normally be undertaken only by the Chairman, the CEO or any person who is expressly authorised by either the Chairman or the CEO; • media releases: no media release of a material nature is to be issued unless it has first been sent to the ASX; • trading halts: on occasions, it may be necessary for BBP to request a trading halt from the ASX. The Disclosure Committee and/or the Board makes decisions in relation to a trading halt; • close periods: BBP observes a number of “close” periods during the year to protect against the inadvertent

disclosure of price sensitive information. During these close periods, BBP will not make any comment on: tement – analysts’ earnings estimates, other than to acknowledge the range and average estimates in the market; and a

– the financial performance of BBP unless the information has already been released to the market. e St c

the close periods operate in the periods 45 days before the announcement of BBP’s half year and full year n a

results; and n • analyst and investor briefings: BBP recognises the importance of the relationship between BBP, investors and r analysts. From time to time, BBP conducts analyst and investor briefings and in these situations the following protocols apply:

– no price sensitive information will be disclosed at these briefings unless it has been previously, or is te Gove

simultaneously, released to the market; ra – questions at these briefings that relate to price sensitive information not previously disclosed will not o be answered; and rp – if any price sensitive information is inadvertently disclosed, it will immediately be released to the ASX and placed on BBP’s website. t 2009 – Co r o p l Re a BBP Annu

29 Corporate Governance Statement

ASX Principle 6: Respect the Rights of Shareholders Companies should respect the rights of shareholders and facilitate the effective exercise of those rights.

Communications with Shareholders ASX Recommendation 6.1: Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy. Consistent with its Continuous Disclosure Policy, BBP is committed to communicating with its securityholders in an effective and timely manner to provide them with ready access to information relating to BBP. In this regard, BBP maintains a website (www.bbpower.com) which provides access to the following information of interest to BBP securityholders: • detailed information regarding the Board, executive management and the business groups and activities of BBP; • all BBP announcements and media releases, which are posted to the website promptly following release; • copies of full-year and half-year financial reports; • copies or summaries of Board and Committee Charters and relevant corporate governance policies; • copies of BBP’s Annual Reports; • copies of disclosure documents relating to BBP’s capital raisings; and • a link to the website of BBP’s Share Registry, Link Market Services. BBP encourages securityholders to utilise its website as their primary tool to access securityholder information and disclosures. In addition, the Annual Report facilitates the provision to securityholders by BBP on a yearly basis of detailed information in respect of the major achievements, financial results and strategic direction of BBP. BBP has a practice that information to be given by BBP at analyst briefings is first released to the ASX to ensure that the market operates on a fully informed and equal basis. Securityholders are strongly encouraged to attend and participate in general meetings of BBP, especially the Annual General Meeting. BBP provides securityholders with details of any proposed meetings well in advance of the relevant dates. BBP’s external auditor is always requested to attend the Annual General Meeting and be available to answer securityholder questions about the conduct of the audit and the preparation and content of the auditor’s report. This allows securityholders an opportunity to ask questions of the auditor and reinforces the auditor’s accountability to securityholders.

30 ASX Principle 7: Recognise and Manage Risk Companies should establish a sound system of risk oversight and management and internal control.

Risk Management Policy ASX Recommendation 7.1: Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. Management of risk continues to be a primary objective of BBP in all its business activities. BBP is committed to ensuring that its system of risk oversight, management and internal control complies with the ASX Principles and that its culture, processes and structures facilitate the realisation of BBP’s business objectives, including potential opportunities, while managing adverse effects. BBP has established appropriate policies for the oversight and management of the material risks facing the business. The BBP Boards are ultimately responsible for overseeing and managing the material risks of BBP. The Audit, Risk & Compliance Committees assist them in this role. In accordance with their Charters, the role of the Audit, Risk & Compliance Committees include reviewing and managing the system for identifying, managing and monitoring the key risks of BBP, obtaining reports from management on the status of any key risk exposures or incidents and ensuring key controls are in place and are effective. In undertaking these responsibilities, the Committees principally rely on the resources and expertise of BBP management to implement and report upon the risk management systems and procedures implemented, such that the Committees are able to keep the BBP Boards informed of all material business risks. From an energy trading perspective, the BBP Boards have established the Energy Trading & Risk Management Committees for the purpose of overseeing BBP’s physical and financial energy trading, contracting and marketing positions. BBP undertakes regular reviews of its risk management framework and has adopted a Risk Management Policy consistent with Australia/New Zealand Standard 4360, which clearly defines responsibilities for managing risk under BBP’s risk management process. The material risks of BBP’s business, including operational, financial, market and regulatory compliance risks have been identified and are required to be regularly managed, monitored and reported. Methods for treating and mitigating risks include transferring, reducing, accepting or passing on risk following assessment using a variety of methods. A summary of the Risk Management Policy is available in the Corporate Governance section on BBP’s website at www.bbpower.com. The Audit, Risk & Compliance Committees include among their responsibilities: • consideration of the overall risk management framework of BBP and the review of its effectiveness in meeting sound corporate governance principles; • keeping the BBP Boards informed of all significant business risks; • reviewing in conjunction with management the system for identifying, managing and monitoring the key risks of BBP; and • obtaining reports from management on the status of any key risk exposures or incidents.

The Energy Trading & Risk Management Committees include among their responsibilities: tement a • assisting the BBP Boards in fulfilling their oversight responsibilities in relation to energy risk management

by BBP’s Energy Market Operations; e St c

• reviewing, implementing and monitoring compliance with BBP’s energy risk policies and procedures; n a

• reviewing the trading strategies applicable to BBP’s portfolio of merchant assets; n r • reviewing the appropriateness of dealing in new commodities and instruments, and approving the controls (policies, limits and authorisations) and master contract documentation for dealing in such new commodities and instruments; • approving credit terms and conditions for Industrial & Commercial customer electricity and gas sale agreements; te Gove ra

• approving credit terms and conditions of ISDA and gas master contract documentation, and energy and o energy-related long-form contract documentation; and rp • approving counterparties that deal with BBP in commodities and instruments, and the terms of dealing with those counterparties (e.g. creditworthiness, use of collateral, etc.). One of the cornerstones of BBP’s risk management approach is a well defined system of delegated authorities with respect to the commitment of capital and an investment/divestment approval process which brings rigour to the t 2009 – Co

selection, assessment and approval of the risks assumed under BBP’s principal investment activities. Matters such r as legal, accounting, tax and general risk assessment issues are considered in each case. In addition to requiring a o p recommendation from management for all investment/divestment decisions, management’s most senior executives

are involved in all major decisions, and all capital investments/divestments above specified thresholds require l Re approval of the BBP Boards. a BBP Annu

31 Corporate Governance Statement

ASX Recommendation 7.2: The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. BBP’s Risk function plays a key role in developing and building an approach to assist BBP and its Boards in identifying, monitoring and treating risk and in reporting material risks to the Audit, Risk & Compliance Committees (and to the Energy Trading & Risk Management Committees in respect of trading related risks). Under the direction of BBP’s Risk Managers, BBP has continued to enhance its risk management framework which articulates the standards and responsibilities for risk management across and at all levels of the BBP business. The standards include the requirement for all business units, projects, regions and assets to report risks quarterly as an input to the BBP Risk Manager’s consolidated quarterly reporting to the Audit, Risk & Compliance Committees, and to maintain risk registers and risk treatment plans for all identified “top risks”. BBP’s Compliance Function promotes a compliance conscious culture while ensuring BBP complies with regulatory requirements across its businesses, functions and group entities. To facilitate monitoring and evaluation of the effectiveness of internal controls, BBP has established accounting policies, reporting, risk management and compliance systems to keep the Audit, Risk & Compliance Committees informed of strategic, reputational, financial and operational risks facing the BBP corporate group. Quarterly management reporting confirms that appropriate internal controls are in place and that the BBP Risk Management Policy and other key guidelines and procedures are being observed. This reporting process is designed to provide assurance to the BBP Boards and the relevant Committees that BBP’s material business risks are being managed effectively. BBP’s internal audit function, operating under a written charter from the Audit, Risk & Compliance Committees, provides independent reporting to the Audit, Risk & Compliance Committees with respect to the management of risk and also provides comment on the effectiveness of the design and operation of controls across the BBP corporate group. ASX Recommendation 7.3: The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. In accordance with Recommendation 7.3, the CEO and Chief Financial Officer have stated to the BBP Boards in writing that the section 295A declaration is founded on a sound system of risk management and internal compliance and control, and that the system was operating efficiently and effectively in all material respects in relation to financial risks during the period to 30 June 2009.

32 ASX Principle 8: Remunerate Fairly and Responsibly Companies should ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear.

Remuneration Policy The remuneration policies of BBP have been structured to be competitive in the industry and to ensure that BBP can attract and retain the talent needed to achieve both short and long-term success, while maintaining a strong focus on team work, individual performance and the interests of securityholders. The policies and principles which are applied to determine the nature and amount of remuneration paid to BBP’s key management personnel are set out in the Remuneration Report. During the 2009 Financial Year, total remuneration of BBP’s key management personnel was delivered through a combination of base salary and, in the short-term for some executives, a scheme involving the payment of retention incentives which took into account the immediate priorities facing BBP’s business. In respect of future Financial Years, an annual STI performance bonus opportunity will be available to qualifying staff assuming that appropriate performance gateways (i.e. at the group, business unit and individual levels) are satisfied. BBP has currently deferred the implementation of any new LTI arrangements until such time as BBP’s business operations stabilise. BBP continually reviews its remuneration philosophy and framework to ensure alignment of those interests with those of BBP securityholders. Remuneration Committee ASX Recommendation 8.1: The Board should establish a remuneration committee As noted above in relation to ASX Recommendation 2.4, in order to assist the BBP Boards in achieving fairness and transparency in relation to remuneration issues and overseeing BBP’s remuneration and human resources policies and practices, the BBPL Board has established a Nomination & Remuneration Committee. The Nomination & Remuneration Committee has adopted a Charter which is available in the Corporate Governance section on BBP’s website at www.bbpower.com. The responsibilities of the Committee pursuant to the Charter in relation to remuneration include: • making recommendations to the Boards for determining the level of remuneration to be applied to Independent Directors. The Committee may engage external advisors to provide information to the Boards to be considered in their deliberations for the purpose of recommending an appropriate level of remuneration for Independent Directors. All fees paid to Independent Directors are disclosed in BBP’s annual financial statements to the extent required by law; • approving the Remuneration Report; • reviewing the key performance indicators for each of BBP’s key management personnel and providing feedback about their respective performance against such key performance indicators; • reviewing and making recommendations to the Boards regarding the remuneration of BBP’s key management

personnel; and tement a • considering for approval the formulation of any long-term incentive plans involving the issue of

BBP Stapled Securities. e St c

The Nomination & Remuneration Committee is comprised of all three Independent Directors of the BBPL Board. n a n r te Gove ra o rp t 2009 – Co r o p l Re a BBP Annu

33 Corporate Governance Statement

Non-Executive Director and Executive Remuneration ASX Recommendation 8.2: Companies should clearly distinguish the structure of Non-Executive Directors’ remuneration from that of executives The total remuneration paid to the Independent Non-Executive Directors to 30 June 2009 is set out in the Remuneration Report. Independent Non-Executive Directors are paid an annual fee according to which Boards and Committees they sit on. Non-Executive Directors’ fees for BBP are determined within a Non-Executive Directors’ aggregate fee pool limit which has been approved by securityholders. The maximum aggregate sum for BBP has been set at $750,000 annually. The remuneration received by the CEO and Managing Director is not subject to the aggregate fee pool limit as contemplated in the BBPL Constitution. Non-Executive Directors are not provided with retirement benefits other than statutory superannuation and did not receive options or other equity incentives, or bonus payments. BBP aims to recruit, retain and reward the best available employees to meet the organisation’s objectives. The Board and executive management recognise that BBP operates in a competitive environment and that retaining the talents and experience of motivated, suitably qualified specialists is in the best interests of the business and its various stakeholders. Accordingly, the Board’s approach to executive remuneration is to align remuneration with the interests of its stakeholders. During the 2009 Financial Year, BBP faced a number of significant challenges which required a departure from its business as usual remuneration policies. Accordingly, executive remuneration comprised a fixed component (i.e. base salary and superannuation) and for some executives a scheme involving the payment of a retention incentive which took into account the immediate priorities and challenges facing the business. Going forward, BBP will design and implement a tailored STI plan which will reflect the short to medium-term challenges that need to be addressed by BBP. The STI plan will of course be “at risk” and the payment of benefits is discretionary. • Base Salary An executive’s base salary is determined according to his or her level of responsibility, importance to the business and market competitiveness. Base salaries are fixed payments and are reviewed on an annual basis. • Superannuation BBP executives receive employer contributions equal to 9% of the superannuation maximum contribution base. • Retention During the 2009 Financial Year, a retention payment was made to a number of BBP executives. The criteria applied in determining whether an executive should receive such a payment included the criticality of their role in BBP’s recapitalisation or sale processes, the criticality of their role in the operational performance of the business and/or the extent to which they possess substantial intellectual property or know-how. • STI Going forward, STI will be an annual risk component of remuneration for the CEO and other BBP executives, and which will be paid in cash. Executives earn STI based on the achievements of the overall BBP Group, the particular business unit with which they are affiliated and their personal performance. The payment of STI will recognise individual high performance. An STI pool will be approved by the Nomination & Remuneration Committee, and the CEO will then distribute the pool among business units and individuals based on their contribution to BBP’s financial and non-financial performance.

34 FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009

36 Directors’ report 48 auditor’s independence declaration 49 Income statements 50 Balance sheets 52 Statements of recognised income and expense 53 Statements of cash flow 54 notes to the financial statements 119 Directors’ declaration 120 Independent auditor’s report to the members of Babcock & Brown Power Limited 122 additional Information 123 Investor Information S TEMENT A T L S CIA N A N t 2009 – FI r o p l Re a BBP Annu

35 Directors’ Report

The Directors of Babcock & Brown Power Limited (BBPL or the Company) and its consolidated entities (BBP or the Group) present their Directors’ report together with the consolidated financial statements for the year ended 30 June 2009. The Company together with Babcock & Brown Power Trust form Babcock & Brown Power, a stapled security traded on the Australian Securities Exchange. Directors The following persons were Directors of BBPL at any time during the year, up to the date of this Directors’ report.

Mr L F Gill (Chairman) – from 1 July 2008 appointed 29 October 2006 Mr J Fletcher appointed 29 October 2006 Mr P M Kinsey appointed 29 October 2006 Mr R K Rolfe (Managing Director & Chief Executive Officer) appointed 8 December 2008 Mr J Bowyer appointed 3 September 2008, resigned 8 December 2008 Mr W D Murphy resigned 3 September 2008 Mr P F Hofbauer resigned 3 September 2008 Mr M Garland (Alternate for Mr W D Murphy) role ceased 3 September 2008 Mr G W Denton (Alternate for Mr P F Hofbauer) role ceased 3 September 2008

Particulars of the qualifications, experience and special responsibilities of the Directors at the date of this report are set out below: Mr L F Gill – Independent Non-Executive Director – Chairman from 1 July 2008 Leonard (Len) Gill has extensive knowledge and over 30 years’ experience in the Australian energy industry. He is the former Chief Executive Officer of TXU Australia (now TRUenergy). Prior to his appointment as CEO of TXU, Len headed the wholesale energy division for five years, which included general management responsibility for power generation and gas storage assets. Len is also a former Non-Executive Director of Verve Energy. Len holds a Bachelor of Engineering (Hons) degree and is a Member of the Australian Institute of Company Directors. Mr J Fletcher – Independent Non-Executive Director John Fletcher is currently a Director of APA Group and Sydney Water Corporation. His recent experience includes board positions with Foodland Associated Limited, Integral Energy and NGC Limited of New Zealand. He held a number of executive roles at The Australian Gas Light Company including that of CFO and has extensive experience of the energy industry. John has a Bachelor of Science and a Master of Business Administration. He is a Fellow of the Australian Institute of Company Directors. Mr P M Kinsey – Independent Non-Executive Director Peter Kinsey is the Regional Legal & Compliance Manager South Asia for the global ABB Limited Group and a Director of ABB Australia Pty Limited and ABB Limited (New Zealand). Peter has been a corporate lawyer for over 26 years in a number of major corporations. Peter has been involved in the negotiation of various types of commercial contracts including power projects and transportation projects in a number of countries, including Australia, New Zealand, the United States, Sweden, Japan, China, Thailand, Indonesia, Malaysia and India. Peter gives seminars on compliance and business ethics throughout Asia for ABB. Prior to joining ABB, Peter was General Counsel at David’s Holdings Pty Ltd and prior to that Corporate Legal Manager of Alliance Holdings Ltd. Peter holds a Bachelor of Law, Graduate Diploma in Financial Management and a Master of Commerce. Mr R Rolfe – Managing Director & Chief Executive Officer Ross Rolfe is the Chief Executive Officer of BBP. Ross was appointed to this position in October 2008, having worked as the acting Chief Executive Officer since August 2008. Prior to his role with BBP, Ross worked as a senior executive with Babcock & Brown from July 2007. His role with Babcock & Brown was of a strategic nature with a primary focus on infrastructure (predominantly in energy and transport). Previously, Ross held a range of Chief Executive Officer positions in the Queensland Government and in industry in Queensland over the last decade. He was the Director General of the Department of the Premier and Cabinet. He was also the Co-ordinator General in Queensland – a position he held for six years. In this role Ross was responsible for the delivery of the South Queensland Regional Infrastructure Plan and the design and the implementation of the Water Grid. Ross has also held the position of Chief Executive Officer for Stanwell Corporation (one of Queensland’s largest energy generation companies) for the period from January 2002 to July 2005. Ross is also a member of the Board of Infrastructure Australia, a member of the National Board of Infrastructure 36 Partnerships Australia and a non-executive Director of WDS Limited, Evans & Peck Pty Ltd and the Thiess Group. Company Secretary The Company Secretary of BBPL during the year and up to the date of this Directors’ report was Mr John Remedios. John joined Babcock & Brown Power in November 2006 and is principally responsible for the company secretarial function and corporate governance requirements of Babcock & Brown Power. Prior to joining Babcock & Brown Power, John was a Senior Legal Counsel for AMP Capital Investors and held various company secretarial positions including Company Secretary of AMP Life Limited and Assistant Company Secretary of AMP Limited. John holds Bachelor of Economics and Bachelor of Law (Hons) degrees from the University of Sydney and is a Member of the Law Society of New South Wales. Principal activities The principal activity of BBP is the acquisition, construction, ownership and management of power generation assets, energy retail and related assets and activities. Distributions As previously announced on 21 October 2008, the Board of Directors of BBP have suspended distributions until it has adequately strengthened its capital structure. Accordingly no distribution for the year ended 30 June 2009 will be paid. In the prior year a distribution of 13 cents was paid in March 2008. Review of operations Information on the operations and financial position of the BBP Group is set out in the review of operations attached and forming a part of this annual financial report. Significant changes to the state of affairs During the year ended 30 June 2009 there was no other significant changes to the state of the affairs of the Group other than those disclosed in the financial statements and notes thereof. Going Concern BBP has several business critical issues that it is facing over the near term. These include the restructuring and or settlement of financing arrangements within the Group and the management of the impact of the North West Shelf Joint Venture (NWS) gas supply arbitration. The Directors acknowledge that there is significant uncertainty over the ability of BBP to continue as a going concern until these issues are formally resolved. With an understanding of status of the restructuring negotiations and BBP’s expectations on the resolution of the NWS price dispute, the Directors are of the opinion that the accounts are correctly prepared on the basis that the Group is a going concern, If for any reason BBP was unable to successfully resolve its current negotiations on any of the above issues within the range of BBP’s expectations, BBP may not be able to realise its assets in the ordinary course of business. Throughout the course of the second half of the financial year, BBP has been constructively engaged with its two major finance providers to restructure their loan agreements. BBP has made substantial progress in the commercial negotiations in relation to the restructuring of the debt owed to the Babcock & Brown Group (“B&B”) and a syndicate of banks that have lent to a subsidiary, BBP Finance Australia Pty Limited (“the BBPF Syndicate”). As at 30 June 2009, BBP’s outstanding borrowing obligation with B&B was $399 million (excluding deferred borrowing costs). B&B is seeking approval of its banking group to enter into transaction documents to implement the restructure. Details of the restructure will be released once the parties have legally committed to the terms. t

The Directors expect that the restructure of the B&B debt will require a security holder vote. The Directors r o

expect to be able to seek security holder approval at the AGM on 30 November 2009, subject to the timely p receipt of approval from B&B. In the event that a binding agreement is not reached, the loans are due March 2010. B&B currently has a right to accelerate the loans. Were B&B to call for the acceleration of its loans this ’ Re would allow the Babcock & Brown Power Trust (BBPT) to call its loans and may precipitate the acceleration of rs the BBPF Syndicate debt. to c e The BBPF Syndicate Facility outstanding as at 30 June 2009 was $2,541 million. The BBPF Syndicate is seeking ir credit approval to restructure the debt. Details of this restructure will be announced to the market when approval is received and it would be expected that the restructure would be executed by 31 October 2009. Until the Facility is restructured, the BBPF Syndicate has the effective right to accelerate the debt. The acceleration of the BBPF loan may precipitate the acceleration of the B&B and BBPT debts. t 2009 – D

Based on discussions with the parties, the Directors reasonably believe that the necessary consents to enter into r o legally binding agreements to implement all restructures will be received in October and a security holder vote is p expected to be held in respect of the B&B restructure, as soon as possible thereafter. Accordingly the Directors l Re

do not expect any of B&B, BBPF Syndicate or BBPT to call for the acceleration of their respective loans. a BBP Annu

37 Directors’ Report

BBP’s balance sheet as at 30 June 2009 presents a negative net current asset position of $2,956 million as a result of BBP not being in a position to unilaterally defer settlement of its major loan facilities (including the interest rate swap liabilities associated with the BBPF Facility) for a period of twelve months beyond 30 June 2009. If BBP had been in a position to extend the repayment of these obligations beyond 30 June 2010, it would have had positive current net assets of $84 million. 30 June 2009 30 June 2009 Statutory balance sheet Refinance assumption Net asset position ($m) ($m)

Current net asset position (2,956) 84 Net asset position 951 951

BBP has been in arbitration with the NWS in respect to the contract price for the supply of a material volume of gas for its Alinta business. The formal arbitration hearing was concluded in September 2009. The Arbitrator is not expected to hand down his determination until late October 2009 at the earliest. BBP has made an accounting provision for the outcome that it reasonably expects from the overall resolution of the NWS price dispute. Further BBP expects to be able to meet its obligations that might result from the dispute on the basis of the restructure of its financial arrangements as well as commercial discussions with both the NWS joint venture partners and BBP’s commercial customers. A determination that is significantly outside of BBP’s expectations may have a material impact on the Alinta business and at that time could result in a reassessment of the value of the Alinta business and the going concern assumptions. The Directors regularly monitor and review the debt facilities, debt profile, business operations and forecast cash flows which take into account the assumptions including but not limited to the forward pricing of electricity, future gas tariffs, fuel supply costs, and maintenance capital expenditure and the issues raised above. The Directors acknowledge that until legally binding agreements with its lenders are in place and the NWS price dispute is finally resolved there is risk that BBP’s expectations may not be achieved and therefore there is significant uncertainty over the ability of the BBP Group to continue as a going concern. If for any reason, BBP was unable to operate as a going concern, there would be an associated impact on its ability to realise its assets at their recognised values, in particular, goodwill and other intangible assets and deferred tax assets. Having reviewed the various factors facing the Group, the Directors are of the opinion that the BBP Group is a going concern and that the information in this financial report is properly prepared on that basis. Matters subsequent to end of the financial year Acquisition of minority interests in Neighbourhood Energy On 3 July 2007 BBP acquired 65% of Neighbourhood Energy Pty Ltd and had a contractual commitment to acquire the remaining equity under certain terms. On 14 August 2009, BBP agreed to revised terms for the acquisition of the remaining 35% equity interest in Neighbourhood Energy Pty Ltd from the minority shareholders which would take its effective ownership interest to 100%. The remaining equity will be acquired for consideration of $2.95 million and the transaction is expected to be completed by 31 December 2009. Refinance of BBP Subsequent to the 30 June 2009 balance date, the 11 members of the BBPF Syndicate and B&B are in the process of seeking internal approval to implement the restructuring resulting from the commercial negotiations, which in the case of B&B involves the consent of its financiers. As previously announced BBP had expected to have entered into legal agreements to implement the transactions prior to 30 September 2009, but now expects this will not occur until late October, at which time details of binding agreements will be announced to the market. It is expected that resolution with B&B will require a security holder vote. Future developments Further information on likely developments in the operations of the Group and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the Group.

38 Remuneration report (audited) Executive and Director Remuneration Report for the year to 30 June 2009 This report outlines the remuneration philosophy and framework currently applicable to BBP, in particular how this relates to BBP’s senior executives and Directors outlined below. During the year, BBP took a number of steps to formally separate itself from its management arrangements with Babcock & Brown Limited (B&B). This included the transfer of the employment arrangements of BBP’s key executives from B&B to BBP, with effect from 1 January 2009. Accordingly, this remuneration report includes amounts paid by B&B to Directors and executives for the period 1 July to 31 December 2008. There have also have been a number of changes to the executive management of BBP during this period including the positions of Chief Executive Officer and Chief Financial Officer. The information in this remuneration report has been audited in accordance with the requirements of section 308(3C) of the Corporations Act 2001. Remuneration Policy & Approach BBP aims to recruit, retain and reward the best available employees to meet the organisation’s objectives. The Board and executive recognise that BBP operates in a competitive environment and that retaining the talents and experience of motivated, suitably qualified specialists is in the best interests of the business and its various stakeholders. BBP has a formally constituted Nomination & Remuneration Committee (the Committee) which is comprised by BBP’s three independent directors and chaired by Mr Peter Kinsey. The Committee is charged with responsibility for considering the composition of the BBP Board and succession planning, as well as reviewing and making recommendations to the BBP Board on the level of remuneration and performance of the Directors and senior executives within the organisation. The Committee met six times during the 2009 year. The 2009 year has been particularly challenging for BBP and has required a significant focus on stabilising the financial structure of the business through various initiatives. In these circumstances the BBP Board’s approach to executive remuneration has been to provide a balance of fixed remuneration and retention focussed short-term incentives. In determining the 2009 remuneration mix, the Board utilised the services of external remuneration consultants who benchmarked the remuneration of senior executives against their peers within ASX 200 entities. During the financial year 2009, BBP has transitioned the employment contracts of its Key Management Personnel (KMP) from calendar year to financial year in line with BBP reporting obligations. BBP Executives The executives outlined in the report are considered to be the KMP of the BBP organisation. KMPs are those members of the senior management team with authority and responsibility for planning, directing and controlling the activities of the BBP group. The following persons were considered to be KMP for the year to 30 June 2009: Executive Management Mr Ross Rolfe Chief Executive Officer (appointed 29 August 2008) Mr Peter Brook Chief Financial Officer (appointed 7 October 2008)

Mr Brian Green Chief Operating Officer t r o

Mr Andrew Kremor General Manager, Energy Markets (resigned – effective 31 August 2009) p Mr Victor Browner General Manager (Acting to April 2009) – Alinta ’ Re

Mr Andrew Bills General Manager, Commercial rs to

Mr Zeki Akbas General Manager, Alinta (appointed 28 May 2009) c e

Mr Paul Simshauser Chief Executive Officer – (resigned 29 August 2008) ir Mr James Brown Chief Financial Officer – (resigned 29 August 2008) t 2009 – D r o p l Re a BBP Annu

39 Directors’ Report

Remuneration of the Executives for the 2009 Financial Year Details of the nature and amount of each element of the emoluments of each executive of BBP for the years ended 30 June 2009 and 2008 are set out in the table below. Other Post- long-term Short-term Employment termination employee Share-based employee benefits benefits benefits benefits payments Short-term Short-term incentive incentive Total of Long (relating (relating Non- short-term Service Salary to current Retention to prior monetary employee Super- Severance Leave Equity Cash (cash) period) incentive years) benefits2 benefits annuation payments Liability settled3 settled4 Total Executives Year $ $ $ $ $ $ $ $ $ $ $ $ Mr Ross Rolfe1, 2,5,6 2009 727,499 – 220,000 233,0005 – 1,180,499 13,744 – 29,263 (57,705) – 1,165,801 2008 – – – – – – – – – – – – Mr Peter Brook1, 2,6 2009 345,688 – 180,000 – – 525,688 10,309 – 8,164 – – 544,161 2008 – – – – – – – – – – – – Mr Brian Green1, 2 2009 430,000 – 143,000 – – 573,000 13,744 – 22,347 (44,660) (3,629) 560,802 2008 294,900 350,000 – – – 644,900 13,129 – 4,915 189,449 2,420 854,813 Mr Andrew Kremor 2009 430,938 – 100,000 – – 530,938 13,744 – 18,037 (27,149) (2,411) 533,159 2008 360,000 232,700 – – – 592,700 13,129 – 6,000 30,820 1,607 644,256 Mr Andrew Bills1,6 2009 413,750 – 143,000 260,000 – 816,750 15,821 – 18,604 – – 851,175 2008 – – – – – – – – – – – – Mr Victor Browner1,2,6 2009 269,725 – 160,961 65,688 – 496,374 45,176 – 38,600 – – 580,150 2008 – – – – – – – – – – – – Mr Tom Richardson7 2009 – – – – – – – – – – – – 2008 334,255 150,000 – – – 484,255 13,745 – – – – 498,000 Mr Paul Simshauser2 2009 165,308 – – – – 165,308 6,872 15,138 (151,192) (13,183) 22,943 2008 365,000 412,475 – – – 777,475 13,129 – 6,083 622,455 8,788 1,427,930 Mr James Brown2 2009 137,500 – – – – 137,500 6,872 391,477 – (57,598) (2,928) 475,323 2008 294,900 350,000 – – – 644,900 13,129 – 4,915 168,592 1,952 833,488 Total remuneration 2009 2,920,408 – 946,961 558,688 – 4,426,057 126,282 406,615 135,015 (338,304) (22,151) 4,733,514 for Executives 2008 1,649,055 1,495,175 – – – 3,144,230 66,261 – 21,913 1,011,316 14,767 4,258,487

1 these are the five executives who received the highest emoluments in the 2009 financial year. 2 a number of executives receive salary continuance insurance under a BBP group policy. The insurance premium paid by BBP in respect of that policy relating to the period 28 February 2009 to 27 February 2010 was $91,738 and has not been apportioned to individual executives. 3 Current year losses as a result of executives forfeiting benefits previously available under B&B sponsored equity settled share-based payment schemes, including Share Awards, B&B Bonus Deferral Rights (BDRs) and performance-based Option schemes. Benefits were forfeited as a result of the cessation of employment relationships with Babcock & Brown Limited during the year. 4 Current year losses as a result of relevant executives forfeiting benefits previously available under B&B sponsored cash settled share-based payment BDRs. Benefits were forfeited as a result of the cessation of employment relationships with Babcock & Brown Limited during the year. 5 mr Rolfe was paid a short-term incentive amount of $700,000 by BBP in respect of the calendar year 2008. Mr Rolfe had been entitled to this amount under his former contractual employment relationship with B&B. Of the $700,000 paid, $233,000 related to services Mr Rolfe provided to BBP. The balance while paid by BBP related to Mr Rolfe’s services provided to other B&B activities. The full $700,000 was netted off against manager fees and other amounts payable to B&B by BBP. 6 these executives do not have prior period remuneration disclosed because they were either not employed in the service of BBP or they were not considered KMP’s in the previous year. 7 mr Richardson was not considered to be a KMP in the 2009 financial year.

40 Remuneration of the Executives for the 2009 Financial Year Details of the nature and amount of each element of the emoluments of each executive of BBP for the years ended 30 June 2009 and 2008 are set out in the table below. Other Post- long-term Short-term Employment termination employee Share-based employee benefits benefits benefits benefits payments Short-term Short-term incentive incentive Total of Long (relating (relating Non- short-term Service Salary to current Retention to prior monetary employee Super- Severance Leave Equity Cash (cash) period) incentive years) benefits2 benefits annuation payments Liability settled3 settled4 Total Executives Year $ $ $ $ $ $ $ $ $ $ $ $ Mr Ross Rolfe1, 2,5,6 2009 727,499 – 220,000 233,0005 – 1,180,499 13,744 – 29,263 (57,705) – 1,165,801 2008 – – – – – – – – – – – – Mr Peter Brook1, 2,6 2009 345,688 – 180,000 – – 525,688 10,309 – 8,164 – – 544,161 2008 – – – – – – – – – – – – Mr Brian Green1, 2 2009 430,000 – 143,000 – – 573,000 13,744 – 22,347 (44,660) (3,629) 560,802 2008 294,900 350,000 – – – 644,900 13,129 – 4,915 189,449 2,420 854,813 Mr Andrew Kremor 2009 430,938 – 100,000 – – 530,938 13,744 – 18,037 (27,149) (2,411) 533,159 2008 360,000 232,700 – – – 592,700 13,129 – 6,000 30,820 1,607 644,256 Mr Andrew Bills1,6 2009 413,750 – 143,000 260,000 – 816,750 15,821 – 18,604 – – 851,175 2008 – – – – – – – – – – – – Mr Victor Browner1,2,6 2009 269,725 – 160,961 65,688 – 496,374 45,176 – 38,600 – – 580,150 2008 – – – – – – – – – – – – Mr Tom Richardson7 2009 – – – – – – – – – – – – 2008 334,255 150,000 – – – 484,255 13,745 – – – – 498,000 Mr Paul Simshauser2 2009 165,308 – – – – 165,308 6,872 15,138 (151,192) (13,183) 22,943 2008 365,000 412,475 – – – 777,475 13,129 – 6,083 622,455 8,788 1,427,930 Mr James Brown2 2009 137,500 – – – – 137,500 6,872 391,477 – (57,598) (2,928) 475,323 2008 294,900 350,000 – – – 644,900 13,129 – 4,915 168,592 1,952 833,488 Total remuneration 2009 2,920,408 – 946,961 558,688 – 4,426,057 126,282 406,615 135,015 (338,304) (22,151) 4,733,514 for Executives 2008 1,649,055 1,495,175 – – – 3,144,230 66,261 – 21,913 1,011,316 14,767 4,258,487

1 these are the five executives who received the highest emoluments in the 2009 financial year. 2 a number of executives receive salary continuance insurance under a BBP group policy. The insurance premium paid by BBP in respect of that policy relating to the period 28 February 2009 to 27 February 2010 was $91,738 and has not been apportioned to individual executives. 3 Current year losses as a result of executives forfeiting benefits previously available under B&B sponsored equity settled share-based payment schemes, including Share Awards, B&B Bonus Deferral Rights (BDRs) and performance-based Option schemes. Benefits were forfeited as a result of the cessation of employment relationships with Babcock & Brown Limited during the year. 4 Current year losses as a result of relevant executives forfeiting benefits previously available under B&B sponsored cash settled share-based payment BDRs. Benefits were forfeited as a result of the cessation of employment relationships with Babcock & Brown Limited during the year. 5 mr Rolfe was paid a short-term incentive amount of $700,000 by BBP in respect of the calendar year 2008. Mr Rolfe had been entitled to this amount under his former contractual employment relationship with B&B. Of the $700,000 paid, $233,000 related to services Mr Rolfe provided to BBP. t The balance while paid by BBP related to Mr Rolfe’s services provided to other B&B activities. The full $700,000 was netted off against manager fees r o

and other amounts payable to B&B by BBP. p 6 these executives do not have prior period remuneration disclosed because they were either not employed in the service of BBP or they were not

considered KMP’s in the previous year. ’ Re 7 mr Richardson was not considered to be a KMP in the 2009 financial year. rs to c e ir t 2009 – D r o p l Re a BBP Annu

41 Directors’ Report

Remuneration report (audited) (Continued) Executive Employment Contracts The base salaries for executives as at 30 June 2009, in accordance with their employment contract, are shown below: Executives Base Remuneration per Service Agreement ($)

Mr Ross Rolfe 800,000 Mr Peter Brook 470,000 Mr Brian Green 430,000 Mr Andrew Kremor 430,000 Mr Andrew Bills 470,000 Mr Victor Browner 269,725

The employment contract of Mr Ross Rolfe, contains the conditions below:

Length of contract • open-ended Frequency of base • annual remuneration review Incentive remuneration • eligible for a Maximum Annual Short-Term Incentive up to 60% of base salary and a long-term incentive up to 40% of base salary to be delivered in cash, securities or equivalent benefits as determined by the Board in its sole discretion. • Subject to performance, eligible for a payment of up to 50% of the Maximum Annual STI, to be paid on the first pay period on or after 30 September 2009. Termination of employment • may be terminated by BBP with twelve months written notice or by Mr Rolfe providing 6 months written notice.

The employment contract of Mr Peter Brook contains the conditions below:

Length of contract • open-ended Frequency of base • annual remuneration review Incentive remuneration • eligible to receive a Maximum Annual Short-Term Incentive, up to 60% of base salary, and a long-term incentive up to 40% of base salary to be delivered in cash, securities or equivalent benefits as determined by the Board in its sole discretion. Termination of employment • may be terminated by BBP with nine months written notice or by Mr Brook providing 3 months written notice.

The employment contract of Mr Brian Green contains the conditions below:

Length of contract • open-ended Frequency of base • annual remuneration review Incentive remuneration • eligible to receive a Maximum Annual Short-Term Incentive, up to 65% of base salary, and a long-term incentive up to 40% of base salary to be delivered in cash, securities or equivalent benefits as determined by the Board in its sole discretion. Termination of employment • may be terminated by BBP with six months written notice or by Mr Green providing 6 months written notice.

The employment contract of Mr Andrew Kremor contains the conditions below:

Length of contract • open-ended Frequency of base • annual remuneration review Incentive remuneration • eligible to receive a Maximum Annual Short-Term Incentive, up to 55% of base salary, and a long-term incentive up to 40% of base salary to be delivered in cash, securities or equivalent benefits as determined by the Board in its sole discretion. Termination of employment • may be terminated by BBP with six months written notice or by Mr Kremor providing 3 months written notice. • Note: Mr Kremor has resigned from the employment of BBP. His arrangements 42 ended on 31 August 2009. The employment contract of Mr Andrew Bills contains the conditions below:

Length of contract • open-ended Frequency of base • annual remuneration review Incentive remuneration • entitled to receive a Maximum Annual Short-Term Incentive, up to 60% of his base salary, and a long-term incentive up to 35% of his base salary to be delivered in cash, securities or equivalent benefits as determined by the Board in its sole discretion. Termination of employment • may be terminated by BBP with six months written notice or by Mr Bills providing 3 months written notice.

The employment contract of Mr Victor Browner contains the conditions below:

Length of contract • open-ended Frequency of base • annual remuneration review Incentive remuneration • entitled to receive a Maximum Annual Short-Term Incentive, up to 45% of his total fixed remuneration package and a long-term incentive up to 50% of his remuneration package as determined by the Board in its sole discretion. Termination of employment • may be terminated by BBP with six months’ written notice or by Mr Browner providing 1 month’s written notice.

Forfeiture of Babcock & Brown Incentive Arrangements Mr Paul Simshauser and Mr James Brown left the employment of B&B and resigned their positions with BBP on 29 August 2008. Continuing BBP executives transferred their employment arrangements from B&B to BBP on 1 January 2009. Under their former employment arrangements with B&B, executives had the potential to benefit from a number of incentive schemes that were to be equity or cash settled, the details of which were fully disclosed in BBP’s 2008 annual report. Access to these benefits was forfeited as a result of the termination of the executive employment arrangements with B&B during the year. Negative remuneration presented under the share-based payment column of the remuneration table above represent reversals of prior period amortisation in respect of the unvested B&B Bonus Deferral Rights scheme, Options over B&B Shares scheme and the Fund Bonus Deferral Rights scheme, which will now not be paid. The following table presents the equity settled entitlements forfeited by BBP executives as a result of the termination of their employment arrangements with B&B:

B&B Bonus Deferral Rights Options over B&B shares TOTAL Equity Settled Value Value Value O opening Closing forfeited opening Closing forfeited forfeited balance Forfeited balance ($) balance Forfeited balance ($) ($) t

Mr Ross Rolfe 6,469 (6,469) – 25,268 27,055 (27,055) – 32,437 57,705 r o Mr Brian Green 2,668 (2,668) – 10,421 28,558 (28,558) – 34,239 44,660 p

Mr Andrew Kremor 1,772 (1,772) – 6,921 16,871 (16,871) – 20,228 27,149 ’ Re rs Mr Paul Simshauser 9,691 (9,691) – 37,853 75,107 (75,107) – 113,339 151,192 to c

Mr James Brown 2,152 (2,152) – 8,406 34,555 (34,555) – 49,192 57,598 e ir The following table presents the cash settled entitlements that were to be cash settled, forfeited by BBP executives as a result of the termination of their employment arrangements with B&B:

BBP Bonus Deferral Rights Cash Settled t 2009 – D r

Closing Value forfeited o

O opening balance Forfeited balance ($) p

Mr Brian Green 18,903 (18,903) – 3,629 l Re a Mr Andrew Kremor 12,557 (12,557) – 2,411 Mr Paul Simshauser 68,660 (68,660) – 13,183 Mr James Brown 15,249 (15,249) – 2,928 BBP Annu

43 Directors’ Report

Remuneration report (audited) (Continued) The following table presents the Share Awards entitlements of BBP executives as at 30 June 2009. Share Awards under this scheme vested in April 2008 and were fully expensed by B&B in the 2008 year. As a result of Babcock & Brown Limited entering into voluntary administration on 13 March 2009, the remaining entitlements have no value. Granted Lapsed Fair value of shares O opening during during Closing 30 June 2009 balance the year the year balance ($)

Mr Ross Rolfe 15,094 – 7,547 7,547 – Mr Brian Green 12,452 – 6,226 6,226 – Mr Andrew Kremor 992 – 496 496 – Mr Paul Simshauser 40,354 – 20,177 20,177 – Mr James Brown 10,044 – 5,022 5,022 –

Directors The following persons were Directors of BBP during the financial year: Directors Mr L F Gill Independent Chairman from 1 July 2008, and Independent Non-Executive Director Mr R K Rolfe Chief Executive Officer from 29 August 2008 & Managing Director from 8 December 2008 Mr J Fletcher Independent Non-Executive Director Mr P M Kinsey Independent Non-Executive Director Mr W D Murphy Non-Executive Director – resigned 3 September 2008 Mr P F Hofbauer Non-Executive Director – resigned 3 September 2008 Mr M Garland Alternate Director to Mr W D Murphy – resigned 3 September 2008 Mr G W Denton Alternate Director to Mr P F Hofbauer – resigned 3 September 2008 Mr J Bowyer Non-Executive Director – from 3 September 2008 to 8 December 2008

Remuneration Policy and Structure Non-Executive Directors’ individual fees, including committee fees, are reviewed by the Nomination & Remuneration Committee and then made the subject of a recommendation to the BBP Board for approval. Fees paid to the Non-Executive Directors must fall within the aggregate fee pool approved by BBP security holders. The current maximum aggregate amount which may be paid to all Non-Executive Directors is $750,000 per annum. The Independent Directors receive a cash fee for service. They do not receive any performance-based remuneration or any retirement benefits, other than receiving statutory superannuation. Fees paid to the Directors are in respect of their services provided to BBPL and Babcock and Brown Power Services Limited (BBPS), the Responsible Entity of Babcock & Brown Power Trust. It is noted that each of the Independent Directors of BBP initiated and accepted a voluntary reduction to their Director’s fees during FY 2009. Fees payable to Independent Directors during the year ended 30 June 2009 are set out below: Board/Committee Role Fee

Board Independent Chair $218,000 M member $124,000 Audit & Risk Management Committee Chair $13,000 M member $6,500 Nomination & Remuneration Committee Chair $4,000 M member $2,000

44 Directors’ Meetings The number of meetings of Directors (including meetings of committees of Directors) held during the year ended 30 June 2009, and the number of meetings attended by each Director, are as follows:

Audit, Risk Energy & Compliance nomination trading & Risk Committee & Remuneration management BBPL BBPS Meetings Committee Committee additional Board Board for BBPL Meetings Meetings Committee Board or Committee meetings Meetings and BBPS for BBPL for BBPL1 Meetings2 Held/Attended H a H a H a H a H a H a

Len Gill 52 52 52 52 3 3 6 5 4 4 6 6 John Fletcher 52 52 52 52 7 7 6 6 – – 6 6 Peter Kinsey 52 51 – – 7 7 6 6 – – 1 1 Ross Rolfe 37 37 37 37 – – – – 4 0 2 2 John Bowyer 8 7 8 7 1 0 – – – – – – Peter Hofbauer 7 6 7 6 – – 3 2 – – – – Warren Murphy 7 7 7 7 3 3 3 3 – – – –

Columns H – indicates the number of meetings held while the relevant Director was a member of the Board/Committee Columns A – indicates the number of those meetings attended by that Director 1 the Energy Trading & Risk Management Committee is a committee comprising both members of the Board and of BBP senior management. Directors do not receive any additional remuneration for their attendance and participation in this Committee. 2 additional Committees of the Board were constituted during the year in relation to the financial results or were separate meetings of the Independent Directors. Remuneration of Non-Executive Directors for the years ended 30 June 2009 and 2008 Details of the nature and amount of each element of the emoluments of each Non-Executive Director of BBP for the years ended 30 June 2009 and 2008 are set out in the table below.

Short-term post-employment employee benefits benefits Year Fees Superannuation Total

Independent Non-Executive Directors Mr L F Gill (Chairman) – from 1 July 2008 2009 224,534 13,745 238,279 2008 127,001 11,430 138,431 Mr J A Fletcher 2009 138,833 12,495 151,328 2008 140,000 12,600 152,600 Mr P M Kinsey 2009 134,371 12,093 146,464 2008 145,500 13,095 158,595 t

Non-Executive Directors r o Mr P F Hofbauer* 2009 – – – p

2008 127,000 N/A 127,000 ’ Re Mr W D Murphy* 2009 – – – rs to c

2008 133,500 – 133,500 e

Total remuneration for Non-Executive Directors 2009 497,738 38,333 536,071 ir 2008 673,001 37,125 710,126

* In the 2008 financial year, Mr Hofbauer and Mr Murphy were allocated notional remuneration amounts for their services as Directors of BBP. BBP did

not directly pay these amounts to these Directors as it was included in the management fee BBP paid to Babcock & Brown in that year. Both Directors t 2009 – D

resigned from BBP on 3 September 2008. Accordingly, no amount has been recorded as remuneration for these Directors in the 2009 financial r

year. BBP did not pay any remuneration directly to Mr John Bowyer (who as an employee of Babcock & Brown served as a Director of BBP between o 3 September 2008 and 8 December 2008) and accordingly, no remuneration has been disclosed for Mr Bowyer. p l Re a BBP Annu

45 Directors’ Report

Indemnification of officers and auditors BBP has agreed to indemnify each Director, alternate and officer on a full indemnity basis against all losses and liabilities incurred in their role as a Director, alternate or officer (including for legal costs incurred in preparing for, conducting or defending legal actions). This indemnity is subject to certain exclusions, including to the extent that such indemnity is prohibited by the Corporations Act 2001 or any other law, or to the extent that the loss or liability is covered by insurance. BBP has not been advised of any claims under any of the abovementioned indemnities. The terms of engagement of BBP’s external auditor includes an indemnity in favour of the external auditor. This indemnity is in accordance with PricewaterhouseCoopers’ standard Terms of Business and is conditional upon PricewaterhouseCoopers acting as external auditor. BBP has not otherwise indemnified or agreed to indemnify the external auditors of BBP at any time during the financial year. During the financial year, BBP has paid insurance premiums for a Directors’ and Officers’ liability insurance contract that provides cover for current and former directors, secretaries and executives officers of BBP, its controlled entities and BBPS. The Directors have not included details of the nature or limit of the liabilities covered in this Directors’ and Officers’ liability insurance contract or the amount of the premium paid, as disclosure is prohibited under the terms of the contract. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. Auditor’s independence declaration The auditor’s independence declaration is included on page 48 and forms a part of the Directors’ report. Environmental regulation BBP is subject to environmental regulations under both Commonwealth and State legislation including the reporting requirements of both the Energy Efficiency Opportunities Act 2006 and the National Greenhouse and Energy Reporting Act 2007. The Directors are satisfied that BBP has adequate systems in place for the management of its environmental responsibilities and compliance under its various licence requirements and regulations. The Directors are not aware of any material breaches of these environmental requirements as they apply to BBP and to the best of their knowledge and enquiries all activities have been undertaken in compliance with environmental regulations. Carbon Pollution Reduction Scheme During the year there have been a number of developments in the Federal Governments proposed Carbon Pollution Reduction Scheme (CPRS). In December 2008 the Government released its White Paper in respect of the scheme and draft legislation on 10 March 2009. On 4 May 2009 the Government announced its intention to: • move the commencement date for the scheme out one year to 1 July 2011; • introduce a fixed price for carbon permits for the first year of the scheme; and • achieve a 5% target reduction in emissions on 2000 levels by 2020, increasing to 25% reductions dependent on reduction targets adopted by other countries. On 25 June 2009, the Senate deferred its vote on the Government’s legislation until August 2009. On 13 August 2009, the Senate voted down the Government’s legislation. Legislation is not expected to re-enter the parliament until either later 2009 or early 2010. It is reasonably anticipated that amendments may be made to the legislation which was presented to the Senate in August 2009. The Government conducted a series of consultations with industry during the year to which BBP was a contributor. BBP has a formal management committee and project team for assessing the impact of the CPRS and readying our business operations for its implementation. Under the proposed Carbon Pollution Reduction Scheme (CPRS), BBP will need to acquire carbon permits for its generators, the cost of which will be proportionately higher for its coal-fired plants. BBP may not be able to pass through the full cost of all carbon permits to its customers which is likely to have a significant impact on its coal‑fired generators. This would require a reassessment of the useful economic life of those plants which has the potential to result in valuation impairments in respect of those assets.

46 BBP’s portfolio of assets includes both gas and coal-fired generators in various markets and regions. With the proposed CPRS having failed to pass both houses of the Federal Parliament, uncertainty remains as to the final nature and timing of the planned CPRS. As a result the overall impact on BBP, (taking into account mitigating actions) could not be confidently determined at this point in time. Accordingly, for the purpose of the annual financial report BBP has excluded from its valuation assessments the impacts of the introduction of a CPRS. Once there is sufficient certainty regarding the final arrangements under the CPRS, BBP will reflect its impacts in its valuations. This may result in impairment to certain BBP assets. Rounding off of amounts The Company is of a kind referred to in Class Order 98/100, issued by the Australian Securities & Investments Commission, relating to the “rounding off” of amounts in the Directors’ Report and Financial Report. Amounts in the Directors’ Report and the Financial Report are rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors.

Mr L F Gill Director Dated at Sydney this the 30th day of September 2009. t r o p ’ Re rs to c e ir t 2009 – D r o p l Re a BBP Annu

47 Auditor’s Independence Declaration

PricewaterhouseCooperPricewaterhouseCooperss ABN52780 433757ABN 52 780 433 757

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Auditors’ Independence Declaration As lead auditor for the audit of Babcock and Brown Power Limited for the year ended 30 June 2009, 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 Babcock and Brown Power Limited and the entities it controlled during the period.

Marc Upcroft Sydney Partner 30 September 2009 PricewaterhouseCoopers

Liability limited by a scheme approved under Professional Standards Legislation 48 Income statements for the year ended 30 June 2009

Consolidated Company 2009 2008 2009 2008 Note $’000 $’000 $’000 $’000

Revenue 3 1,534,177 1,527,420 727 1,135 Other income 3 148,681 – – – Gain on disposal of businesses 30 94,117 – – – Financing income 3 28,873 34,035 133,349 392,631 Total income 1,805,848 1,561,455 134,076 393,766 Operating expenses 3 (1,355,328) (1,171,270) (13,055) (9,749) Depreciation and amortisation expense 3 (176,613) (152,855) – – Finance costs 3 (385,522) (236,410) (878,323) (23,724) Debt forgiveness 3 – – (124,715) – Share of profits of associates accounted for using the equity method 9 (559) 5,915 – – Management charges 3 (5,134) (21,732) (4,287) (17,210) Fair value (loss)/gain on derivatives 3 (68,905) 75,386 – – Incentive Fee 3 – 23,400 – 23,400 Transition costs 3 (617) (15,919) 450 – Impairment loss 3 (56,700) (452,000) (791,000) – Total expense from ordinary activities (2,049,378) (1,945,485) (1,810,930) (27,283) Profit/(loss) before income tax (243,530) (384,030) (1,676,854) 366,483 Income tax benefit/(expense) 4 74,597 (42,485) (56,225) 61,355 Profit/(loss) for the year (168,933) (426,515) (1,733,079) 427,838

Profit/(loss) attributable to stapled security holders as: Equity holders of the Company – BBPL (166,926) (427,401) (1,733,079) 427,838 Equity holders of the Trust – BBPT (Minority interest) (755) 1,424 – – 22 (167,681) (425,977) (1,733,079) 427,838 Subsidiary company minority interests (1,252) (538) – –

(168,933) (426,515) (1,733,079) 427,838 s

Cents Cents tement a Earnings per share of the parent based on earnings attributable to l St

the equity holders of the parent cia n

Basic earnings per share 23 (23.09) (65.08) a n Diluted earnings per share 23 (23.09) (65.08) i

The above income statements should be read in conjunction with the accompanying notes included in pages 54 to 118. t 2009 – F r o p l Re a BBP Annu

49 Balance Sheets As at 30 june 2009

Consolidated Company 2009 2008 2009 2008 Note $’000 $’000 $’000 $’000

Current assets Cash and cash equivalents 25 185,316 290,571 13,124 13,939 Trade and other receivables 5 227,103 340,783 23,346 191,407 Derivative financial instruments 10 18,439 26,244 – – Inventories 6 38,724 35,958 – – Other assets 7 34,125 71,752 381 180 503,707 765,308 36,851 205,526 Non-current assets classified as held for sale 8 – 590,455 – – Total current assets 503,707 1,355,763 36,851 205,526 Non-current assets Cash and cash equivalents 25 54,499 139,357 – – Trade and other receivables 5 86,925 126,321 152,347 1,689,092 Investments accounted for using the equity method 9 46,550 49,025 – – Investments in subsidiaries 28 – – 667,004 667,004 Derivative financial instruments 10 99,996 323,292 – – Property, plant and equipment 11 2,144,808 2,531,415 – – Intangibles 12 1,998,000 2,331,444 – – Deferred tax assets 4 340,322 271,556 42,350 141,814 Other assets 7 22,424 21,731 – – Total non-current assets 4,793,524 5,794,141 861,701 2,497,910 Total assets 5,297,231 7,149,904 898,552 2,703,436 Current liabilities Trade and other payables 13 252,755 373,440 38,967 29,769 Current tax payables 4 (366) 12,486 – – Derivative financial instruments 18 127,887 12,612 333 – Borrowings 16 2,956,270 592,276 397,610 229,169 Employee benefits 15 22,947 20,720 – – Provisions 14 100,361 57,495 – 450 3,459,854 1,069,029 436,910 259,388 Borrowings directly associated with non-current assets held for sale 8 – 533,987 – – Total current liabilities 3,459,854 1,603,016 436,910 259,388 Non-current liabilities Borrowings 16 271,502 3,268,562 1,032,990 1,212,193 Deferred tax liabilities 4 324,328 446,222 26,341 95,465 Derivative financial instruments 18 8,950 10,642 – 1,000 Other payables 13 10,165 – – – Employee benefits 15 47,896 14,859 – – Provisions 14 223,703 411,350 – – Total non-current liabilities 886,544 4,151,635 1,059,331 1,308,658 Total liabilities 4,346,398 5,754,651 1,496,241 1,568,046 Net assets 950,833 1,395,253 (597,689) 1,135,390

50 The above balance sheets should be read in conjunction with the accompanying notes included in pages 54 to 118. Balance Sheets As at 30 June 2009

Consolidated Company 2009 2008 2009 2008 Note $’000 $’000 $’000 $’000

Equity holders of the Company – BBPL Contributed equity 20 656,218 656,218 656,218 656,218 Reserves 21 (123,586) 67,887 – – Retained profits/(accumulated losses) 22 (698,921) (503,572) (1,253,907) 479,172 (166,289) 220,533 (597,689) 1,135,390

Equity holders of the Trust – BBPT (Minority interest) Contributed equity 20 1,115,713 1,115,713 Retained profits/(accumulated losses) 22 4,046 4,800 1,119,759 1,120,513 Total equity holding of Stapled Security holders – BBP 953,470 1,341,046 Subsidiary company minority interests (2,637) 54,207 Total equity 950,833 1,395,253

The above balance sheets should be read in conjunction with the accompanying notes included in pages 54 to 118.

s tement a t l s cia n a n t 2009 – fi r o p l Re a BBP Annu

51 statements of Recognised Income and Expense for the year ended 30 june 2009

Consolidated Company 2009 2008 2009 2008 Note $’000 $’000 $’000 $’000

Movement in foreign currency translation reserve 21 2,085 (2,800) – – Changes in the fair value of cash flow hedges, net of tax 21 (194,200) 43,085 – – Actuarial (loss)/gains on retirement benefit obligations, net of tax 22 (24,345) 2,048 – – Prior period adjustments 22 (4,078) – – – Net income recognised directly in equity (220,538) 42,333 – – Profit/(loss) for the period (168,933) (426,515) (1,733,079) 427,838 Total recognised income and expense for the year (389,471) (384,182) (1,733,079) 427,838 Total recognised income and expense for the year is attributable to: Equity holders of the Company – BBPL (387,464) (385,068) (1,733,079) 427,838 Equity holders of the Trust – BBPT (Minority interest) (755) 1,424 – – Sub-total (388,219) (383,644) (1,733,079) 427,838 Equity holders of the subsidiary company minority interests (1,252) (538) – – Total (389,471) (384,182) (1,733,079) 427,838

The above statements of recognised income and expense should be read in conjunction with the accompanying notes included in pages 54 to 118.

52 statements of Cash Flows for the year ended 30 june 2009

Consolidated Company 2009 2008 2009 2008 Note $’000 $’000 $’000 $’000

Cash flows from operating activities Receipts from customers (inclusive of GST) 1,621,285 1,823,908 6,099 3,310 Payments to suppliers and employees (inclusive of GST) (1,398,080) (1,462,114) (21,461) (33,169) Interest received 27,853 30,617 891 15,970 Interest and other costs of finance paid (including interest paid to minority interests) (236,961) (213,001) (4,092) (7,912) Dividends received 2,583 3,088 – – Income/withholding tax paid (9,007) (10,950) 21 (21) Net cash (outflow) inflow from operating activities 25 7,673 171,548 (18,542) (21,822) Cash flows from investing activities Payment for property, plant and equipment (236,360) (537,837) – (100) Proceeds from sale of property, plant and equipment – 17 – – Payment for purchase of subsidiaries (net of cash acquired from subsidiaries, inclusive of GST on transaction costs) 30 – (1,932,663) – (32,022) Proceeds from sale of subsidiaries (net of cash and cash equivalents disposed of) 355,872 – – – Loan repaid by related party – 10,814 – – Net cash outflow from investing activities 119,512 (2,459,669) – (32,122) Cash flows from financing activities Distributions paid to security holders – (142,513) – – Distribution reinvestment – 30,300 – 30,030 Proceeds from issue of securities (net of transaction costs paid) – 54,057 – 24,455 s Proceeds from borrowings 339,581 5,455,832 132,751 593,880

Repayment of borrowings (637,415) (2,980,176) (246,573) (638,470) tement a Loans from/repaid by related party 112 – 131,549 – t Loan establishment costs (19,302) (41,031) – – l s cia

Net cash inflow from financing activities (317,024) 2,376,469 17,727 9,895 n a

Net increase in cash and cash equivalents (189,839) 88,348 (815) (44,049) n Cash and cash equivalents at the beginning of the year 429,928 341,580 13,939 57,988 Effect of exchange rate changes t 2009 – fi

on cash and cash equivalents (274) – – – r o

Cash and cash equivalents p at the end of the year 25 239,815 429,928 13,124 13,939 l Re a The above statements of cash flows should be read in conjunction with the accompanying notes included in pages 54 to 118. BBP Annu

53 notes to the financial statements for the year ended 30 june 2009

Content Page 1. Summary of accounting policies 55 2. new accounting standards and interpretations 67 3. profit/(loss) from operations 69 4. Income tax expense 71 5. trade and other receivables 78 6. Inventories 78 7. other assets 78 8. non-current assets held for sale 79 9. Investments accounted for using the equity method 79 10. Derivative financial assets 81 11. property, plant and equipment 82 12. Intangibles 83 13. trade and other payables 85 14. provisions 86 15. employee benefits 88 16. Borrowings 91 17. assets pledged as security 93 18. Derivative financial instruments – liabilities 93 19. Borrowing costs 94 20. Contributed equity 94 21. reserves 95 22. retained earnings 96 23. earnings per security 96 24. Distributions 96 25. notes to the cash flow statements 97 26. Commitments for expenditure 98 27. Leases 99 28. Subsidiaries 100 29. Segment information 102 30. Changes in the composition of the consolidated Group 105 31. related parties disclosures 107 32. Financial risk management 111 33. material interests in entities which are not controlled entities 117 34. remuneration of auditors 117 35. net assets per security 118 36. Contingent assets and liabilities 118 37. Subsequent events 118 38. additional information 118

54 1. Summary of accounting policies The principal accounting policies adopted in the presentation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, including Australian Interpretations and the Corporations Act 2001. The report has been prepared on a going concern basis. The financial statements were approved by the Board of Directors on 30 September 2009. Going Concern The financial information presented in the annual financial report of BBP and Babcock & Brown Power Limited (BBPL) has been prepared on the basis that the BBP Group and BBPL are a going concern. BBP has several business critical issues that it is facing over the near term. These include the restructuring and/ or settlement of financing arrangements within the Group and the management of the impact of the North West Shelf Joint Venture (NWS) gas supply arbitration. The Directors acknowledge that there is significant uncertainty over the ability of BBP to continue as a going concern until these issues are finally resolved. With an understanding of status of the restructuring negotiations and BBP’s expectations on the resolution of the NWS price dispute, the Directors are of the opinion that the accounts are correctly prepared on the basis that the Group is a going concern, If for any reason BBP was unable to successfully resolve its current negotiations on any of the above issues within the range of BBP’s expectations, BBP may not be able to realise its assets in the ordinary course of business. Throughout the course of the second half of the financial year, BBP has been constructively engaged with its two major finance providers to restructure their loan agreements. BBP has made substantial progress in the commercial negotiations in relation to the restructuring of the debt owed to the Babcock & Brown Group (“B&B”) and a syndicate of banks that have lent to a subsidiary, BBP Finance Australia Pty Limited (“the BBPF Syndicate”). Further details of the finance arrangements are included at Note 16. As at 30 June 2009, BBP’s outstanding borrowing obligation with B&B was $398,700,000 (excluding deferred borrowing costs). B&B is seeking approval of its banking group to enter into transaction documents to implement the restructure. Details of the restructure will be released once the parties have legally committed to the terms. The Directors expect that the resolution of the B&B debt will require a security holder vote. The Directors expect to be able to seek security holder approval at the AGM on 30 November 2009, subject to timely receipt of approval from B&B. In the event that a binding agreement is not reached, the loans are due March 2010. B&B currently has a right to accelerate the loan. Were B&B to call for the acceleration of its loans this would allow the Babcock & Brown Power Trust (BBPT) to call its loans and may precipitate the acceleration of the BBPF Syndicate debt. s BBP has made substantial progress in commercial negotiations in relation to the restructuring of the facility. The BBPF Syndicate Facility outstanding as at 30 June 2009 was $2,541,000,000. The 11 members of the BBPF tement

Syndicate are seeking credit approval to restructure the debt. Details of this restructure will be announced to the a market when approval is received and it would be expected that the restructure would be executed by 31 October t 2009. Until the facility is reset, the BBPF Syndicate has had the effective right to accelerate the debt since 1 August l s

2009. The acceleration of the BBPF loan may precipitate the acceleration of the B&B and BBPT debts. cia n

Based on discussions with the parties, the Directors reasonably believe that the necessary consents to enter into a legally binding agreements to implement all restructures will be received in October and a security holder vote is n expected to be held in respect of the B&B restructure, as soon as possible thereafter. Accordingly the Directors do not expect any of B&B, BBPF Syndicate or BBPT to call for the acceleration of their respective loans. Nevertheless, as BBP does not have a unilateral right to defer settlement of the B&B and BBPF Syndicate loans beyond the

12 month period to 30 June 2010, the obligations have been classified as current liabilities. BBP has also classified thes to fi as current liabilities, long-term interest rate swap liabilities associated with the BBPF Syndicate debt. The BBP balance sheet presents a net current liability to current asset deficiency of $2,956,147,000 as at 30 June 2009. The current asset deficiency is a result of classifying BBP’s two primary external borrowing obligations as current liabilities as at 30 June 2009. The borrowing obligations would be re classified as non-current liabilities if the restructures being negotiated are implemented. t 2009 – note

BBP has been in arbitration with the NWS in respect to the contract price for the supply of a material volume of r o

gas for its Alinta business. The formal arbitration hearing was concluded in September 2009. The Arbitrator is not p expected to hand down his determination until late October 2009 at the earliest. BBP has made an accounting

provision for the outcome that it reasonably expects from the overall resolution of the NWS price dispute. Further l Re BBP expects to be able to meet its obligations that might result from the dispute on the basis of the restructure a of its financial arrangements as well as commercial discussions with both the NWS joint venture partners and BBP’s commercial customers. A determination that is significantly outside of BBP’s expectations may have a material impact on the Alinta business and at that time could result in a reassessment of the value of the Alinta business and the going concern assumptions. BBP Annu

55 notes to the financial statements for the year ended 30 june 2009

1. Summary of accounting policies (continued) (a) Basis of preparation (Continued) The Directors regularly monitor and review the debt facilities, debt profile, the business operations and forecast cash flows which take into account the assumptions including but not limited to the forward pricing of electricity, future gas tariffs, fuel supply costs and maintenance capital expenditure and the issues raised above. As the financial report has been prepared on a going concern basis, no adjustments have been made relating to the recoverability and classification of the asset carrying amounts or the amounts and classification of liabilities that might be necessary should BBP not continue as a going concern. Compliance with IFRS The financial report of Babcock and Brown Power Limited complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Stapled security The shares of Babcock & Brown Power Limited (BBPL or the Company) and the units in Babcock & Brown Power Trust (BBPT or the Trust) are combined and issued as Stapled Securities in the Babcock & Brown Power Group (BBP or the Group). The shares in the Company and the units of the Trust cannot be traded separately and can only be traded as Stapled Securities. The shares in the Company and the units of the Trust will remain stapled commencing from 9 November 2006 until the earlier of the Company ceasing to exist or being wound up, or the Trust being dissolved in accordance with the provisions of the Trust Constitution. This financial report consists of the consolidated financial statements of Babcock & Brown Power Limited and its controlled entities and the Babcock & Brown Power Trust. Consolidated accounts Australian Accounting Standards Board (“AASB”) Interpretation 1002 Post-Date-of-Transition Stapling Arrangements requires one of the stapled entities of an existing stapled structure to be identified as the parent entity for the purpose of preparing consolidated financial reports. In accordance with this requirement, Babcock & Brown Power Limited has been identified as the parent entity of the consolidated Group comprising Babcock & Brown Power Limited and its controlled entities and Babcock & Brown Power Trust. In accordance with AASB Interpretation 1002, consolidated financial statements have been prepared by Babcock & Brown Power Limited as the identified parent of the consolidated Group. As a consequence of the stapling arrangement involving no acquisition consideration and no ownership interest being acquired by the combining entities, no goodwill is recognised in relation to the stapling arrangement and the interests of the unit holders in the Trust are treated as minority interests. Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available for sale financial assets and financial assets and liabilities (including derivative instruments) at fair value through the income statement. Critical accounting estimates and judgements The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It requires management to exercise its judgement in the process of applying accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Certain areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements include estimates in respect of recognition of deferred tax assets (Note 4), impairment testing of goodwill (Note 12), valuation of defined benefit obligations (Note 15), valuation of restoration provisions (Note 14), valuation of electricity derivatives (Note 10 and 18), valuation of provision for onerous contract losses (Note 14) and the present value of loans (the Company Note 31). In the case of BBPL’s inter-company loans receivable from, and investment in, Babcock & Brown Power Holdings Pty Ltd (BBPH) which has a combined carrying amount of $841.9 million, significant judgement has been applied in order to derive a value for its recoverability which included an impairment charge of $791 million based on various assumptions about the available equity within the BBPH Group. The assumptions used in calculating the above estimates are disclosed in the relevant accounting policies and notes to the financial statements. The actual results may differ from these estimates.

56 (b) Principles of consolidation Subsidiaries The consolidated financial statements are those of the consolidated entity, comprising Babcock & Brown Power Limited (the “Company” or “parent entity”) including all subsidiaries that Babcock & Brown Power Limited controlled from time to time during the period and at the reporting date and Babcock & Brown Power Trust. Babcock & Brown Power Limited, its subsidiaries and Babcock & Brown Power Trust together are referred to in this financial report as the Group or consolidated entity. Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Where an entity either began or ceased to be controlled during the financial period, the results are included only from the date control commenced or up to the date control ceased. All inter-company balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The financial statements of subsidiaries are prepared for the same reporting period as the parent, using consistent accounting policies. Minority interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheet respectively. Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting. The Group’s investment in associates includes goodwill (net of any impairment loss) identified on acquisition. The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the consolidated financial statements by reducing the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the investment. s Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to tement a ensure consistency with the policies adopted by the Group. t BBP applies a policy of treating transactions with minority interests as transactions with external parties to l s the Group. cia n

(c) Business combinations a n The purchase method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. Costs are measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is the published market price at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the thes to fi date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transactions costs arising on the issue of equity instruments are recognised directly in equity. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the acquisition date, irrespective of the extent of any minority interest. The t 2009 – note excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired r o is recorded as goodwill. If the cost of acquisition is less than the Group’s share of the fair value of the identifiable p net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired. l Re a (d) Segment reporting A business segment is identified for a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is identified when products or services are provided within a particular economic environment subject BBP Annu to risks and returns that are different from those of segments operating in other economic environments. 57 notes to the financial statements for the year ended 30 june 2009

1. Summary of accounting policies (continued) (e) Foreign currency translation Functional and presentation currency The consolidated financial statements are presented in Australian dollars, which is the Group’s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except where deferred in equity as qualifying cash flow hedges. Group companies The results and financial position of all Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentational currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date on that balance sheet; • income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • all resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the income statement, as part of the gain or loss on sale where applicable. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate. (f) Rounding The Company is of a kind referred to in Class order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in 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, the nearest dollar. (g) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held at call with financial institutions, and other short-term highly liquid investments with original maturities of three months or less that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, net of any bank overdrafts. Cash assets are stated at nominal values. Bank overdrafts are shown within Borrowings in the Current Liabilities on the Balance Sheet and are carried at nominal values. Interest on bank overdrafts is recognised as an expense as it occurs. Cash that is reserved and its use specifically restricted for maintenance and/or debt servicing under the Group’s borrowing agreements is defined as restricted cash. Restricted cash is shown in the balance sheet according to the timing of its release. Accordingly cash that cannot be applied or used within the next 12 months is shown as a Non-Current Asset. All other cash and cash equivalents are shown as Current Assets. (h) Trade receivables All trade debtors are recognised initially at fair value, less any subsequent provision for doubtful debts. Collectability of trade debtors is reviewed on an ongoing basis. Debts, which are known to be uncollectable, are written off. A provision for doubtful debts (allowance account) is established when sufficient reasonable doubt exists as to collection of all outstanding amounts. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows from short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the provision is recognised in the income statement within other expenses. When a trade receivable for which a provision has been recognised becomes uncollectable in a subsequent period, it is written off. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement.

58 (i) Inventories Inventories are valued at the lower of cost and net realisable value. Where inventory is sold in the ordinary course of business net realisable value is the estimated selling price, less the estimated cost of completion and selling expenses. Cost is measured in the following manner depending on the nature of inventory: (i) Coal from production Coal stocks which are produced are valued using unit cost of production and include direct material, labour, transportation costs and other fixed and variable overhead costs directly related to production. (ii) Purchased fuel Purchased fuel is valued at cost using the First In First Out (FIFO). (iii) Inventory – gas Take or pay prepaid gas is stated at the lower of cost and net realisable value. Cost comprises payments made under contract for quantities of gas which have been received. Costs are accounted for on a FIFO basis. Amounts paid for gas which have not been received at balance date are accounted for as prepayments. Prepaid gas is included in “Other assets”. (iv) Stores All other inventory, including stores are valued on weighted average cost basis. (j) Investments and other financial instruments The Group classifies its investments in the following categories: derivatives, loans and receivables, and available- for-sale financial assets. Investments in subsidiaries are classified separately and are held at cost. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date. (i) Derivatives Derivatives are initially recognised at fair value on the date the derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in the income statement immediately unless the derivative is designated as a hedging instrument. In this case the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The consolidated entity designates certain derivatives as hedges of highly probable forecast transactions (cash flow hedges). Derivatives which are in a hedging relationship are classified as current if the maturity of the contract is within 12 months, or non-current where the contract maturity is greater than 12 months. (ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted s in an active market. They arise when the Company provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater

than 12 months after the balance sheet date, which are classified as non-current assets. Loans and receivables tement a are carried at amortised cost using the effective interest method. t

(iii) Available for sale financial assets l s Available for sale financial assets, comprising principally marketable equity securities, are non-derivatives that are cia either designated in this category or not classified in any of the other categories. They are included in non-current n a

assets unless management intends to dispose of the investment within 12 months of the balance sheet date. n Recognition and de-recognition Regular purchases and sales of financial assets are recognised on the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial

assets not carried at fair value through profit or loss. thes to fi Financial assets are de-recognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Subsequent measurement Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. t 2009 – note r

Available-for-sale financial assets are subsequently carried at fair value. Changes in the fair value of securities o classified as available-for-sale are recognised in equity in the available for sale investments revaluation reserve. p

Fair value l Re If the market for a financial asset or an unlisted security is not active, the Group establishes fair value by using a valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs. BBP Annu

59 notes to the financial statements for the year ended 30 june 2009

1. Summary of accounting policies (continued) (j) Investments and other financial instruments (continued) Impairment The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant and prolonged decline in the fair value of a security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments classified as available for sale are not reversed through the income statement. If there is any evidence of impairment of any of the Group’s financial assets carried at amortised cost, the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The cash flows are discounted at the financial asset’s original effective interest rate. The loss is recognised in the income statement. (k) Hedge Accounting The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within other income or other expense. Amounts deferred in equity are recycled in the income statement in revenue in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial cost or carrying amount of the asset or liability. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is immediately transferred to the income statement. As at 30 June 2009, hedge accounting in relation to BBP’s external debt obligations ceased in accordance with the policy outlined above. For further details refer to Note 21 in this financial report. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement. Embedded derivatives Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not measured at fair value with changes in fair value recognised in the income statement. (l) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the entity is the current bid price. The appropriate quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Group uses a variety of methods, such as estimated discounted cash flows, and makes assumptions that are based on the market conditions existing at each balance date. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.

60 The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the entity for similar financial instruments. (m) Property, plant and equipment Property, plant and equipment are initially measured at historical cost less depreciation. Land and buildings are shown at historical cost, less depreciation for buildings. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All repairs and maintenance expenses are charged to the income statement during the financial period in which they are incurred. Land is not depreciated. Depreciation on non-land assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows: Asset type Depreciation term Asset class

Buildings 25–40 years Land & buildings Leasehold improvements remaining lease term Land & buildings Power generation plant 20–40 years Plant & equipment Railway infrastructure Remaining lease term (15 years) plant & equipment Plant, tools and equipment 5–20 years Plant & equipment Vehicles 3–10 years Plant & equipment Other mine assets 5–20 years Plant & equipment IT equipment 3–5 years Plant & equipment Furniture & fittings 5 years Furniture, fittings and equipment

The carrying value of Power Generation plant includes any capital work in progress. The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount s is greater than its estimated recoverable amount (Note 1(v)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. tement a t (n) Assets under construction Costs incurred in relation to assets under construction are deferred to future periods. Deferred costs are l s

transferred to plant and equipment from the time the asset is held ready for use on a commercial basis. cia n

Deferred costs are amortised from the commencement of the project to which they relate on a straight-line basis a n over the period of the expected benefit. (o) Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries thes to fi is included in intangible assets. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised but reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill is allocated to each of the cash generating units expected to benefit from

the Group’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit t 2009 – note r

to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying o amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit and part of the p operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the l Re

carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed a of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained. BBP Annu

61 notes to the financial statements for the year ended 30 june 2009

1. Summary of accounting policies (continued) (o) Intangible assets (continued) Licences Licences have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of trademarks and licences over their estimated useful lives. Depending on the individual trademark or licence, the estimated useful life ranges between 3 and 40 years. Trademarks Trademarks have an indefinite useful life, are carried at cost and will be subject to an annual impairment review. Development costs Costs incurred in relation to the development of a project, excluding the cost of construction, have been capitalised as development costs. Development costs are amortised over the period relevant to when the economic benefits arising from those expenditures are realised. Development costs may include legal fees, insurance costs, independent engineer costs, financing fees, environmental impact study fees and pre-commissioning operating costs. Development costs are initially recognised in intangibles and transferred to Property Plant & Equipment (PPE) once economic benefits commence being realised. Customer contracts Customer contracts acquired as part of a business combination are recognised separately from goodwill. The customer contracts are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated under the straight line method over their estimated useful lives, which currently vary from 4.5 to 6 years. Customer relationships Customer relationships acquired as part of a business combination are recognised separately from goodwill. Customer relationships are recorded at cost less accumulated amortisation and impairment losses. Amortisation is calculated under the straight line method over their estimated useful lives, which vary from 9.2 years for churn customers to 20 years for non-churn customers. Other Other intangibles include computer software and Gas Electricity Certificates (‘GECs’). Computer software is either purchased or developed within the organisation and is recorded at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight line method over the estimated useful lives. Depending on the individual software, the estimated useful life ranges between 1 and 20 years. A Gas Electricity Certificate (a ‘GEC’) is a certificate created by accredited generators for each whole MWh of eligible gas-fired electricity. GECs are a mechanism for providing an incentive to the power stations to generate electricity using eligible fuels (non fossil fuels). The accredited parties can trade GECs to other registered scheme participants (retailers). GECs are recognised when the generation and entitlement has occurred. They are measured at fair value. (p) Leased assets Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Operating leases (i) BBPL and its controlled entities as lessee The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight line basis over the term of the lease. Lease incentives received are recognised in the income statements as part of the total lease expense. (ii) BBPL and its controlled entities as lessor The minimum lease payments of operating leases are recognised as income on a straight line basis over the term of the lease. Where long-term power supply agreements are treated as operating leases and BBP is the lessor, income is recognised on a straight line basis over the term of the supply agreement. Finance leases (i) BBPL and its controlled entities as lessor Investment in direct finance leases consists of lease receivables, plus the estimated residual value of the equipment at the lease termination dates and initial direct costs incurred in acquiring the leases, less unearned income. Lease receivables represent the total rent to be received over the term of the lease reduced by rent already collected. Initial unearned income is the amount by which the original sum of the lease receivable and the estimated residual value exceeds the original cost of the leased equipment. Unearned income is amortised to lease income over the lease term in a manner that produces a constant rate of return on the net investment in the lease.

62 (q) Non-current assets held for sale and discontinued operations Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction than through continuing use. They are measured at the lower of their carrying amount and fair value less costs to sell. Except for assets such as deferred tax assets, assets arising from employee benefits, financial assets, investment property and non-current biological assets that are carried at fair value and contractual rights under insurance contracts, which are specifically exempt from this requirement. An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of de-recognition. Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised. Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet. A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the income statement. (r) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to end of financial period, which are unpaid. The amounts are unsecured and are usually paid within 60 days of recognition. (s) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest rate. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished s or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or other expenses.

(t) Provisions tement a Provisions are recognised when the consolidated entity has a present legal or constructive obligation as a result t of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount l s has been reliably estimated. Provisions are not recognised for future operating losses. cia n

The amount recognised as a provision is the best estimate of the consideration required to settle the present a obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a n provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. The discount rate reflects current market assessments of the time value of money and the risks specific to the liability. The increase in provision due to the passage of time is recognised

as interest expense. thes to fi When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably. Restoration/Rehabilitation and environmental expenditure The estimated cost of dismantling and removing an asset and restoring the site are included in the cost of the asset t 2009 – note as at the date the contractual or environmental obligation first arises and to the extent that it is first recognised as r o a provision. p The cost is capitalised where it gives rise to future benefits, whether rehabilitation is expected to occur over the life l Re of the plant or at the time of closure. The capitalised cost is amortised over the life of the plant and the increase in a the net present value of the provision, due to one less time period of discounting, is included in borrowing costs. The provision is reviewed at each balance sheet date and the liability is measured at the amount required to settle the present obligation at the reporting date, discounted where material. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. BBP Annu

Remediation costs associated with unforeseen circumstances, such as oil leakages are recognised as incurred. 63 notes to the financial statements for the year ended 30 june 2009

1. Summary of accounting policies (continued) (t) Provisions (continued) Onerous contracts A provision for onerous contracts is recognised when the expected benefits from a contract are less than the unavoidable costs of meeting the obligations under the contract, and only after any impairment losses to assets dedicated to that contract have been recognised. Expected financial losses of any such “onerous” commercial contracts are recognised at the present value of future cash flows using a risk adjusted discount rate that reflects the current market assessment of the time value of money and the risks specific to the liability. (u) Employee benefits Wages and salaries, annual leave, long service leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave, long service leave and accumulating sick leave are recognised in provision for employee entitlements in respect of employee’s services up to the reporting date when it is probable that settlement will be required and they are capable of being measured reliably. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. Provisions made in respect of employee benefits that can be reasonably expected to be settled within 12 months, and reliably measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured at the present value of the estimated future cash outflows to be made by the Group in respect of expected future wage and salary levels, experience of employee departure and the period of service provided by employees. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Bonus plans A liability for employee benefits in the form of bonus plans is recognised in liabilities when it is probable that the liability will be settled and there are formal terms in place to determine the amount of the benefit, or the amount of the benefit has been determined before the time of completion of the annual report. Liabilities for bonus plans are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled. Retirement benefit obligation All employees of the Group are entitled to benefits from various superannuation plans on retirement, disability or death. Within the retirement benefit plans in the subsidiaries in the Group there is both a defined benefit section and a defined contribution section within the plans. The defined benefit section provides defined lump sum benefits based on years of service and final average salary. The defined contribution section receives fixed contributions from the Group companies and the Group’s legal or constructive obligation is limited to these contributions. The parent does not have any employees. (i) Defined contribution plan Contributions to the defined contribution fund are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payment is available. (ii) Defined benefit plan Defined benefit superannuation plans determine the cost of providing benefits using the Projected Unit Credit Method, with actuarial valuations being carried out at each reporting date. Consideration is given to expected future wage and salary levels, experience of employee departure and periods of service. Actuarial gains and losses are recognised in full, directly in retained earnings, in the period in which they occur. Past Service cost is the increase in the present value of the defined benefit obligation for employee services in prior periods, resulting in the current period from the introduction of, or changes to, post-employment benefits or other long-term employee benefits. Past Service Costs may either be positive (where the benefits are introduced or improved) or negative (where existing benefits are reduced). Past Service Costs are recognised immediately to the extent that the benefits are already vested, and otherwise are amortised on a straight line basis over the average period until the benefits become vested. A liability or asset in respect of defined benefit superannuation plan is recognised in the balance sheet, and is measured as the present value of the defined benefit obligation at the reporting date less the fair value of the superannuation fund’s assets at that date and any unrecognised past service cost. The discount rate is a government bond rate, refer to assumptions at Note 15. Employee benefit on-costs Employee benefit on-costs, including payroll tax are recognised and included in employee benefit liabilities and costs when the employee benefits to which they relate are recognised as liabilities. 64 Termination benefits Liabilities for termination benefits, not in connection with the acquisition of an entity or operation, are recognised when a detailed plan for the terminations has been developed and a valid expectation has been raised in those employees affected that the terminations will be carried out. (v) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (w) Contributed equity Ordinary securities are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. (x) Revenue recognition Revenue is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: • When revenues are generated by an asset under construction, to the extent they are earned before the asset is capable of being used in a manner intended by management, they are set off against the carrying value of that asset. Alternatively revenue is recognised in the income statement when the significant risks and rewards of the product have passed to the buyer and the entity attains the right to be compensated. • electricity Generation revenue is recognised on the delivery of energy and/or in accordance with individual contracts as appropriate. Revenue from rolling hedges is recognised as the underlying hedge transaction occurs. For further information refer to segment information at Note 29. • Sale of Asset revenue is recognised at the time title is transferred or when an irrevocable contract to deliver the

asset has been signed, the price is fixed and determinable, and collectability is highly probable. This occurs when s the risks and rewards associated with the asset have been transferred and there is no longer effective control or continuing managerial involvement in the asset.

• Interest income is recognised using effective interest method. Dividend income is recognised when the dividend tement a

is received. t

• Sales revenue is recognised on delivery which coincides with transfer of risks and rewards. Customers are billed l s for sales on a periodic and regular basis. However, as at each balance date, sales and receivables include an cia

estimation of sales delivered to customers but not yet billed (“unread sales”) and recognised as accrued income. n a

This estimation is based on previous consumption patterns and meter reading dates. n (y) Repairs and maintenance Generating plants are required to be overhauled on a regular basis. This is managed as part of a continuous major maintenance program. The cost of this maintenance is charged as an expense as incurred. Where significant parts are replaced, the cost of these parts are capitalised and amortised in line with their useful life. Any residual to thes to fi carrying amounts of parts previously capitalised which are replaced are written off immediately. (z) Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs associated with the construction assets are expensed. t 2009 – note

(aa) Dividends or distributions r o

Provision is only made for the amount of any dividend or distribution when they are declared by the Directors p on or before balance date but which have not been distributed at balance date. l Re

(ab) Tax a Income tax The income tax expense or benefit for the period is the tax payable or receivable on the current period’s taxable income or loss. It is calculated using the tax rates and tax laws that have been enacted (or substantively enacted) by the reporting date, adjusted by changes in deferred tax assets and liabilities attributable to temporary BBP Annu differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and for unused tax losses. 65 notes to the financial statements for the year ended 30 june 2009

1. Summary of accounting policies (continued) (ab) Tax (continued) Deferred tax Deferred tax is accounted for using the comprehensive balance sheet method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted by the reporting date. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences; no deferred tax asset or liability is recognised in relation to those temporary differences that arose in a transaction, other than business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary difference and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances which have arisen on amounts recognised directly in equity are also recognised directly in equity. Hence the equity transaction is shown net of tax. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Tax consolidation BBPL and its wholly owned Australian controlled entities have implemented the tax consolidation legislation. Due to the existence of minority interests and the requirements of project debt facilities, there are four other tax groups within the overall BBP group structure in addition to the BBPL tax consolidation group. The head entity and the controlled entities in the respective tax consolidated groups continue to account for their own current and deferred tax amounts. These tax amounts are initially measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer in its own right. In addition to its own current and deferred amounts, the head entity also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax-consolidated entities are recognised as amounts receivable from or payable to other entities in the group. Details about the tax funding agreement are disclosed in Note 4. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities. (ac) GST Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other current receivables or payables in the balance sheet. Cash flows are included in the consolidated statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows. (ad) Earnings per security Basic earnings per security is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary securities, by the weighted average number of ordinary securities outstanding during the financial year, adjusted for bonus elements in ordinary securities issued during the year. Diluted earnings per security adjusts the figures used in the determination of basic earnings per security to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary securities and the weighted average number of securities assumed to have been issued for no consideration in relation to dilutive potential ordinary securities. In calculating diluted earnings per security, the profit from continuing operations attributable to ordinary equity 66 holders of BBP is adjusted for interest savings on convertible notes. 2. New accounting standards and interpretations Certain new accounting standards and Australian interpretations have been published that are not mandatory for 30 June 2009 reporting periods. BBP’s assessment of the impact of these new standards and interpretations is set out below. (a) AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standards arising from AASB 8 AASB 8 and AASB 2007-3 are effective for annual reporting periods commencing on or after 1 January 2009. AASB 8 may result in a significant change in the approach to segment reporting, as it requires adoption of a “management approach” to reporting on the financial performance. The information being reported will be based on what the key decision-makers use internally for evaluating segment performance and deciding how to allocate resources to operating segments. Application of AASB 8 may result in different segments, segment results and different types of information being reported in the segment note of the financial report. However, it will not affect any of the amounts recognised in the financial statements. (b) Revised AASB 123 Borrowing Costs and AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 123 [AASB 1, AASB 101, AASB 107, AASB 111, AASB 116 & AASB 138 and Interpretations 1 & 12] Revised AASB 123 is applicable to annual reporting periods commencing on or after 1 January 2009. It has removed the option to expense all borrowing costs and – when adopted – will require the capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. This will not impact BBP because the current accounting policy is for all borrowing costs relating to qualifying assets to be capitalised. BBP will apply the revised standard prospectively from 1 July 2009 in line with the standard’s effective date. (c) Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 A revised AASB 101 was issued in September 2007 and is applicable for annual reporting periods beginning on or after 1 January 2009. It requires the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity, but it will not affect any of the amounts recognised in the financial statements. If an entity has made a prior period adjustment or has reclassified items in the financial statements, it will need to disclose a third balance sheet (statement of financial position), this one being as at the beginning of the comparative period. The Group intends to apply the revised standard from 1 July 2009. (d) AASB 2008-1 Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations Revisions under this standard are effective for reporting periods commencing 1 January 2009. AASB 2008-1

clarifies that vesting conditions are service conditions and performance conditions only and that other features s of a share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. BBP will apply the revised standard from 1 July 2009 in line with the standard’s effective date, but is not expected to affect the accounting for the Group’s tement share-based payments. a t

(e) AASB 3 Business Combinations, AASB 127 Consolidated and Separate Financial Statements and l s AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 cia

The revised AASB 3 continues to apply the acquisition method to business combinations but with a number of other n a

changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, n with contingent consideration classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition costs must be expensed. This varies from the treatment outlined in Note 1(c) above. to thes to fi The revised AASB 127 requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains or losses. The standard also specifies the accounting treatment when control is lost. Any remaining interest in the entity is re-measured to fair value, and the gain or loss is recognised in profit or loss. Under the Group’s current accounting policy, the retained interest in the carrying amount of the former subsidiary’s assets and liabilities becomes the cost of investment. t 2009 – note r

BBP will apply the revised standards prospectively to all business combinations and transactions with o non‑controlling interests from 1 July 2009 in line with the standard’s effective date. p l Re a BBP Annu

67 notes to the financial statements for the year ended 30 june 2009

2. New accounting standards and interpretations (continued) (f) AASB 2008-6 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project The amendments to AASB 5 Discontinued Operations and AASB 1 First-Time Adoption of Australian Equivalents to International Financial Reporting Standards are part of the IASB’s annual improvements project published in May 2008. They clarify that all of a subsidiary’s assets and liabilities are classified as held for sale if a partial disposal plan results in loss of control. Relevant disclosures should be made for this subsidiary if the definition of a discontinued operation is met. BBP will apply the amendments prospectively from 1 July 2009 in line with the standard’s effective date to all partial disposals of subsidiaries. (g) AASB 2008-7 Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate In July 2008, the AASB approved amendments to AASB 1 First-Time Adoption of International Financial Reporting and AASB 127 Consolidated and Separate Financial Statements so that effective 1 July 2009 all dividends received from investments in subsidiaries, jointly controlled entities or associates will be recognised as revenue, even if they are paid out of pre-acquisition profits, but the investments may need to be tested for impairment as a result of the dividend payment. Under the Group’s current policy, these dividends are deducted from the cost of the investment. BBP will apply these amendments prospectively from 1 July 2009. Furthermore, when a new intermediate parent entity is created in internal reorganisations and the new parent accounts for its investment in the original parent at cost, it will measure its investment in subsidiaries at the carrying amounts of the net assets of the subsidiary rather than the subsidiary’s fair value. (h) AASB 2008-8 Amendments to IAS 39 Financial Instruments: Recognition and Measurement (effective 1 July 2009) AASB 2008-8 amends AASB 139 Financial Instruments: Recognition and Measurement and must be applied retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. There are two primary changes. Firstly, it prohibits designating inflation as a hedgeable component of a fixed rate debt. Secondly, it also prohibits including time value in the one-sided hedged risk when designating options as hedges. The Group will apply the amended standard from 1 July 2009 and does not expect it to have a material consequence. (i) AASB Interpretation 17 Distribution of Non-cash Assets to Owners and AASB 2008-13 Amendments to Australian Accounting Standards arising from AASB Interpretation 17 AASB-I 17 applies to situations where an entity pays dividends by distributing non-cash assets to its shareholders. These distributions will need to be measured at fair value and the entity will need to recognise the difference between the fair value and the carry amount of the distributed assets in the income statement on distribution. The interpretation further clarifies when a liability for the dividend must be recognised and that it is also measured as fair value. The Group will apply the interpretation when applicable prospectively from 1 July 2009. (j) AASB 2009-2 Amendments to Australian Accounting Standards – Improving Disclosures about Financial Instruments (effective for annual periods beginning on or after 1 January 2009) In April 2009, the AASB published amendments to AASB 7 Financial Instruments: Disclosure to improve the information that entities report about their liquidity risk and the fair value of their financial instruments. The amendments require fair value measurement disclosures to be classified into a new three-level hierarchy and additional disclosures for items whose fair value is determined by valuation techniques rather than observable market values. The AASB also clarified and enhanced the existing requirements for the disclosure of liquidity risk of derivatives. The Group will apply the amendments in line with the standard’s effective date. They will not affect any of the amounts recognised in the financial statements. (k) AASB 2009-4 Amendments to Australian Accounting Standards arising from the Annual Improvements Project (effective for annual periods beginning on or after 1 July 2009) The AASB has made amendments to AASB 2 Share-based Payments, AASB 138 Intangible Assets and AASB Interpretations 9 Reassessment of Embedded Derivatives and 16 Hedges of a Net Investment in a Foreign Operation as a result of the IASB’s annual improvements project. The Group will apply the amendments from 1 July 2009 in line with the standard’s effective date. The Group does not expect that any adjustments will be necessary as a result of applying the revised rules. (l) AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project (effective for annual periods beginning on or after 1 January 2010) In May 2009, the AASB issued a number of improvements to existing Australian Accounting Standards. The Group will apply the revised standards from 1 January 2010 in line with the standard’s effective date. The Group does not expect that any adjustments will be necessary as the result of applying the revised rules.

68 (m) AASB 2009-3 Amendments to Australian Accounting Standards – Embedded Derivatives (effective for annual periods ending on or after 30 June 2009) The amendments made by the AASB to Interpretation 9 and AASB 139 clarify that where a financial asset is reclassified out of the ‘at fair value through profit or loss’ category, all derivatives embedded in that asset have to be assessed and, if necessary, separately accounted for in financial statements. The Group will apply the amendments retrospectively for the financial half year ending 31 December 2009 and the year to 30 June 2010. There will be no impact on the Group’s financial statements as at 31 December 2008 (or other date before 30 June 2009) as BBP has not reclassified any financial assets out of the “at fair value through profit or loss” category. (n) AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-Settled Share-based Payment Transactions [AASB 2] (effective for annual periods commencing on or after 1 January 2010) The amendments made by the AASB to AASB 2 confirm that an entity receiving goods or services in a group share-based payment arrangement must recognise an expense for those goods or services regardless of which entity in the group settles the transaction or whether the transaction is settled in shares or cash. They also clarify how the group share-based payment arrangement should be measured, that is, whether it is measured as an equity or a cash-settled transaction. The Group will apply these amendments in line with the standard’s effective date. However, as the amendments only affect the accounting in the individual entities, there will be no impact on the financial statements of the Group. 3. Profit/(loss) from operations Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Revenue Revenue from the sale of energy products 1,408,005 1,456,940 – – Revenue from lease of plant and equipment 3,211 3,641 – – Other revenue 122,961 66,839 727 1,135 1,534,177 1,527,420 727 1,135

Other income Release of onerous contracts 148,681 – – –

Financing income

Dividend income s related parties(i) 8,465 – – –

Interest income tement a Bank deposits 20,408 34,035 246 7,821 t

related parties – BBPT and l s

wholly owned subsidiaries – – 27,116 33,906 cia n

present value adjustment – Loan BBPT – – – 205,142 a n Interest revenue – Loan to subsidiaries (present value unwind) – – 105,987 145,762 28,873 34,035 133,349 392,631 to thes to fi (i) BBP Holdings Pty Ltd, a subsidiary of BBP received a dividend from ERM prior to its disposal on 18 December 2008. t 2009 – note r o p l Re a BBP Annu

69 notes to the financial statements for the year ended 30 june 2009

3. Profit/(loss) from operations (continued) Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

(Loss)/profit before income tax has been arrived at after charging the following expenses: Operating expenses: operating costs 1,184,837 1,028,386 450 368 Corporate and administrative costs 30,386 36,095 12,470 9,381 Employee benefit expenses Salaries and wages 136,746 104,237 135 – Defined benefit plan (Note 15) 3,359 2,552 – – 1,355,328 1,171,270 13,055 9,749 Management charges (Note 31): Base Fees – 14,381 – 10,510 manager expense amount 4,331 6,700 4,287 6,700 Custodian fee 197 93 – – responsible Entity fees 606 558 – – 5,134 21,732 4,287 17,210 Impairment loss Intangibles (Note 12)(ii) 56,700 410,000 – – Property, plant and equipment (Note 11) – 42,000 – – Impairment loss on loan receivable from wholly owned subsidiary – – 791,000 – 56,700 452,000 791,000 – Incentive Fee (fair value movement) (Note 31) – (23,400) – (23,400) Depreciation and amortisation Depreciation of property, plant and equipment 120,483 117,082 – – Amortisation of intangible assets 55,378 35,773 – – Amortisation of other assets 752 – – – 176,613 152,855 – –

(ii) Impairment charge of $50 million has been recognised against the goodwill of the Alinta CGU. An impairment charge of $6.7 million has also been recognised against software development assets held in BBP’s service company.

70 Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Finance costs Interest expense – External third parties 258,317 215,271 2,069 4,599 Interest expense – related parties 47,277 8 869,354 15,658 Less: Interest expense capitalised (Note 19) (23,907) (9,044) – – Unwinding of discount on provisions 25,169 14,149 – – Other borrowing costs 33,452 3,776 6,900 3,467 Borrowing costs written off 45,214 12,250 – – 385,522 236,410 878,323 23,724 Debt forgiveness – – 124,715 – Transitional costs Compliance – 8,975 – – Other transitional costs 617 6,944 (450) – 617 15,919 (450) – Derivative movement Fair value gains/(losses) on interest rate derivative taken to profit and loss (1,704) 1,922 – – Fair value (loss)/gain on Redbank PPHA derivative(iii) (37,523) 82,789 – – Fair value (loss)/gain on other electricity derivatives (29,678) (9,325) – – (68,905) 75,386 – –

(iii) The non-cash derivative movement reported in the accounts represents an assessment of the present value of the difference between the Energy Australia contract (Redbank PPHA) value and the projected value of the gross revenue Redbank could potentially achieve if they sold electricity on market over the theoretical whole of remaining life of the contract. The prices utilised for this calculation were based on projected future average pool prices to the year 2023. this exercise is carried out on a semi-annual basis for accounting purposes only and has no impact on the operations or cash flows of the business. Any further increase in the assessment of pool prices from the projected future average pool prices used from balance sheet date will result in a non cash fluctuation in the income statement to the extent they have not been already recorded. at no time can and will this derivative instrument calculation impact the cash position or underlying profits generated by the operations of BBP. 4. Income tax expense s Consolidated Company 2009 2008 2009 2008

$’000 $’000 $’000 $’000 tement a t (a) Income tax (benefit)/expense l s Current tax (benefit)/expense (60,817) 17,651 (9,907) 7,189 cia

Deferred tax (14,493) 24,903 69,894 (68,475) n a Under/(over) provided in prior year 713 (69) (3,762) (69) n (74,597) 42,485 56,225 (61,355)

Deferred income tax (revenue)/expense

included in income tax expense comprises: thes to fi Decrease/(increase) in deferred tax assets 6,726 (15,590) 139,018 (130,315) (Decrease)/increase in deferred tax liabilities (21,219) 40,493 (69,124) 61,840 (14,493) 24,903 69,894 (68,475) t 2009 – note r o p l Re a BBP Annu

71 notes to the financial statements for the year ended 30 june 2009

4. Income tax expense (continued) Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

(b) Reconciliation of income tax expense to prima facie tax payable Net profit/(loss) before income tax (243,530) (384,030) (1,676,854) 366,483 Tax at the Australian tax rate of 30% (2008: 30%) (73,059) (115,209) (503,056) 109,945 Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Entertainment 34 21 – – Share of net profit of associates (728) (1,775) – – Deferred tax asset on initial present value of loans receivable from wholly owned subsidiary – – – (185,487) Write off of deferred tax assets in relation to loans to subsidiaries – – 138,885 – Temporary difference not recognised on loans to subsidiaries – – 385,423 – Tax offset for franked dividends (2,540) – – – Gain/(Loss) on debt forgiveness (82,159) – 37,415 – Gain/(Loss) on disposal of investment 62,750 – 9 – Impairment of goodwill 15,000 123,000 – – Other 5,392 36,517 1,311 14,256 Under/(over) provision in prior years 713 (69) (3,762) (69) Income tax expense (74,597) 42,485 56,225 (61,355)

(c) Amounts recognised directly in equity Revaluations of financial instruments treated as cash flow hedges 73,514 13,006 – – Others 10,469 (14,678) – 362 83,983 (1,672) – 362

(d) Tax consolidation legislation Babcock & Brown Power Limited and certain of its wholly owned Australian resident subsidiaries have formed a tax consolidated group effective from 1 July 2006. The accounting policy in relation to this legislation is set out in Note 1(ab). On adoption of the tax consolidation legislation, the tax consolidated group entered into a tax sharing agreement which, in the opinion of the directors, limits the joint and several liability of the wholly owned entities in the case of a default by the head entity, BBPL. The entities have entered into a tax funding agreement under which the wholly owned entities fully compensate BBPL for any current tax payable assumed and are compensated by BBPL for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to BBPL under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly owned entities financial statements. The amounts receivable/payable under the tax funding agreement is due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. The funding amounts are recognised as current intercompany receivables or payables (see Notes 5 and 13).

72 Due to the existence of minority interests and the requirements of project debt facilities, there are two other tax groups within the overall BBP group structure as follows: Flinders – comprising all Australian resident entities in the Flinders group with the exception of Babcock & Brown Flinders Pty Ltd, Babcock & Brown Osborne Pty Limited, Flinders Operating Services Pty Ltd and Flinders Power Finance Pty Ltd. BB Power Cat – comprising all Australian resident entities in the BB Power Cat group. The Flinders and BB Power Cat tax consolidated groups have also entered into tax sharing and tax funding agreements which are on similar terms to the Babcock & Brown Power Limited tax group. The Braemar and Redbank entities are not currently members of a tax consolidated group, however, their tax losses remain available.

Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

(e) Current tax liabilities Income tax payable/(receivable) (366) 12,486 – –

(f) Deferred tax balances Deferred tax liabilities comprise: Loans payable to subsidiaries – – 26,341 95,465 Expenses capitalised 89 18,244 – – Accounts receivable 453 109 – – Cash flow hedges (46,465) 72,222 – – Intangibles 155,633 58,427 – – Operating lease rent receivable 5,519 14,594 – – Borrowing costs 13,794 13,976 – – Property, plant and equipment 181,433 208,837 – – Inventory 5,184 6,204 – – Other 8,688 53,609 – – s Total DTL 324,328 446,222 26,341 95,465 Offset against DTA – – – – tement

324,328 446,222 26,341 95,465 a t

Deferred tax assets comprise: l s

Loans receivable from subsidiaries – – – 138,885 cia n

Unused revenue tax losses – corporate 138,975 78,857 40,111 557 a n Deductible equity raising costs 1,107 1,617 1,088 1,617 Accruals 412 443 244 258 Expenses capitalised 807 12 807 12 to thes to fi Provisions 140,503 58,322 – 135 Borrowing costs 13,564 317 – – Incentive Fee – 342 – – Other 44,954 131,646 100 350

Total DTA 340,322 271,556 42,350 141,814 t 2009 – note r o

Offset against DTL – – – – p 340,322 271,556 42,350 141,814 l Re a BBP Annu

73 notes to the financial statements for the year ended 30 june 2009

4. Income tax expense (continued) (f) Deferred tax balances (continued) Taxable and deductible temporary differences arise from the following: Purchase Opening Charged Charged acquisitions/ Price Closing balance to income to equity disposals adjustments balance Consolidated $’000 $’000 $’000 $’000 $’000 $’000

2009 Gross deferred tax liabilities: Expenses capitalised (18,244) 3,652 – 14,503 – (89) Accounts receivable (109) (344) – – – (453) Cash flow hedges (72,222) 38,295 73,514 6,661 – 46,248 Intangibles (58,427) (9,886) – 5,450 (92,770) (155,633) Operating lease rent receivable (14,594) 109 – 8,966 – (5,519) Borrowing costs (13,977) (1,251) – 1,434 – (13,794) Property, plant and equipment (208,837) (54,857) – 55,756 26,505 (181,433) Inventory (6,204) 1,020 – – – (5,184) Other (53,608) 44,481 (496) (647) 1,799 (8,471) (446,222) 21,219 73,018 92,123 (64,466) (324,328)

Gross deferred tax assets: Unused revenue tax losses 78,857 66,907 – (14,797) 8,009 138,976 Deductible equity raising costs 1,617 (511) – – – 1,106 Accruals 443 130 – (161) – 412 Expenses capitalised 354 453 – – – 807 Provisions 58,321 72,706 – (754) 10,230 140,503 Borrowing costs 317 13,247 – – – 13,564 Other 131,647 (98,883) 10,965 (126) 1,351 44,954 271,556 54,049 10,965 (15,838) 19,590 340,322

74

opening Charged Charged acquisitions/ Closing balance to income to equity disposals balance Consolidated $’000 $’000 $’000 $’000 $’000

2008 Gross deferred tax liabilities: Expenses capitalised (3,043) (13,254) (1,947) – (18,244) Investments in subsidiaries (10) 10 – – – Accounts receivable (125) 20 – (4) (109) Cash flow hedges (9,519) (64,379) 4,161 (2,485) (72,222) Intangibles (13,819) 7,208 (11,877) (39,939) (58,427) Operating lease rent receivable (10,914) (345) – (3,335) (14,594) Borrowing costs (9,914) (4,062) – – (13,976) Property, plant and equipment (218,063) 39,005 (11,310) (18,469) (208,837) Inventory (4,309) (1,616) – (279) (6,204) Other (1,035) (3,080) – (49,494) (53,609) (270,751) (40,493) (20,973) (114,005) (446,222)

Gross deferred tax assets: Unused revenue tax losses 75,716 (5,182) – 8,323 78,857 Deductible equity raising costs 2,148 (543) 12 – 1,617 Accruals 1,979 (1,536) – – 443 Expenses capitalised 12 342 – – 354 Provisions 45,297 6,884 – 6,140 58,321 Borrowing costs 6,251 (5,934) – – 317 Incentive Fees 7,020 (7,020) – – – Other 9,610 31,667 19,289 71,081 131,647 s 148,033 18,678 19,301 85,544 271,556 tement a t l s cia n a n to thes to fi t 2009 – note r o p l Re a BBP Annu

75 notes to the financial statements for the year ended 30 june 2009

4. Income tax expense (continued) (f) Deferred tax balances (continued) Transfers Opening Charged Charged acquisitions/ Other Closing balance to income to equity disposals entities balance Company $’000 $’000 $’000 $’000 $’000 $’000

2009 Gross deferred tax liability: Loans payable to subsidiaries 95,465 (69,124) – – – 26,341 95,465 (69,124) – – – 26,341

Gross deferred tax assets: Unused revenue tax losses 557 10,867 – – 28,687 40,111 Deductible equity raising costs 1,617 (529) – – – 1,088 Accruals 258 (14) – – – 244 Expenses capitalised 147 660 – – – 807 Other 350 (250) – – – 100 Loans receivable from subsidiaries 138,885 (138,885) – – – – 141,814 (128,151) – – 28,687 42,350

2008 Gross deferred tax liabilities: Investments in subsidiaries 10 (10) – – – – Loans payable to subsidiaries 33,615 61,850 95,465 33,625 61,840 – – – 95,465

Gross deferred tax assets: Unused revenue tax losses 418 139 – – – 557 Deductible equity raising costs 2,148 (543) 12 – – 1,617 Accruals 538 (280) – – – 258 Expenses capitalised 12 135 – – – 147 Mezzanine debt expenses 862 (862) – – – – Incentive Fee 7,020 (7,020) – – – – Other (1) 1 350 – – 350 Loans receivable from subsidiaries – 138,885 – – – 138,885 10,997 130,455 362 – – 141,814

76 (g) Correction of prior years In previous years, the requirement under AASB 112 Income Tax to tax effect fair value adjustments on interest-free loans has been omitted. The financial statements have been restated to reflect these requirements. The effect of the amendments are in the company only and have no effect on consolidated retained earnings.

Company Restated 2008 Error 2008 $’000 $’000 $’000

Income statement Tax (expense)/benefit (15,680) 77,035 61,355 Profit after tax 350,803 77,035 427,838

Balance Sheet Deferred tax asset 2,929 138,885 141,814 Deferred tax liability – 95,465 95,465 Opening retained earnings 1 July 2007 84,949 (33,615) 51,334 Profit year ended June 2008 350,803 77,035 427,838 Retained earnings 30 June 2008 435,752 43,420 479,172

5. Trade and other receivables Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Current Trade receivables 185,979 203,499 56 25,895 Provision for doubtful debts (4,818) (106) – – 181,161 203,393 56 25,895 Accrued income and unread sales

external third parties 30,023 93,663 – – s related parties (Note 31) – 175 – 175 Goods and services tax receivable 7,222 18,235 787 646 tement a

Other receivables t

external third parties 3,453 17,627 – – l s

Finance lease (Note 27) 5,244 7,690 – – cia n

Loans to related parties (Note 31) – – 22,503 164,691 a n 227,103 340,783 23,346 191,407

Non-current Trade receivables 1,432 – – – to thes to fi Operating lease receivable (Note 27) 13,384 40,021 – – Non-interest bearing loan within the wholly owned group – – 152,347 1,689,092 Other receivables

Finance lease (Note 27) 72,109 78,330 – – t 2009 – note r o

third Party – 7,970 – – p 86,925 126,321 152,347 1,689,092 l Re a Information on credit risk and interest rate risk exposure of the Group is provided at Note 32. Loans to related parties in the consolidated group include loans to associates. Loans to related parties in the Company include loans to subsidiaries and associates. BBP Annu

77 notes to the financial statements for the year ended 30 june 2009

5. Trade and other receivables (continued) Reconciliation of provision for doubtful debts Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Opening balance – 1 July 106 62 – – Charge for the year 4,818 176 – – Amounts written off (106) (132) – – Closing balance – 30 June 4,818 106 – –

6. Inventories Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Stores 19,438 21,581 – – Raw materials including: Coal 12,172 11,355 – – Fuel oil 2,846 644 – – natural gas 2,976 45 – – other 1,292 2,333 – – 38,724 35,958 – –

The amount of purchased inventories recognised as cost of goods sold during the year was $279.4 million (2008: $203.8 million). 7. Other assets Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Current Prepayment of operations expenses 22,342 40,064 381 180 Fuel prepayment(i) 1,320 1,000 – – Deposits(ii) 10,463 30,688 – – 34,125 71,752 381 180

Non-current Prepayment of operations expenses 1,533 324 – – Fuel prepayment(i) 20,891 21,407 – – 22,424 21,731 – –

(i) prepayments were made to purchase part of the future fuel requirements of the Redbank plant for a 30 year period. The prepayment is being amortised on a straight-line basis over that period being the eligible service period unless the actual amount of fuel delivered is less than the contractual amount. (ii) Deposits represent downpayments for parts for the Braemar Power Station. The parts are due to arrive September 2009.

78 8. Non-current assets held for sale BBP does not have any assets classified as held for sale as at 30 June 2009.

Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Property, plant and equipment Ecogen – 217,846 – – Uranquinty(i) – 372,609 – – – 590,455 – –

Borrowings Ecogen bank loans(ii) – 130,138 – – Uranquinty Construction Facility(iii) – 403,849 – – – 533,987 – –

(i) at 30 June 2008, Uranquinty had $66.1 million of cash at bank representing amounts drawn under the construction facility yet to be utilised. (ii) Bank loan – Ecogen Energy Pty Limited secured facilities with a total value of $130.1 million outstanding at 30 June 2008. This facility had a maturity date of 2015 and had an effective interest rate at 30 June 2008 of 7.58%. This loan was divested subsequent to 30 June 2008 as part of the sale of Ecogen. (iii) Construction facility – Uranquinty construction facility was originally drawn down in July 2007 and continued to be drawn down to finance construction activity until its sale. The total facility available was $520 million and was drawn down to $403.9 million at 30 June 2008. The effective interest rate at 30 June 2008 was 8.03%. This loan was divested subsequent to 30 June 2008 as part of the sale of Uranquinty. 9. Investments accounted for using the equity method Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Investment in associates 46,550 49,025 – –

Equity accounted Principal Ownership Share of investment Name of the entity activity interest net profit carrying amount 2009 2008 2009 2008 2009 2008 % % $’000 $’000 $’000 $’000 s

ERM Power Investments power Pty Limited generation – 40 – 816 – – tement

Oakey Power Holdings power a t Pty Ltd generation 50 50 2,202 5,099 46,550 49,025 l s BBP Kwinana Power cia

Pty Ltd* generation – 70 (2,761) – – – n a

(559) 5,915 46,550 49,025 n

Each of the above associates is incorporated in Australia. Investments in associates are accounted for in the consolidated financial statements using the equity method

of accounting and are carried at cost by the parent entity. thes to fi * BB P Kwinana Pty Ltd became an associate entity of BBP on 18 December 2008 following the sale of ERM Power Investments Pty Ltd. BBP’s interest in BBP Kwinana Pty Ltd was sold on 19 March 2009. Refer to Note 30 for further detail on changes in composition of the consolidated group. t 2009 – note r o p l Re a BBP Annu

79 notes to the financial statements for the year ended 30 june 2009

9. Investments accounted for using the equity method (continued) Oakey 2009 $’000

Movements in carrying amounts Carrying amount at the beginning of the financial year 49,025 Dividend received/receivable (4,677) Share of profit 2,202 Carrying amount at the end of the financial year 46,550

Oakey ERM 2008 2008 $’000 $’000

Movements in carrying amounts Carrying amount at the beginning of the financial year 49,019 22,361 Dividend received/receivable (3,088) – Share of profit 3,004 816 Reduction in investment in minority interest – (23,177) Carrying amount at the end of the financial year 49,025 –

Consolidated 2009 2008 $’000 $’000

Shares of associates’ profit or losses Profit before income tax 1,484 8,100 Income tax expense (2,043) (2,185) Profit after income tax (559) 5,915

Summarised financial information of associates:

Group’s share of Assets Liabilities Revenues profit/(loss) $’000 $’000 $’000 $’000

2009 Oakey Power Holdings Pty Ltd 61,635 50,937 16,138 2,202 BBP Kwinana Power Pty Ltd – – – (2,761) 61,635 50,937 16,138 (559)

2008 ERM Power Investments Pty Limited 40,048 27,376 (9) 816 Oakey Power Holdings Pty Ltd 68,963 55,939 17,854 5,099 109,011 83,315 17,845 5,915

Consolidated 2009 2008 $’000 $’000

Share of associates’ expenditure commitments Capital commitments – – Lease commitments – – – –

80 Restrictions on funds distributed to shareholders Oakey Power Holdings Pty Ltd may only distribute to its shareholders proceeds in the form of cash dividends and repayment of shareholder loans when the required levels have been met in the Debt Service Reserve Account (“DSRA”) and the Major Maintenance Reserve Account (“MMRA”), as required by the terms of its Credit Facility Agreement. The DSRA is an amount necessary to ensure it has a balance equal to the sum of the principal and interest amounts and the Bank Guarantee fees scheduled to be paid during the next six months. The MMRA is required to be maintained from financial close until the first major overhaul of the plant. As at 30 June 2009, the DSRA was $8.6 million (2008: $8.5 million), and the MMRA was $1.8 million (2008: $1.5 million). With these reserve accounts maintained in accordance with the Credit Facility Agreement, there are no restrictions on funds distributed to shareholders at 30 June 2009. 10. Derivative financial assets Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Current Derivative financial instruments at fair value Interest rate derivatives – 3,737 – – Foreign exchange derivatives 8 767 – – electricity derivatives 18,431 21,740 – – 18,439 26,244 – –

Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Non-current Derivative financial instruments at fair value Interest rate derivatives – 143,060 – – Foreign exchange derivatives 85 40 – – electricity derivatives 99,911 180,192 – – 99,996 323,292 – – s

Electricity derivatives tement

The hedge portfolio consists predominantly of swaps, caps and option style contracts and non-derivative Power a Purchase Agreements. Refer to Note 32 for information on exposure and electricity price risk management. t Specifically, electricity derivatives include the PPHA derivative relating to the Redbank Project. The Redbank l s

Project has a long-term power purchase agreement with Energy Australia for the sale of power for a period cia n of 30 years from the commencement of the power station’s operation. Under the terms of the contract, the a fixed price per megawatt hour is escalated annually using agreed CPI indices. There are contract provisions to n ensure the supply of an agreed volume of energy into the grid with penalties should these conditions not be met. Under AASB 139, the Group recognises a derivative asset equal to the estimated fair value of the power purchase derivative. At 30 June 2009, the value of this derivative had decreased by $37.5 million to $98.2 million.

At 30 June 2008, the value of this derivative had increased by $82.8 million to $135.7 million. thes to fi t 2009 – note r o p l Re a BBP Annu

81 notes to the financial statements for the year ended 30 june 2009

11. Property, plant and equipment Land and Plant and assets under Furniture, fittings Consolidated Buildings equipment construction and equipment Total

$’000 $’000 $’000 $’000 $’000

Cost Balance at 1 July 2007 23,719 1,283,740 283,370 1,651 1,592,480 Additions – 62,333 668,219 322 730,874 Disposals – (14,200) – (422) (14,622) Impairment loss – – (42,000) – (42,000) Transfers 100 289,888 (289,988) – – Acquisitions through business combinations 14,972 685,391 270,981 53,359 1,024,703 Assets held for sale (22,180) (204,593) (377,926) (317) (605,016) Balance at 30 June 2008 16,611 2,102,559 512,656 54,593 2,686,419

Balance at 1 July 2008 16,611 2,102,559 512,656 54,593 2,686,419 Additions 1,122 86,301 212,360 537 300,320 Disposals – (3,065) – (522) (3,587) Decommissioning costs – 61,656 – – 61,656 Transfers (to)/from intangibles – 96,596 (7,202) – 89,394 Adjustment on Alinta acquisition 29,546 23,824 (15,424) 332 38,278 Divestment (350) (30,652) (668,525) (53,137) (752,664) Balance at 30 June 2009 46,929 2,337,219 33,865 1,803 2,419,816

Accumulated depreciation Balance at 1 July 2007 – (52,145) – (291) (52,436) Depreciation expense – (116,495) – (587) (117,082) Depreciation on assets held for sale – 14,508 – 5 14,513 Balance at 30 June 2008 – (154,132) – (873) (155,005)

Depreciation expense (835) (118,970) – (678) (120,483) Disposals – 306 – 523 829 Transfers to/(from) intangibles – (3,330) – – (3,330) Divestment – 2,981 – – 2,981 Balance at 30 June 2009 (835) (273,145) – (1,028) (275,008)

Net book value As at 30 June 2008 16,611 1,948,427 512,656 53,720 2,531,414 As at 30 June 2009 46,094 2,064,074 33,865 775 2,144,808

During the year, there was a net transfer into property, plant and equipment of $86 million from intangibles. Prior period property, plant and equipment balances relating to Ecogen and Uranquinty have been separately disclosed in Note 8 as non-current assets held for sale, as at 30 June 2008. The parent entity does not have property, plant and equipment.

82 12. Intangibles Development Software and Customer Goodwill costs Licences base Other Total Consolidated $’000 $’000 $’000 $’000 $’000 $’000

Balance at 1 July 2007 138,380 86,433 62,347 – 18,268 305,428 Additions – – – – – – Additions through business combinations 1,843,887 – 27,259 397,708 206,086 2,474,940 Balance at 30 June 2008 1,982,267 86,433 89,606 397,708 224,354 2,780,368 Additions – – 1,205 – – 1,205 Acquisition accounting adjustments 5,355 – – 64,971 (143,051) (72,725) Disposals (45,615) – (18,168) – – (63,783) Reclassifications from/(to) property, plant and equipment – (86,433) 7,202 – (10,164) (89,395) Balance at 30 June 2009 1,942,007 – 79,847 462,679 71,139 2,555,672 Accumulated amortisation and impairment Balance at 1 July 2007 – (1,336) (1,623) – (192) (3,151) Amortisation expense – (1,994) (6,450) (27,329) – (35,773) Impairment loss (410,000) – – – – (410,000) Balance at 30 June 2008 (410,000) (3,330) (8,073) (27,329) (192) (448,924) Reclassifications to property, plant and equipment – 3,330 – – – 3,330 Amortisation expense – – (4,886) (50,397) (95) (55,378) Impairment loss (50,000) – (6,700) – – (56,700) Balance at 30 June 2009 (460,000) – (19,659) (77,726) (287) (557,672)

Net book value s As at 30 June 2008 1,572,267 83,103 81,533 370,379 224,162 2,331,444 As at 30 June 2009 1,482,007 – 60,188 384,953 70,8521 1,998,000 tement a 1. Included in other intangibles is $67.3 million of trademarks that have been allocated to the Alinta CGU. Alinta trademarks are considered to have t

indefinite useful lives given their brand characteristics and market position. Accordingly these trademarks are carried at unamortised cost and are l s subject to an annual impairment review. cia n a n to thes to fi t 2009 – note r o p l Re a BBP Annu

83 notes to the financial statements for the year ended 30 june 2009

12. Intangibles (continued) Allocation of goodwill to cash generating units for the purpose of impairment testing Goodwill has been allocated to operating divisions for impairment testing that represents the lowest level associated with cash generation and management reporting. Cash generating units and the aggregate carrying amount of goodwill allocated to each unit is as follows:

Consolidated 2009 2008 $’000 $’000

Braemar 55,926 55,926 Redbank(i) 28,379 37,630 Ecogen(ii) – 20,596 Flinders 75,042 75,042 Uranquinty(ii) – 25,018 Alinta(iii) 1,083,335 1,100,283 Bairnsdale 34,623 34,623 WA Power(iv) 204,702 223,149 Total 1,482,007 1,572,267

(i) redbank goodwill movement due to correction of a prior period error which resulted in reclassification of an amount from payable to goodwill for $9.2 million, thus reducing the overall carrying amount of goodwill associated with Redbank. (ii) ecogen and Uranquinty assets disposed of during the current financial year. (iii) The Alinta CGU includes the Alinta retail business, the integrated co-generation Pinjarra and Wagerup power stations and the LPG joint venture. Goodwill movement is associated with finalisation of acquisition accounting during the financial year and an impairment of $50 million. (iv) WA Power goodwill associated with the acquisition of the Alinta power generation assets on 31 August 2007. Goodwill movement is associated with finalisation of acquisition accounting during the financial year. Key assumptions used for value-in-use calculations The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on management approved annual financial budgets and forecasts. Generation CGUs with Long-Term Power Purchase Agreements (PPAs) Cash flow projections for the 19 year forecast period for generation assets with long-term PPAs are in accordance with the contractual provisions of the PPA and gas supply agreements, discounted using a pre-tax discount rate of 11.8% (2008: pre-tax rate 11.8%). This discount rate reflects the stable operating margins under these long-term contracts. Cash flow projections beyond the 19 year period have been extrapolated using a steady 2–3% p.a. growth rate (2008: 2–3%) with terminal values that reflect the useful life of the assets. A reasonably possible increase in the pre-tax discount rate of 25 basis points would result in an impairment charge against the PPA assets of $38 million. A reasonably possible increase in the cost of debt assumption of an additional 20 basis points applied to the PPA assets would result in an impairment charge of $23 million. The Directors do not consider a detrimental change in any of the other key assumptions to be reasonably possible. Generation CGUs with Merchant Pool Price Exposure Cash flow projections for the 19 year forecast period for generation assets with merchant pool price exposure are based on forward electricity prices forecast with reference to independent market sources. These have been discounted using a pre-tax discount rate of 12.2% (2008: pre-tax rate 12.9%). This discount rate reflects the higher margin volatility of these “Merchant CGUs” relative to the PPA CGUs. Cash flow projections beyond the 19 year period have been extrapolated using a steady 2–3% p.a. growth rate (2008: 2–3%) with terminal values that reflect the useful life of the assets. The Directors believe that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of these CGUs. Alinta Cash flow projections for the five-year budget period forecast for the Alinta CGU includes reasonable market pricing reviews on electricity contracts and tiered tariff increases on gas mass-market revenues. The cost of gas incorporates pricing in existing long-term contracts and management estimates of short-term gas purchases, new contracts and price resets. These have been discounted using a pre-tax discount rate of 12.8% (2008: 12.8%) reflecting the nature of the integrated retail business operating in the Western Australian market (i.e. a bilateral gas market and a net pool electricity market model). Cash flow projections beyond the five year period have been extrapolated using a steady 2.5% p.a. growth rate (2008: 3%).

84 For the year ended 30 June 2009, an impairment charge of $50 million has been recognised against the goodwill of the Alinta CGU. The Alinta business has been impacted by weakened demand arising from depressed economic conditions and resource price volatility in the Western Australian economy as flow-on effects of the recessionary conditions experienced globally. Further, changes to recontracting assumptions in respect of a major customer of the Alinta Energy LPG business has negatively impacted the value in use calculations for the Alinta CGU. Holding all other assumptions constant, a reasonably possible increase in the shortfall gas price paid by Alinta of $1/GJ could result in an additional impairment of $72 million. The Directors do not consider a detrimental change in any of the other key assumptions to be reasonably possible. Goodwill impaired in respect of Alinta has been recognised in the Energy Markets segment disclosed in Note 29. Value in use calculations performed to assess each CGU for impairment excluded the impacts of the Commonwealth Government’s proposed Carbon Pollution Reduction Scheme (CPRS). Under the proposed CPRS, BBP will need to acquire carbon permits for its generators, the cost of which will be proportionately higher for its coal-fired plants. BBP may not be able to pass through the full cost of all carbon permits to its customers which is likely to have a significant impact on its coal-fired generators. This would require a reassessment of the useful economic life of those plants which has the potential to result in valuation impairments in respect of those assets. BBP’s portfolio of assets includes both gas and coal-fired generators in various markets and regions. With the proposed CPRS having failed to pass both houses of the Federal Parliament, uncertainty remains as to the final nature and timing of the planned CPRS. As a result, the overall impact on BBP’s assets (taking into account mitigating actions) could not be confidently determined at this point in time. Accordingly, for the purpose of the annual financial report, BBP has excluded from its valuation assessments the impacts of the introduction of the CPRS. Once there is sufficient certainty regarding the final arrangements under the CPRS, BBP will reflect its impacts in its valuations. This may result in impairment to certain BBP assets. Care should be taken when interpreting the sensitivities discussed above which gave rise to impairment or potential impairments as movements in one assumption may have an offsetting or compounding effect on other variables within BBP’s valuation models. 13. Trade and other payables Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Current Trade payables 68,100 102,858 23,847 22,883 s Accruals 144,080 177,274 8,024 9,621 GST payable 4,848 8,392 (6) (2,735)

Accrued interest 21,835 5,203 2,743 – tement a t Capital expenditure payables – 27,508 – – l s Deferred income 6,496 16,565 – – cia

Other payables 6,230 33,948 3,193 – n a Management fee payable – related party (Note 31) 1,166 1,692 1,166 – n 252,755 373,440 38,967 29,769

Non-current Other payables 10,165 – – – thes to fi 10,165 – – – t 2009 – note r o p l Re a BBP Annu

85 notes to the financial statements for the year ended 30 june 2009

14. Provisions Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Current Provision for onerous contracts (i) 88,600 41,997 Others 11,761 15,498 – 450 100,361 57,495 – 450

Non-current Provision for onerous contracts (i) 99,400 349,306 Site restoration provision (ii) 124,303 56,640 – – Others – 5,404 – – 223,703 411,350 – –

The implementation of the Commonwealth Government’s proposed CPRS may give rise to further onerous contracts depending on the impact that emissions trading will have on energy prices, in particular the cost of gas. Until further clarity is available as to the exact nature of the final scheme to be implemented, there is uncertainty as to the positive or negative impacts which a CPRS will have on the Group. (i) Alinta Sales Pty Ltd (a subsidiary of BBP) has a number of onerous contracts in respect of its gas purchase and supply arrangements with fixed and variable price counterparties. These contracts run off between 2010 and 2015. Anticipated cash flows have been discounted using discount rates that most closely match the maturities of the underlying contracts in place less a risk premium factor of 1.5%. The range of pre-adjusted, pre-tax discount rates are 3.19% to 5.54%. In addition, on 31 March 2009, BBP sold the Alinta EATM contracts and on 29 June 2009 sold the Flinders Osborne contracts, both of which had previously given rise to provisions for onerous contracts. There are no remaining onerous contract commitments in respect of these as at 30 June 2009. The remaining balances on these onerous contract provisions were credited to the income statement on the date the contracts underlying the provision were sold. (ii) Provision for site restoration BBP has raised provisions for present obligations for future remediation of 12 operating sites occurring between 2016 and 2045. Estimates of future cash outflows have been derived by referring to external consultants and experts within the BBP group. Future cash outflows are discounted to their present value by using a pre-tax discount rate of 4.5%.

86 Reconciliation of movement in provisions Onerous Site contract restoration Other provision provision provisions $’000 $’000 $’000

Description Carrying amount at 1 July 2007 124,140 26,763 124 Additions through business combinations 279,593 20,384 368,376 Additional provision recognised 22,100 12,432 13,707 Unused amounts reversed (14,400) (3,165) – Amount used during the period (22,330) – (1,886) Other 2,200 226 581 Total provisions at 30 June 2008 391,303 56,640 20,902

Description Carrying amount at 1 July 2008 391,303 56,640 20,902 Additional provision – site restoration assets capitalised (Note 11) – 61,656 – Additional provision recognised 112,390 3,241 4,374 Charge to income statement – unwind of discount 22,403 2,766 – Decrease in provisions – sale of onerous contract (Note 3) (148,681) – – Decrease in provisions – sale of Tamar (Note 30) (81,000) – – Decrease in provisions – purchase price settlement (66,273) Unused amounts reversed – – (8,740) Amount used during the period (42,142) – (4,775) Total provisions at 30 June 2009 188,000 124,303 11,761 s tement a t l s cia n a n to thes to fi t 2009 – note r o p l Re a BBP Annu

87 notes to the financial statements for the year ended 30 june 2009

15. Employee benefits Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Current Provision for employee benefits 22,947 20,720 – –

Non-current Provision for employee benefits 1,042 688 – – Defined benefit plan liability 46,854 14,171 – – 47,896 14,859 – –

Disclosure on defined benefit superannuation plan Scheme information Defined benefit members receive lump sum benefits on retirement, death, disablement and withdrawal. Some defined benefit members are also eligible for pension benefits in some cases. The defined benefit section of the plan is closed to new members. All new members receive accumulation only benefits, under a defined contribution plan. The following balances relate to the Flinders Power Electricity Industry Superannuation Scheme. An actuarial review of the Flinders Power Electricity Industry Superannuation Scheme was completed during 2009. Reconciliation of the present value of the defined benefit obligation 30 June 2009 30 June 2008 Period ending $’000 $’000

Present value of defined benefit obligations at the beginning of the period 112,346 113,433 Current service cost 3,175 3,234 Interest cost 6,287 5,641 Contributions by Scheme participants 2,461 2,656 Actuarial (gains)/losses 14,287 (3,384) Benefits paid (5,126) (4,603) Taxes and premiums paid (1,440) (944) Transfers in 27 190 Curtailments – 231 Settlements (24) (4,108) Present value of defined benefit obligations at end of the year 131,993 112,346

Reconciliation of the fair value of plan assets Fair value of plan assets at the beginning of the period 98,175 100,020 Expected return on plan assets 6,103 6,274 Actuarial gains/(losses) (22,263) (6,044) Employer contributions 7,226 4,734 Contributions by Scheme participants 2,461 2,656 Benefits paid (5,126) (4,603) Taxes and premiums paid (1,440) (944) Transfers in 27 190 Settlements (24) (4,108) Fair value of plan assets at end of the year 85,139 98,175

88 Reconciliation of the assets and liabilities recognised in the balance sheet 30 June 2009 30 June 2008 As at $’000 $’000

Defined Benefit Obligation^ 131,993 112,346 (-) Fair value of plan assets 85,139 98,175 Net superannuation liability/(asset) 46,854 14,171

^ includes contributions tax provision Expense recognised in income statement 30 June 2009 30 June 2008 Financial year ending $’000 $’000

Service cost 3,175 3,234 Interest cost 6,287 5,641 Expected return on assets (6,103) (6,274) Effect of curtailments/settlements – 231 Superannuation expense/(income) 3,359 2,832

Amounts recognised in the Statement of Recognised Income and Expense 30 June 2009 30 June 2008 Financial year ending $’000 $’000

Actuarial gains/losses (36,550) (2,660)

Cumulative amount recognised in the Statement of Recognised Income and Expense 30 June 2009 30 June 2008 As at $’000 $’000

Cumulative amount of actuarial gains/losses (28,342) 8,208

Scheme assets The percentage invested in each asset class at the balance sheet date was: 30 June 2009 30 June 2008

As at % % s

Australian equities 29 29

International equities 21 19 tement a Fixed income 19 14 t

Property 16 16 l s cia

Alternatives 8 17 n a

Cash 6 5 n

Fair value of scheme assets The fair value of scheme assets includes no amounts relating to: • any of BBP’s own financial instruments; or to thes to fi • any property occupied by, or other assets used by BBP. Expected rate of return on scheme assets The expected return on assets assumption is determined by weighting the expected long-term return for each asset class by the target allocation of assets to each asset class and allowing for the correlations of the investment returns between asset classes. The returns used for each asset class are net of investment tax and investment fees. t 2009 – note

An allowance for administration expenses has also been deducted from the expected return. r o p l Re a BBP Annu

89 notes to the financial statements for the year ended 30 june 2009

15. Employee benefits (continued) Defined benefit superannuation plan (continued) Actual return on scheme assets 30 June 2009 30 June 2008 Period ending $’000 $’000

Actual return on scheme assets (16,160) 230

Principal actuarial assumptions at the balance sheet date 30 June 2009 30 June 2008 As at % p.a. % p.a.

Discount rate (active members) 5.00 6.00 Discount rate (pensioners) 5.50 6.50 Expected rate of return on scheme assets (active members) 6.50 6.40 Expected rate of return on scheme assets (pensioners) 8.00 6.90 Expected salary increase rate 5.00 5.25 Expected pension increase rate 3.00 3.00

Historical information 30 June 2009 30 June 2008 Period ending $’000 $’000

Present value of defined benefit obligation 131,993 112,346 Fair value of scheme assets 85,139 98,175 (Surplus)/deficit in scheme 46,854 14,171 Experience adjustments (gain)/loss – scheme assets 22,263 6,044 Experience adjustments (gain)/loss – scheme liabilities (4,078) 2,649

Expected contributions 30 June 2009 30 June 2008 Period ending $’000 $’000

Expected employer contributions 9,563 4,911

Inherent uncertainties in determination of the defined benefit obligation The present value of the defined benefit pension obligation depends on a number of assumptions covering future salary increases, expected returns on assets, inflation rates, discount rates, mortality and the proportion of members who take benefits as lump sums. Any changes in these assumptions will impact the present value of the defined benefit pension obligations. BBP determines the appropriate discount rate at the end of each year following advice from an independent firm of actuaries. This is the interest rate that is used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit pension obligations. In determining the appropriate discount rate, BBPL considers the interest rates of government bonds that are denominated in Australian dollars (the currency in which the benefits will be paid), and that have terms to maturity approximating the terms of the defined pension liability. BBP engages a reputable actuarial firm to prepare six-monthly updates to its defined benefit plan obligations. A full valuation is performed once every three years. The most recent valuation was performed as at 30 June 2008.

90 16. Borrowings Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Current Secured Bank loans BBPL Syndicated Facility Agreement (i) – 94,947 – 94,947 BBPH Syndicated Facility Agreement (ii) – 352,593 – – redbank Credit Facility Agreement (iii) 13,960 13,849 – – BBPF Syndicated Facility Agreement (iv) 2,541,477 – – – Other loans – 3,387 – 6,722 Total secured current borrowings 2,555,437 464,776 – 101,669

Unsecured Babcock & Brown Group Facility – related party (v) 397,610 127,500 397,610 127,100 Other related party loans (viii) 3,223 – – – Total unsecured current borrowings (Note 31(d)) 400,833 127,500 397,610 127,100 Total current borrowings 2,956,270 592,276 397,610 229,169

Non-current Secured At amortised cost Bank loans BBPF Syndicated Facility Agreement (iv) – 2,365,591 – – redbank Credit Facility Agreement (iii) 231,758 242,021 – – Kwinana Construction Facility (vi) – 336,400 – – s neerabup Construction Facility (vii) – 112,965 – – Other loans – 11,308 – – tement

Total secured non-current borrowings 231,758 3,068,285 – – a t

Unsecured l s

At amortised cost cia n

– Related parties (viii) (ix) 39,744 200,277 1,032,990 1,212,193 a n Total unsecured non-current borrowings (Note 31(d)) 39,744 200,277 1,032,990 1,212,193 Total non-current borrowings 271,502 3,268,562 1,032,990 1,212,193 to thes to fi t 2009 – note r o p l Re a BBP Annu

91 notes to the financial statements for the year ended 30 june 2009

16. Borrowings (Continued) Information on credit risk, fair value and interest rate risk exposure of the group is provided at Note 32. (i) Corporate facility – BBP Limited Bridge Loan. This facility was repaid in September 2008. (ii) Corporate facility – BBP Holdings Facility. This facility was repaid in March 2009. (iii) Bank loan – Redbank Credit Facility Agreement. This facility consists of two tranches. Tranche 1, expiring in 2018 has $52.9 million outstanding as at 30 June 2009 (30 June 2008: $56.9 million). Tranche 2 expiring in 2023 had outstanding $189.1 million outstanding as at 30 June 2009 (30 June 2008: $194.4 million). In addition, there is a working capital facility that is drawn to $3.7 million. The effective average interest rate was 8.04% as at 30 June 2009 (both tranches as at 30 June 2008 were 8.04%). (iv) Corporate facility – BBPF Syndicated Facility Agreement. This facility currently consists of four tranches: • tranche A: $1,600 million • tranche B: $960 million • Working Capital: $60 million revolving working capital facility • Letter of Credit: $80 million revolving letter of credit facility the amount outstanding as at 30 June 2009 was $2,531.5 million for Tranche A & B (30 June 2008: $2,424.9 million), $10 million for Working Capital (30 June 2008: $2 million). Letters of Credit amounting to $37.9 million were outstanding at 30 June 2009 (30 June 2008: $54.7 million). The effective interest rate on the debt as at 30 June 2009 was 8.54% (30 June 2008: 8.25%). BBP has made substantial progress in commercial negotiations in relation to the restructuring of this facility. The 11 members of the BBPF Syndicate are in the process of seeking internal approval to implement the restructure. BBP expects to have entered legal agreements to implement the transaction by the end of October 2009. The BBPF Syndicate members have the current right to accelerate repayment of the facility. The acceleration of the BBPF loan may precipitate the acceleration of the Babcock & Brown (B&B) and BBPT debts. (v) Unsecured Related Party Loan (current) – BBP Facility. These facilities from B&B are currently due to mature on 31 March 2010. The principal outstanding as at 30 June 2009 was $397.6 million. The effective interest rate as at 30 June 2009 was 11.8%. BBP has made substantial progress in commercial negotiations in relation to the restructuring of the facility. B&B is seeking approval of its banking group to enter into transaction documents to implement the restructure. It is expected the restructure of the B&B loans will require a vote by security holders. B&B has a current right to accelerate the loans with the obligation otherwise due to mature in March 2010. Were B&B to call for the acceleration of its loans, this would allow BBPT to call its loans and may precipitate the acceleration of the BBPF Syndicate debt. (vi) Construction facility – Kwinana construction facility converted to a term facility upon project completion and was divested as part of the sale of the Kwinana power station in March 2009. (vii) Construction and Equity Bridge facilities – Neerabup construction facility continued to be drawn down to finance construction activity until BBP divested its 50% equity ownership interest in February 2009. (viii) Unsecured Related Party Loans – Loan payable to Oakey Power Holdings (Associate) and loan payable to Babcock & Brown Infrastructure (BBI). The loan from BBI is to be repaid by 2017; it has an effective interest rate of 11.3%. (ix) Unsecured Related Party Loans: The borrowings amount in the Company column represents the present value of the loan owing to BBPT.

92 17. Assets pledged as security Bank loans of project-level subsidiaries are secured by a combination of fixed and floating charges over the assets of those entities. Corporate level debt is secured by the shares in the underlying subsidiary companies.

Consolidated Parent Entity 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Current Cash and cash equivalents 105,540 429,928 – – Receivables 152,183 340,612 – – Total current assets pledged as security 257,723 770,540 – –

Non-current Investments in subsidiaries – – – 618,290 Receivables 137,821 126,321 – – Property, plant and equipment 2,118,916 2,319,694 – – Total non-current assets pledged as security 2,256,737 2,446,015 – 618,290 Total assets pledged as security 2,514,460 3,216,555 – 618,290

18. Derivative financial instruments – liabilities Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Current Derivative financial instruments at fair value Interest rate derivatives 125,879 – – – Foreign exchange derivatives 1,675 12,612 – – other 333 – 333 – Total current derivative financial instruments – liabilities 127,887 12,612 333 – s

Non-current tement

Derivative financial instruments at fair value a t Foreign exchange derivatives – 133 – – l s electricity derivatives 8,950 10,509 – – cia n

other – – – 1,000 a n Total non-current derivative financial instruments – liabilities 8,950 10,642 – 1,000 Total derivative financial instruments – liabilities 136,837 23,254 333 1,000

Refer to Note 32 for further information on derivative sensitivities. thes to fi t 2009 – note r o p l Re a BBP Annu

93 notes to the financial statements for the year ended 30 june 2009

19. Borrowing costs Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Borrowing costs capitalised during the financial year 23,907 9,044 – – Weighted average capitalisation rate on funds borrowed generally 8.48% 8.26% – –

20. Contributed equity Stapled Security in BBP Units in BBPT Parent – Shares in BBPL Issue Issue Issue price per price per price per N number Security number Security number Security ’000 $ $’000 ‘000 $ $’000 ‘000 $ $’000

Balance as at 30 June 2007 359,290 869,900 359,290 551,924 359,290 317,976 Distribution (142,512) (142,512) – Securities issued on acquisition of Alinta Various dates 334,887 2.901 971,173 334,887 1.97 658,067 334,887 0.93 313,106 Share purchase plan 5 December 2007 15,145 2.88 43,592 15,145 1.95 29,538 15,145 0.93 14,054 Share issue under distribution reinvestment plan 31 March 2008 17,007 1.76 30,030 17,007 1.11 18,886 17,007 0.65 11,144 726,329 1,772,183 726,329 1,115,903 726,329 656,280 Less equity issuance costs (252) (190) (62) Balance 30 June 2008 726,329 1,771,931 726,329 1,115,713 726,329 656,218

30 June 2009 Movements – – – – – – Balance 30 June 2009 726,329 1,771,931 726,329 1,115,713 726,329 656,218

Stapled securities attributable to Company – BBPL 656,218 Stapled securities attributable to Trust – BBPT 1,115,713 Total securities in consolidated group as at 30 June 2009 1,771,931

1. represents market price of securities at the date of acquisition.

94 21. Reserves Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Hedge reserve (122,954) 70,605 – – Foreign currency translation reserve (715) (2,800) – – Other reserves 82 82 – – Total reserves (123,587) 67,887 – –

Attributable to: Equity holders of the Company – BBPL (123,587) 67,887 – – (123,587) 67,887 – –

Hedge reserve Balance at beginning of financial year 70,605 24,424 – – Gain/(loss) recognised 26,005 3,094 – – Cash flow hedges – movement in fair value of derivatives (293,078) 61,553 – – Deferred tax arising on hedges 73,514 (18,466) – – Balance at end of financial year (122,954) 70,605 – –

Foreign currency translation reserve Balance at beginning of financial year (2,800) – – – Translation of foreign operations 2,085 (2,800) – – Balance at end of financial year (715) (2,800) – –

Cessation of hedge accounting in relation to interest rate swaps As at 30 June 2009, BBP was in negotiations with the BBPF banking syndicate members, and did not have a unilateral right to defer settlement of the BBPF Syndicated Debt facility for a 12 month period beyond 30 June 2010. As a consequence, the debt was classified as a current liability. As part of these considerations, uncertainty s arose as to whether the ongoing relationship between the debt (the hedged item) and interest rate swaps associated with the debt (the hedging instrument), would hold throughout their originally designated maturities. tement

Maintaining an effective accounting hedge relationship requires the transactions underpinning the arrangement a to be highly probable. This is generally considered to require a degree of confidence in excess of 90%. While BBP t remain confident that the tenor of the hedged item would be extended periodically to rematch the maturities of l s

the hedging instruments, there existed at balance date a risk that the renegotiated loan tenor and interest rate cia would be such that the originally designated accounting hedge relationship would be broken and there would be n a a mismatch in term and duration of the debt and the hedging instrument. As a consequence, BBP ceased hedge n accounting as at the balance date. The impact of this decision has prospective implications for BBP. Going forward, changes in the fair value of the underlying interest rate swaps will be recognised directly to the profit and loss account. The balance held in

reserves as at 30 June 2009 relating to the interest rate swaps of $105 million, will be amortised out of reserves thes to fi and into the profit and loss account over the remaining life of the interest rate swaps. The interest rate swaps have a remaining life of between 5 to 12 years which is likely to exceed the term of the restructured facility currently being negotiated. t 2009 – note r o p l Re a BBP Annu

95 notes to the financial statements for the year ended 30 june 2009

22. Retained earnings Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Balance at beginning of financial year (498,772) (74,843) 479,172 51,334 Prior period adjustments (4,077) – – – Net (loss)/profit attributable to stapled security holders (167,681) (425,977) (1,733,079) 427,838 Movement in Retirement Benefit Obligation (Note 15) (24,345) 2,048 – – Balance at end of financial year (694,875) (498,772) (1,253,907) 479,172

Attributable to: Equity holders of the Company – BBPL (698,921) (503,572) (1,253,907) 479,172 Equity holders of the Trust – BBPT 4,046 4,800 – – (694,875) (498,772) (1,253,907) 479,172

23. Earnings per security Consolidated 2009 2008 Cents per Cents per Security Security

Basic earnings per stapled security/parent entity share (23.09) (65.08) Diluted earnings per stapled security/parent entity share (23.09) (65.08) The earnings and weighted average number of securities/shares used in the calculation of basic and diluted earnings per security/share are as follows: Losses attributable to the parent entity share holders ($) (167,680,940) (425,977,294) Weighted average number of securities/shares for the purposes of basic and diluted earnings per security/share 726,328,872 654,536,944

24. Distributions 2009 2008 Cents per Total Cents per Total Security $’000 Security $’000

Recognised amounts Fully paid Securities FY08 Final distribution – Paid from contributed equity (September 2008) – – 14 50,301 FY09 Interim distribution – Paid from contributed equity (March 2009) – – 13 92,212 – – 27 142,513

The Board of Directors of BBP have decided not to make distributions to unit holders as part of an overall plan to strengthen the Group’s balance sheet. No distributions were paid in the year to 30 June 2009. The parent entity, BBPL, has a franking account credit balance of $9.1 million as at 30 June 2009 (30 June 2008: $3.5 million credit balance).

96 25. Notes to the cash flow statements (a) Reconciliation of cash and cash equivalents Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Cash and cash equivalents including: Restricted cash (i) Current 33,084 125,289 – – non-current 54,499 139,357 – – Unrestricted cash Cash at bank 149,419 165,282 13,124 13,939 Deposits 2,813 – – – 239,815 429,928 13,124 13,939

(i) Cash held on restricted deposit is interest bearing and its use is mainly restricted as a requirement of the consolidated entities’ financing agreements. Amounts may be released for defined purposes if specified requirements are met to facilitate establishing reserve accounts for debt repayments, meeting the cost of future interest payments and capital expenditure or as a deposit supporting a letter of credit or guarantee issued on behalf of the consolidated entity. (b) Reconciliation of profit for the period to net cash flows from operating activities Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

(Loss)/profit for the period (168,933) (426,515) (1,733,079) 427,838 Share of associates’ profit (less dividends) 559 (5,915) – (816) Interest expense – – – – Impairment loss 56,700 452,000 791,000 – Depreciation and amortisation

of non-current assets 176,613 152,855 – – s Decrement/(increment) on revaluation of financial derivatives 31,382 9,325 – – tement

Interest income – present value a of interest-free loans – – 724,161 (381,065) t l s Debt forgiveness – – 124,715 – cia

Decrement on revaluation of PPHA derivative 37,523 (82,789) (667) – n a

Profit on sale of non-current assets (94,117) – – – n Fair value change on Incentive Fee – (23,400) (23,400) Amortisation of deferred borrowing costs 69,717 33,675 3,061 3,467

Foreign exchange gain/(loss) 418 4,727 – – thes to fi (Increase)/decrease in deferred tax assets (54,049) – 99,464 (138,885) Increase/(decrease) in deferred tax liabilities (21,219) (15,864) (69,124) 61,850 Increase/(decrease) in current tax liability (12,852) 8,411 – 8,588 Changes in net assets and liabilities, t 2009 – note net of effects from acquisition – 80,035 – – r o

(Increase)/decrease in assets 187,244 314,916 32,219 1,826 p

Increase/(decrease) in liabilities (201,313) (329,913) 9,708 18,775 l Re a Net cash from operating activities 7,673 171,548 (18,542) (21,822) BBP Annu

97 notes to the financial statements for the year ended 30 june 2009

25. Notes to the cash flow statements (continued) (c) Financing facilities Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Working capital facility payable at call: Amount used 10,000 2,000 – – Amount unused 50,000 58,000 – – 60,000 60,000 – –

Facilities with maturities between current to 20 years: Amount used 3,225,759 4,461,599 – – Amount unused 95,422 518,362 – – 3,321,181 4,979,961 – –

(d) Non-cash financing activities 2009 No non-cash financing activities took place in 2009. 2008 An amount of $971 million in BBP securities were issued to Alinta shareholders for the acquisition of certain Alinta businesses on 31 August 2007. 26. Commitments for expenditure (a) Capital expenditure commitments Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Not longer than 1 year 68,454 547,595 – – Longer than 1 year and not longer than 5 years 34,815 93,336 – – Longer than 5 years – – – – 103,269 637,931 – –

Capital expenditure commitments are required for power plant maintenance and expansion. (b) Lease commitments BBP has non-cancellable operating lease commitments (Note 27). At 30 June 2009, BBP did not have any commitments under finance leases. (c) Other expenditure commitments Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Not longer than 1 year 72,142 65,087 – – Longer than 1 year and not longer than 5 years 284,694 151,804 – – Longer than 5 years 305,580 38,902 – – 662,416 255,793 – –

Other expenditure commitments relate to significant commitments as a result of existing contracts such as purchase of gas, purchase of SRA’s energy contracts, rail freight of coal and IT Infrastructure.

98 27. Leases Operating leases as a lessee: Certain BBP subsidiaries are lessees under operating leases relating to certain land, motor vehicles and roads.

Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Non-cancellable operating lease payments Not longer than 1 year 2,261 2,214 – – Longer than 1 year and not longer than 5 years 3,752 5,637 – – Longer than 5 years 253 4,026 – – 6,266 11,877 – –

Operating leases as a lessor: At certain power stations the contracts for sale of electricity to another party have been assessed as meeting the definition of an operating lease. Total contingent rents recognised as income in the period was $60.3 million (2008: $66.3 million). Future minimum lease receipts under non-cancellable operating leases in the aggregate and for each of the following periods:

Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

Non-cancellable operating lease Not longer than 1 year 29,284 21,712 – – Longer than 1 year and not longer than 5 years 146,593 186,179 – – Longer than 5 years 183,391 348,492 – – 359,268 556,383 – –

Finance leases as a lessor: s At certain power stations the benefits and risks associated with ownership have been assessed as being passed to the lessee hence meeting the definition of finance leases.

2009 2008 tement a Total Unearned Total Unearned t

future interest present future interest present l s payments income value payments income value cia n

Finance lease receivable a n Not longer than 1 year 11,739 6,494 5,245 14,520 6,831 7,690 Longer than 1 year and not longer than 5 years 63,009 22,238 40,771 58,769 20,742 38,026

Longer than 5 years 34,366 3,029 31,337 46,615 6,311 40,304 thes to fi 109,114 31,761 77,353 119,904 33,884 86,020

There are no finance leases recognised by the parent entity. t 2009 – note r o p l Re a BBP Annu

99 notes to the financial statements for the year ended 30 june 2009

28. Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with accounting policy described in Note 1. Ownership interest is equal to the proportion of voting power held. All ownership interest is through ordinary shares.

Ownership interest Country of 2009 2008 Name of the entity incorporation % %

Parent entity Babcock & Brown Power Limited* australia

Stapled entity Babcock & Brown Power Trust australia

Subsidiaries of BBP BBP Holdings Pty Limited* australia 100 100 CMO Energy NZ Ltd new Zealand 100 100 Babcock & Brown Power Advisory Pty Limited* australia 100 100 Newgen Partnership** australia 0 70 Babcock & Brown Kwinana Pty Limited** australia 0 100 BBP Kwinana Power Pty Limited** australia 0 100 BBP Braemar Power Pty Limited australia 100 100 Babcock & Brown Braemar 2 Pty Limited australia 100 100 Braemar Power Partners Pty Limited australia 100 100 Babcock & Brown Braemar 1 Pty Limited australia 100 100 Babcock & Brown Braemar 3 Pty Limited australia 100 100 Braemar Power Project Pty Limited australia 100 100 Braemar Power Finance Pty Limited australia 100 100 BBP Oakey Power Pty Limited* australia 100 100 Babcock & Brown Flinders Pty Limited australia 100 100 Flinders Operating Services Pty Limited australia 100 100 Flinders Power Finance Pty Limited australia 100 100 Flinders Power Partnership australia 100 100 Flinders Coal Pty Limited australia 100 100 Flinders Osborne Trading Pty Limited australia 100 100 Babcock & Brown Osborne Pty Limited australia 100 100 B&B Power Malta Holdings Ltd Malta 100 100 B&B Power Malta (Flinders) Ltd Malta 100 100 B&B Power Luxembourg SARL Luxembourg 100 100 Flinders Power Holdings GmbH Switzerland 100 100 Flinders Labuan (No.1) Ltd australia 100 100 Flinders Labuan (No.2) Ltd australia 100 100 NPP Redbank LLC* USA 100 100 NPP Redbank 2 LLC* USA 100 100 BBP Redbank Power Pty Limited australia 100 100 Redbank Project Pty Limited australia 100 100 Redbank Construction Pty Limited australia 100 100 BBP Ecogen Power Pty Limited* australia 100 100 Ecogen Holdings Pty Limited** australia 0 72.61

100 Ecogen Energy Pty Limited** australia 0 72.61 Ownership interest Country of 2009 2008 Name of the entity incorporation % %

EcoHoldings Pty Limited** australia 0 72.61 Ecogen Investments Pty Limited** australia 0 72.61 Ecogen Power Pty Limited** australia 0 72.61 Ecogen Investments UK (UK tax resident)** UK 0 72.61 Madison BV (Dutch tax resident)** netherlands 0 72.61 BB Power Cat Pty Ltd australia 100 100 BBP Uranquinty Pty Limited* australia 100 100 BBP ONE Pty Limited* australia 100 100 BBP Energy Trading Pty Ltd* australia 100 100 BBP Neerabup Holdings Pty Limited* australia 100 100 BBP Neerabup Power Pty Limited** australia 0 100 BBP Servco Pty Limited* australia 100 100 Neighbourhood Energy Pty Limited australia 65 65 BBP Uranquinty Power Pty Limited** australia 0 100 BBP Finance Australia Pty Limited* australia 100 100 BBP Energy Markets Pty Limited* australia 100 100 BB Power Cat Sub 1 Pty Limited australia 100 100 BB Power Cat Sub 2 Pty Limited australia 100 100 BB Power Cat Sub 3 Pty Limited australia 100 100 BB Power Cat Sub 4 Pty Limited australia 100 100 BB Power Cat Sub 5 Pty Limited* australia 100 100 Alinta Energy Pty Ltd australia 100 100

Alinta Energy Power Generation Pty Limited* australia 100 100 s Alinta Energy (Tamar Valley) Pty Limited** australia 0 100 Alinta EATM Pty Limited* australia 100 100 tement a

Alinta Energy (New Zealand) Ltd new Zealand 100 100 t

Alinta Pty Limited australia 100 100 l s

Alinta Sales Pty Limited australia 100 100 cia n

Alinta Cogeneration (Pinjarra) Pty Limited australia 100 100 a n Alinta Cogeneration (Wagerup) Pty Limited australia 100 100 Alinta Cogeneration Finance Pty Limited australia 100 100 Alinta APG Pty Limited australia 100 100 to thes to fi Alinta APGMW Pty Limited australia 100 100 Alinta ACP Pty Limited australia 100 100 Alinta ENZ Ltd Bermuda Islands 100 100 Alinta ENZF Pty Limited new Zealand 100 100 t 2009 – note

Alinta DVP Pty Limited australia 100 100 r o

Alinta DEBH Pty Limited australia 100 100 p Alinta DEBP Pty Limited australia 100 100 l Re Alinta DEBO Pty Limited australia 100 100 a BB Power Unit Trust No 1 australia 100 100 Alinta ED Limited australia 100 100

Alinta Power Trust australia 100 100 BBP Annu

101 notes to the financial statements for the year ended 30 june 2009

28. Subsidiaries (Continued) Ownership interest Country of 2009 2008 Name of the entity incorporation % %

Alinta DAPH Pty Limited australia 100 100 Alinta DAPF Pty Limited australia 100 100 Alinta DEWAH Pty Limited australia 100 100 Alinta DEWAP Pty Limited australia 100 100 Alinta DIC Pty Limited australia 100 100 Alinta Power Sub Pty Limited australia 100 100 Alinta Energy (LPG) Pty Limited australia 100 100 Alinta Electricity Trading Pty Limited australia 100 100

* these companies are members of the Babcock & Brown Power Limited tax consolidated group at 30 June 2009. ** these companies were sold during the year to 30 June 2009. 29. Segment information (a) Description of segments Segment information is presented in respect of the Group’s business and geographical segments. Business segments The Group comprises the following business segments: Generation: This segment includes the gas and coal-fired power generation assets of the Group. Energy Markets: This segment includes the sale of natural gas and electricity to retail, industrial and commercial customers. The retail operations, comprising Alinta and Neighbourhood Energy (NE) were acquired during the year ended 30 June 2008. Also included is merchant gas sales and transmission. The Alinta operations were acquired on 1 September 2007, and NE was acquired on 3 July 2007 as a start-up operation. Geographical segment The Group operates in three principal geographical areas, the South/North West Interconnected System, the National Electricity Market and New Zealand. The table below allocates each of the Group’s operations into the business and geographical segments. South/North West Segment Interconnected System National Electricity Market new Zealand

Power Generation WA Power Flinders Glenbrook Cawse Braemar Kwinana* Ecogen* Neerabup* Redbank Power Projects Tamar* Oakey Bairnsdale Uranquinty* Redbank Energy Markets Alinta AEATM** LPG Neighbourhood Energy

* Sold during the year to 30 June 2009. ** Contracts sold during the year to 30 June 2009.

102 (b) Primary reporting format – business segments Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. The following information relates to the table below: (i) Unallocated segment revenues represent parent entity fee revenue and consolidation eliminations. Unallocated segment EBITDA includes parent entity overhead fees and costs, management fees and corporate expenses. Unallocated segment profit before tax includes parent entity interest charges. (ii) Generation Revenue includes: • Contract Revenue from electricity generation under an electricity supply agreement (PPA) including associated products such as GECs in the case of Braemar. • rolling hedge revenue from electricity generation covered by hedge contracts, generally with a term of less than five years, although a small portion of Flinders’ Rolling Hedges have terms greater than five years. • movement in derivative financial contract valuations that occur as a result of reassessments throughout the period of the value of hedge contracts as a result of changes in pool prices. The charge to revenue is applicable to contracts realised during the period as well as future dated contracts. • Unhedged revenue including pool revenue payments from NEMMCO where there is no hedge in place that covers the electricity sold to earn that pool revenue. • ppa lease revenue. • Fly ash sales from generation assets (iii) Energy Markets revenue includes: • retail, commercial and industrial gas and electricity sales. • Wholesale gas and electricity sales. • LPG sales. (iv) Total Assets for Unallocated and Eliminations include Osborne guarantee, ERM investment, Oakey Investment and other parent entity assets. (i) Year ended 30 June 2009 Inter Intra Corporate profit Generation energy segment segment and total before revenue markets revenue revenue unallocated revenue eBITDA tax Results $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Generation 590,409 74,383 13,317 3,402 – 681,511 315,013 216,877

Energy Markets 27,864 803,134 5,215 23,940 – 860,153 60,136 (60,559) s Corporate – – 7,318 – (14,805) (7,487) (44,686) (394,612)

Unallocated and Eliminations – – – – – (4,677) (4,677) tement a Associates – – – – – – (559) (559) t Total 618,273 877,517 25,850 27,342 (14,805) 1,534,177 325,277 (243,530) l s cia

Share of Investment n a

Depreciation & CAPEX CAPEX associate accounting n amortisation (maintenance) (construction) profit assets Liabilities in associates Other $’000 $’000 $’000 $’000 $’000 $’000 $’000

Generation (104,461) (15,973) (201,678) – 2,889,906 (1,734,355) –

Energy Markets (50,667) (12,958) (5,751) – 1,735,810 (1,819,450) – thes to fi Corporate (21,485) (34) – – 671,812 (792,593) – Unallocated and Eliminations – – – – – – – Associates – – – (559) – – 46,550 Total (176,613) (28,965) (207,429) (559) 5,297,231 (4,346,398) 46,550 t 2009 – note r o p l Re a BBP Annu

103 notes to the financial statements for the year ended 30 june 2009

29. Segment information (continued) (b) Primary reporting format – business segments (continued) (ii) Year ended 30 June 2008 Inter Intra Corporate profit Generation energy segment segment and total before revenue markets revenue revenue unallocated revenue eBITDA tax Results $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Generation 819,778 38,612 9,838 1,552 123 869,903 241,412 106,745 Energy Markets 12,166 657,727 7,953 19,687 9,679 707,212 125,282 3,990 Corporate – – – – 3,275 3,275 (28,476) (727,003) Unallocated and Eliminations – – – – (52,970) (52,970) (12,204) 228,829 Power Projects – – – – – – (920) 275 Associates – – – – – – 5,915 3,134 Total 831,944 696,339 17,791 21,239 (39,893) 1,527,420 331,009 (384,030)

Depreciation Share of Investment and CAPEX CAPEX associate accounting amortisation (maintenance) (construction) profit assets Liabilities in associates Other $’000 $’000 $’000 $’000 $’000 $’000 $’000

Generation (112,949) (160,533) (292,393) – 4,106,745 (3,113,289) – Energy Markets (37,813) – (84,502) – 1,705,893 (1,728,631) – Corporate (88) (409) – – 11,840,125 (10,754,596) – Unallocated and Eliminations – – – 816 (10,556,833) 9,846,777 – Power Projects – – – – – – – Associates (2,005) – – 5,099 53,974 (4,912) 49,025 Total (152,855) (160,942) (376,895) 5,915 7,149,904 (5,754,651) 49,025

(c) Secondary reporting format – geographical segments (i) Year ended 30 June 2009 Unallocated and SWIS/NWIS nem new Zealand Subtotal eliminations Consolidated $’000 $’000 $’000 $’000 $’000 $’000

Segment revenue 836,317 682,271 23,019 1,541,607 (7,430) 1,534,177 Segment assets 2,654,793 2,372,075 64,446 5,091,314 205,917 5,297,231 Capital expenditure (176,917) (59,023) (420) (236,360) – (236,360)

(ii) Year ended 30 June 2008 Unallocated and SWIS/NWIS nem new Zealand Subtotal eliminations Consolidated $’000 $’000 $’000 $’000 $’000 $’000

Segment revenue 676,114 827,751 24,418 1,528,283 (862) 1,527,421 Segment assets 2,762,422 3,032,793 70,795 5,866,010 1,283,894 7,149,904 Capital expenditure (212,908) (322,543) (1,976) (537,427) (410) (537,837)

104 30. Changes in the composition of the consolidated Group (a) Disposal of business The results of the disposed operations within the year to 30 June 2009 are presented below. Uranquinty ecogen tamar erm Kwinana neerabup total $’000 $’000 $’000 $’000 $’000 $’000 $’000

Revenue – 20,472 – – 7,322 – 27,794 Expenses – (19,508) (1,796) – (8,683) – (29,987) Profit/(loss) before income tax – 964 (1,796) – (1,361) – (2,193) Income tax (expense)/income – 1,422 (11,141) – 292 – (9,427) Profit/(loss) after income tax of disposed operations – 2,386 (12,937) – (1,069) – (11,620)

The following is a summary of the details of operations disposed of during the year to 30 June 2009. Uranquinty ecogen tamar erm Kwinana neerabup total $’000 $’000 $’000 $’000 $’000 $’000 $’000

Net consideration received or receivable 168,121 79,000 100,000 21,197 58,150 1,672 428,140 Selling cost (3,301) (30) (2,365) – (613) (960) (7,269) Net disposal consideration 164,820 78,970 97,635 21,197 57,537 712 420,871 Carry amount of net assets sold 64,047 78,224 98,547 21,703 60,089 4,144 326,754 Gain/(loss) on disposal before tax 100,773 746 (912) (506) (2,552) (3,432) 94,117

There were no disposals for the year to 30 June 2008. Disposed operations Uranquinty On 4 July 2008, BBP sold its 100% interest in NewGen Power Uranquinty Pty Ltd (“Uranquinty”) for a net consideration of $168 million to Origin. Uranquinty is a 640MW power station near Wagga Wagga in South

Western NSW. Uranquinty was under construction at the date of sale. The net proceeds were used to repay part s of the Babcock & Brown Power Holdings’ (BBPH) outstanding corporate debt facility. In addition, the Uranquinty construction debt facility of $510 million (of which $404 million was drawn at date of sale) was assumed by Origin.

Ecogen tement a

On 17 July 2008, BBP sold its 72.61% equity stake in Ecogen Holdings Pty Ltd (“Ecogen”) for a net consideration t

of $79 million to Industry Funds Management (IFM). Ecogen is a 959MW Ecogen power generation business in l s Victoria. The net proceeds were used to repay part of the BBPH corporate debt facility. In addition, the Ecogen debt cia facility of $130 million was assumed by IFM. n a

Tamar n On 18 August 2008, BBP sold its 100% interest in Alinta Energy Tamar Valley Pty Ltd (“Tamar”) for $100 million net consideration to Aurora Energy. At the date of sale, Tamar was under construction. The net proceeds from sale were used to repay part of the BBPL corporate debt facility. In addition, the sale resulted in the release of onerous contracts within Alinta EATM valued at $81 million. to thes to fi ERM On 18 December 2008, BBP sold its 40% stake in ERM Power Investments Pty Ltd (“ERMPI”). ERMPI was a 50% stakeholder in the NewGen Kwinana Partnership of which BBP Kwinana Power (a subsidiary owned 100% by the BBP Group) owned the remaining 50%. The 40% stake was sold for $21 million consideration. The proceeds of the sale were used to repay part of the outstanding BBPH corporate debt facility. t 2009 – note

Kwinana r o

On 19 March 2009, BBP sold its remaining interest in the NewGen Kwinana Partnership (Kwinana) via a 100% sale p of its interest in BBP Kwinana Power Pty Ltd for a consideration of $58 million which was used to repay the BBPH corporate debt facility. Construction of the 320MW CCGT power station was completed in November 2008. l Re a Neerabup On 24 February 2009, BBP sold its 100% interest in BBP Neerabup Power Pty Ltd and its 50% stake in NewGen Power Neerabup Pty Ltd (Neerabup) for consideration of $45 million to ANZ Specialist Asset Management Limited. The sale resulted in the release of a $43.4 million letter of credit provided to BBP by BB Securities Pty Ltd resulting BBP Annu in net consideration of $1.7 million. 105 notes to the financial statements for the year ended 30 june 2009

30. Changes in the composition of the consolidated Group (continued) (b) Acquisition of business During the year ended 30 June 2009, BBP did not acquire any businesses. During the year ended 30 June 2008, BBP acquired the following businesses. Ownership interest in Cost of Date of shares/units acquisition Name of business acquired in 2008 year Note acquisition % $’000

Alinta 30(c) august 2007 100 2,855,002 BBP Uranquinty Power Pty Limited July 2007 70 28,460 Neighbourhood Energy July 2007 65 6,195 BBP Neerabup Holdings Pty Limited may 2008 100 –

(c) Finalisation of Alinta provisional accounting On 31 August 2007, BBP as part of a consortium including Babcock & Brown Infrastructure and Singapore Power International, acquired 100% of the issued capital of Alinta Limited, a company listed on the Australian Stock Exchange. The Alinta assets were consequently allocated between the consortium members in accordance with the Alinta Scheme Booklet. During the year, BBP finalised the purchase price accounting in accordance with AASB 3 Business Combinations. The net assets and liabilities arising from the Alinta acquisition (which includes the assumption of shareholder loans relating to Alinta AGL) and the fair value attributable to the assets and liabilities are detailed below. The table below represents the finalised purchase price accounting inclusive of the remaining minority interest in Alinta AGL Limited acquired on 12 December 2007. Carrying value Fair value $’000 $’000

Cash and cash equivalents 57,275 57,275 Receivables 415,886 1,294,196 Inventories 3,432 3,432 Derivative financial instruments 8,899 32,395 Property, plant and equipment and leasehold right 1,035,839 1,053,926 Deferred tax asset 85,423 124,306 Intangible assets – non-goodwill 533,747 663,025 Goodwill 326,360 1,797,134 Payables (262,483) (349,561) Provisions (310,902) (310,902) Deferred tax liabilities (191,052) (208,752) Derivative financial instruments (587) (587) Interest-bearing liabilities (1,300,885) (1,300,885) Net assets 400,952 2,855,002 Net identifiable assets acquired 2,855,002

Consideration Cash paid and payable 1,854,635 Stapled securities issued (Note 20) 971,173 Cost associated with the acquisition 29,194 Total consideration 2,855,002

The cash outflow on acquisition is as follows: Net cash acquired with subsidiary 57,275 Cash paid (1,883,829) Net cash (1,826,554)

The amount recognised as an adjustment to the purchase price provisional values made during the year mostly relate to the finalisation of property, plant and equipment (Note 11) and Intangibles (Note 12) valuations as well as 106 the finalisation of tax balances in relation to the acquisition. 31. Related parties disclosures (a) Equity interests in related parties Equity interests in subsidiaries Details of the percentage ownership held in subsidiaries are disclosed in Note 28 to the financial statements. Equity interests in associates Details of interests in associates are disclosed in Note 9 to the financial statements. (b) Directors and key management personnel disclosures Detailed remuneration disclosures are provided in the remuneration report section of the Directors’ Report on pages 39 to 44 of this annual Financial Report. Details of directors and key management personnel The following persons were Directors of BBPL at any time during the year, up to the date of this Directors’ Report: Mr Len Gill (Chairman) – from 1 July 2008 Mr Ross Rolfe (Chief Executive Officer) appointed 8 December 2008 Mr John Fletcher Mr Peter M Kinsey Mr John Bowyer appointed 3 September 2008, resigned 8 December 2008 Mr Warren Murphy resigned 3 September 2008 Mr Peter Hofbauer resigned 3 September 2008 Mr M Garland (alternate for Mr W D Murphy) role ceased 3 September 2008 Mr G W Denton (alternate for Mr P F Hofbauer) role ceased 3 September 2008

Senior executives of the business considered to be key management personnel (KMP) of BBP during the year were: Mr Ross Rolfe Chief Executive Officer appointed 29 August 2008 Mr Peter Brook Chief Financial Officer appointed 7 October 2008 Mr Brian Green Chief Operating Officer Mr Andrew Kremor General Manager, Energy Markets resigned 31 August 2009 Mr Victor Browner General Manager (Acting), Alinta

Mr Andrew Bills General Manager, Investments s Mr Paul Simshauser Chief Executive Officer resigned 29 August 2008 Mr James Brown Chief Financial Officer resigned 29 August 2008 tement a t Key management personnel remuneration The aggregate remuneration of the KMP of BBP for the years ended 30 June 2009 and 2008 is set out below: l s cia

Consolidated Company n

2009 2008 2009 2008 a n $ $ $ $

Short-term employee benefits 4,426,057 3,144,230 – – Post-employment benefits 126,282 66,261 – – Other long-term benefits 135,015 21,913 – – thes to fi Termination benefits 406,615 – – – Share-based payments (360,455) 1,026,083 – – Total 4,733,514 4,258,487 – – t 2009 – note r o p l Re a BBP Annu

107 notes to the financial statements for the year ended 30 june 2009

31. Related parties disclosures (continued) (b) Directors and key management personnel disclosures (continued) The KMP information below covers both the Company and the Consolidated Group. Options held in BBP The KMP did not hold any Options in BBP over the years ended 30 June 2009 and 30 June 2008. Bonus deferral rights held in BBP KMP held the following Bonus Deferral Rights (BDR) in BBP shares over the periods ended 30 June 2008 and 30 June 2009. Further details of the BDR are disclosed in the Remuneration Report forming part of the Directors’ Report. Opening Closing Cash settled balance Forfeited balance value forfeited ($)

Mr Brian Green 18,903 (18,903) – 3,629 Mr Andrew Kremor 12,557 (12,557) – 2,411 Mr Paul Simshauser 68,660 (68,660) – 13,183 Mr James Brown 15,249 (15,249) – 2,928

Security holdings in BBP Outlined below are the security holdings of the KMP in BBP over the years ended 30 June 2008 and 30 June 2009: acquired Sold acquired Sold Balance during during Balance during during Balance 30 June 2007 the year the year 30 June 2008 the year the year 30 June 2009 N number number number number number number number Directors Mr John Fletcher 80,000 28,767 – 108,767 – – 108,767 Mr Len Gill 40,000 38,000 – 78,000 4,2291 – 82,229 Mr Peter Hofbauer 1,238,383 636,581 – 1,874,964 – 1,874,964 – Mr Peter Kinsey 16,000 – – 16,000 – – 16,000 Mr Warren Murphy 931,162 674,294 – 1,605,456 – 954,294 651,162

KMP Mr Ross Rolfe – – – – – – – Mr Peter Brook – – – – – – – Mr Brian Green – 300 – 300 – – 300 Mr Andrew Kremor – – – – – – – Mr Victor Browner N/A – – 6,978 – – 6,978 Mr Andrew Bills N/A – – – – – – Mr Paul Simshauser 80,000 94,523 – 174,523 – 174,523 – Mr James Brown 25,000 – – 25,000 – – 25,000

1. acquired as a consequence of the closure of a financial product in which Mr Gill’s superannuation fund had invested. Refer to the ASX announcement dated 22 January 2009. Securities granted as remuneration No securities were granted as remuneration to the KMP during the financial year and no securities were acquired upon the exercise of options during the financial year. Directors are not eligible for securities as remuneration. Loans to key management personnel and their personally related entities from Babcock & Brown Limited No loans have been made by BBP and Babcock & Brown Limited to KMP over the years ended 30 June 2009 and 30 June 2008. Loans to key management personnel and their personally related entities from BBP No loans have been made by BBP to KMP over the years ended 30 June 2009 and 30 June 2008.

108 (c) Other related party transactions Transactions involving the parent entity During the financial year, various subsidiaries and associates received management services from BBPL. The total value of the services received was $89,123 (2008: $271,724). Transactions involving other related parties Receivables from related parties are disclosed in Note 5. Payables to related parties are disclosed in Note 13. Transactions were made on normal commercial terms and conditions and under normal market rates. There were no consultancy payments made for the year ended 30 June 2009 (30 June 2008: $26,730). Payments made for the year ended 30 June 2008 were to Independent Director, Len Gill for the provision of management consultancy services. The consultancy arrangement was on normal market terms and conditions, with a term of 12 months expiring on 30 June 2008. Fees were charged per hour. Custodian, Responsible Entity and Manager fees and costs Unless otherwise disclosed, the related party fee information below covers both the Company and the Consolidated Group. Custodian fee Under the terms of the Custodian Agreement with Babcock & Brown Asset Holdings Pty Limited (“BBAH”), which is a subsidiary of Babcock & Brown Limited, 0.0125% of the gross asset value of BBPT is payable. During the year ended 30 June 2009, fees paid or payable to the Custodian by the Group were $197,125 (30 June 2008: $93,133). Responsible Entity fees Under the terms of the BBPT Constitution, the Responsible Entity, Babcock & Brown Power Services Limited (“BBPS”), which is a subsidiary of Babcock & Brown, is entitled to a management fee of 2% per annum of the value of the gross assets of BBPT. The Responsible Entity has waived its right to receive the management fee referred to above in return for the payment to it of a fee of $550,000 per annum, increased by CPI. During the year ended 30 June 2009, fees paid or payable to the Responsible Entity by the Group were $583,402 (30 June 2008: $559,350). Base Fees The Manager, Babcock & Brown Power Management Pty Ltd (“BBPM”), which is a subsidiary of Babcock & Brown Limited, is entitled to receive Base Fees for services provided under the Management Agreements. The aggregate fees are equal to 1% of the Net Investment Value which is split between BBPL (0.8%) and BBPT (0.2%) under the Management Agreements, less, in the case of BBPT only, the Responsible Entity Fee. The Base Fees are payable to the Manager quarterly in arrears. In August 2008, BBPM agreed to waive these fees. In addition, BBPM is entitled to a Manager Expense Amount of $6.7 million in respect of expenses. In accordance s with the Amending Agreement dated 24 December 2008 – Babcock & Brown Power Management Agreements, the sum of $3.7 million was paid for the year ended 30 June 2009, as full settlement on that fee.

During the year ended 30 June 2009, fees paid or payable to the Manager by the Group (including Manager tement a

Expense Amount) were $4.3 million (30 June 2008: $21.1 million). t

Incentive Fee l s The Manager may be entitled at the end of each calendar year to receive an Incentive Fee of up to 20% of the cia amount of the excess (if any) of the Stapled Security Return over the Benchmark Return for that year. An Incentive n a

Fee for a particular year will only be payable where the Stapled Security return is greater than the Benchmark n return for that year. The Incentive Fee arrangement payable by BBP to Babcock & Brown Limited under the Management Agreement would be classified as a financial liability under AASB 139. This requires BBP to make an assessment of the fair

value of the arrangement as at 30 June 2009 in respect of the potential fee payable as at 31 December 2009. thes to fi The Incentive Fee is based on the relative performance of the BBP unit price to the S&P/ASX 200 Accumulation Index with any incremental out performance attracting a fee of 20% of that out performance as disclosed in the PDS and Alinta Scheme booklet. After considering the various valuation options to determine a balance date liability as required by Accounting Standards, BBP have used a statistical approach to model the correlation of BBP security price performance t 2009 – note leading up to 30 June 2009 to the S&P/ASX 200 Accumulation Index over the reporting period. Using this r o approach determined a fair value of $Nil (30 June 2008: $Nil) for the Incentive Fee for the full 2009 year. p No Incentive Fee payments were paid/payable during the year ended 30 June 2009 (30 June 2008: $Nil). l Re

This approach adopted assumes that the same correlation of performance will be maintained to December 2009. a BBP Annu

109 notes to the financial statements for the year ended 30 june 2009

31. Related parties disclosures (continued) (c) Other related party transactions (continued) Financial and advisory fees The Manager is entitled to a fee in relation to services provided in the successful arranging and delivery of financing, for the advisory and financial work performed in the acquisition or disposal of assets. These fees are generally either capitalised and amortised over the life of the financing arranged, capitalised as part of the acquired assets cost base or is part of the determination in the profit or loss on the sale of an asset. Fees charged for advice in relation to the sale of assets in the current year totalled $3.8 million. No fees were paid to the Manager in respect of finance advisory for the year to 30 June 2009. During the financial year ending 30 June 2009, the Manager charged a $1.5 million fee for providing guarantees in relation to the Flinders Osborne contracts and site restoration costs. Fees outstanding at 30 June 2009 to the Manager in relation to the prior year include: • a fee of $2.6 million for Braemar and $5.7 million for Uranquinty for advice in relation to the buy-out of the minority interests in the Braemar and Uranquinty Power projects. These fees were capitalised into the cost base of the assets; • a development and financial advisory fee of $8.6 million for the financial close of the Neerabup Power Project; and • a development and financial advisory fee of $2.9 million for the financial close of the Newman expansion project; and • other financing fees charged by the Manager totalled $3.4 million. A settlement arrangement in respect of these outstanding balances is being negotiated with the Manager. (d) Balances outstanding arising from Related Party transactions Consolidated Company 2009 2008 2009 2008 Note $’000 $’000 $’000 $’000

Trade and other receivables Current Accrued income related parties – Other – 175 – 175 5 – 175 – 175 Loans to related parties – Subsidiaries – – 22,5031 164,961 5 – – 22,503 164,961 Non-current Loans to related parties – Subsidiaries – – 152,3461 1,689,092 5 – – 152,346 1,689,092 Trade and other payables Current – Subsidiaries – – 3,193 – Trade payables – Other 32,366 24,962 31,164 24,643 13 32,366 24,962 34,357 24,643 Non-current Payables 13 – – – – Borrowings Current – unsecured – Other 400,833 127,500 397,610 127,100 16 400,833 127,500 397,610 127,100 Non-current unsecured – Subsidiaries – – 1,032,9902 1,011,916 – Associates 2,905 – – – Other 36,839 200,277 – 200,277 16 39,744 200,277 1,032,990 1,212,193

1. Loans receivable is made up of various loans to wholly owned subsidiaries with a total nominal value of $1,923 million of which a 10-year interest-free loan receivable from wholly owned subsidiary BBPH with a nominal value of $1,776 million has been present valued to $818.2 million less a further impairment of $791 million to align its recoverable amount with the underlying available equity within the subsidiaries. The initial adjustment to state the loan receivable to present value from nominal value included the recognition of an additional investment in BBPH of $618.3 million. 2. Loans payable to BBPT are repayable at dates to be agreed between BBPL and BBPT but with a maximum loan term of 10 years from inception. The loans also contain terms for the repayment of debt on the provision of, variously, 14 or 60 days notice from BBPT. At 30 June 2009, BBPL understands from BBPT that it does not intend to call the loan or any part of the loan before 1 July 2010 except in the event that BBPL becomes insolvent, it seeks to distribute its assets or ceases to operate. BBPL has made substantial progress in the commercial negotiations of the restructuring of the debt owed to B&B and the BBPF Syndicate, such that BBPL does not expect any of the mentioned exceptions to become operative. On this basis the loans from BBPT 110 have been classified as non-current. This loan is interest-free and has been present valued using a 8.5% discount for one year. (e) Revenue and expense arising from Related Party Transactions Consolidated Company 2009 2008 2009 2008 Note $’000 $’000 $’000 $’000

Revenue Interest income – Subsidiaries – – 133,103 384,810 3 – – 133,103 384,810 Dividend income – Associates 8,465 – – – 3 8,465 – – – Other revenue – Associates 89 102 89 102 3 89 102 89 102

Expenses Management charges – Other 5,134 1,587 4,287 6,700 3 5,134 1,587 4,287 6,700 Finance costs – Subsidiaries – – 830,147 – – Other 56,753 11,566 39,206 15,568 3 56,753 11,566 869,353 15,568 Other expenses – Other 2,212 (9,117)* 1,337 (19,985)* 3 2,212 (9,117)* 1,337 (19,985)*

* 2008 includes reversal of prior year Incentive Fee not required to be paid. 32. Financial risk management (A) Financial risk management objectives The Group’s activities are exposed to a variety of financial risks (including market risk, interest rate risk, equity price risk and currency risk), credit risk, and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk exposures. s The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, and ageing analysis for

credit risk. tement a The responsibility for operational risk management resides with the business units and is supported by a central t

risk group to ensure consistency and oversight in line with policies approved by the Board of Directors. Group l s Treasury identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. cia

The Board has endorsed principles for overall risk management, as well as written policies covering specific areas, n a

such as mitigating foreign exchange and interest rate risks. n There have been no significant changes in the types of financial risks; or the Group’s risk management program (including methods used to measure the risks) since the prior year. (a) Market risk

(i) Electricity Pool Price thes to fi Group Exposure to fluctuations in wholesale market electricity prices is minimised through the use of various types of hedging contracts. The BBP Energy Risk Management Policy prescribes active management of exposures arising from its forecast generation within prescribed limits. In doing so, BBP has entered into various hedging contracts with individual t 2009 – note market participants. Any unhedged position exposes BBP to variation in its revenue from variations in electricity r o

pool prices. p The hedge portfolio consists predominantly of swaps, caps and option style contracts and non-derivative l Re

Power Purchase Agreements. Electricity derivatives are either entered into in separate agreements or arise a as embedded derivatives. BBP Annu

111 notes to the financial statements for the year ended 30 june 2009

32. Financial risk management (continued) (A) Financial risk management objectives (continued) The following table summarises the impact of increases/decreases of the relevant forward prices for wholesale market electricity prices for the Group, while all other variables were held constant: Increase by 10% Decrease by 10% 2009 $’000 $’000

Net profit/(loss) (40,976) (4,779) Equity increase/(decrease) (34,190) 10,601

2008 Net profit/(loss) 10,909 131,297 Equity increase/(decrease) (20,331) 16,348

Company There would be no change in either net profit or equity at reporting date for the Company as the Company does not participate in the wholesale electricity market, thus has no exposure to pool prices. (ii) Interest rate risk All of the Group’s corporate borrowings are on a variable rate basis, as such are exposed to interest rate volatility. Excess Interest Rate risk exposure is managed by maintaining an appropriate mix between fixed and floating rate borrowings, by entering into interest rate swap contracts. The quantum and tenor of these contracts fall within maximum and minimum exposure limits set as per the Group’s Treasury Policy. The sensitivity analysis to net profit (being profit before tax), and equity, have been determined based on the exposure to interest rates at the reporting date and assumes that there are concurrent movements in interest rates and parallel shifts in the yield curves. A sensitivity of 100 basis points has been selected, as this is considered reasonable given the current level of short-term and long-term interest rates. Group At reporting date, if interest rates had been 100 basis points higher/lower and all other variables were held constant, the impact of the Group would be: Increase by 1% Decrease by 1% 2009 $’000 $’000

Net profit/(loss) (2,120) 2,098 Equity increase/(decrease) 112,494 (120,964)

2008 Net profit/(loss) 4,596 (4,713) Equity increase/(decrease) 125,085 (137,920)

The impact on net profit is largely due to the Group’s exposure to interest rates on its non-hedged variable rate borrowings. The impact on equity is due to the effective portion of the change in fair value of derivatives that are designated as cash flow hedges. Company At reporting date, if interest rates had been 100 basis points higher/lower and all other variables were held constant, the impact of the Company would be: Increase by 1% Decrease by 1% 2009 $’000 $’000

Net profit/(loss) (3,697) 3,697 Equity increase/(decrease) – –

2008 Net profit/(loss) (7,137) 7,137 Equity increase/(decrease) – –

112 (iii) Equity price risk The Manager may be entitled at the end of each calendar year to receive an Incentive Fee of up to 20% of the amount of the excess (if any) of the Stapled Security Return over the Benchmark Return for that year. An Incentive Fee for a particular year will only be payable where the Stapled Security return is greater than the Benchmark return for that year adjusted for any carry forward deficit. The Incentive Fee is based on the relative performance of the BBP unit price to the S&P/ASX 200 Accumulation Index with any incremental outperformance attracting a fee of 20% of that outperformance. Group The Incentive Fee was in deficit at 30 June 2009. (In deficit: 30 June 2008). Any reasonably foreseeable change in the BBP stapled security price over the relevant calculation period would not have resulted in a financial liability being recognised at 30 June 2009 (Nil recognition: 30 June 2008). Company The impact to the net profit and equity of the Company would be the same as that for the Group. (iv) Foreign exchange risk BBP undertakes certain transactions denominated in foreign currencies, mainly related to capital expenditure and Long-Term Service Agreements, which result in exposure to exchange rate fluctuations. Exchange rate exposures are managed utilising forward foreign exchange contracts transacted by Group Treasury. For unhedged foreign exchange exposures, there would be no material impact on either the Group or Company net profit or equity as a result of a 10% change in the Australian dollar against the USD with all other variables held constant as at reporting date. Group Increase by 10% Decrease by 10% 2009 $’000 $’000

Net profit/(loss) – – Equity increase/(decrease) (3,257) 4,195

2008 Net profit/(loss) Equity increase/(decrease) (14,435) 17,709

For unhedged foreign exchange exposures, there would be no material impact on the Company net profit or equity s as a result of a 10% change in the Australian dollar against foreign currencies with all other variables held constant as at reporting date.

(b) Credit risk tement a

Credit risk refers to the loss that BBP would incur if a debtor or other counterparty fails to perform under its t contractual obligations. The carrying amounts of financial assets recognised in the balance sheet best represents l s the Group’s and the Company’s maximum exposure to credit risk at reporting date. BBP seeks to limit its exposure to credit risks as follows: cia n a

• conducting appropriate due diligence on counterparties before entering into arrangements with them; n • depending on the outcome of the credit assessment, obtaining collateral with a value in excess of the counterparties’ obligations to the Group – providing a ‘margin of safety’ against loss; and • for derivative counterparties, using only high credit quality financial institutions. The Group also utilises ISDA agreements with all derivative counterparties in order to limit the exposure to credit risk. to thes to fi The Group has no significant concentrations of credit risk. The credit of all financial assets is consistently monitored in order to identify any potential adverse changes in the credit quality. Concentrations of credit risk The Group minimises concentrations of credit risk in relation to trade receivables by undertaking transactions with a large number of customers from across the range of business segments in which the Group operates, t 2009 – note

such that there are no significant concentrations of credit risk within the Group at 30 June 2009 (No significant r concentrations: 30 June 2008). o p Credit risk in trade debtors is managed through setting normal payment terms of 14 days and through continual risk assessment of customers with material balances. Credit risk in retail trade debtors is managed through l Re a a system-driven credit management process. The process commences after day 14. There are four stages of customer contact resulting in disconnection as a last resort. BBP Annu

113 notes to the financial statements for the year ended 30 june 2009

32. Financial risk management (continued) (A) Financial risk management objectives (continued) Group The following financial assets are past due as at reporting date:

Past due Collateral Past due not impaired impaired held 1–30 31–60 61–90 91–120 over 120 Loans and receivables $’000 $’000 $’000 $’000 $’000 $’000 $’000

2009 19,442 1,609 668 47 – 4,818 – 2008 19,083 2,840 1,394 428 5,588 – –

There are no significant financial assets that have had renegotiated terms that would otherwise, without that renegotiation, have been past due or impaired. Company For the Company, there are no balances that are either overdue, or would be overdue if not renegotiated. (c) Liquidity risk The Group manages liquidity risk by maintaining adequate cash reserves, banking facilities and reserve borrowing facilities to a minimum target level and by continuously monitoring forecast and actual cash flows. The following tables detail the remaining contractual maturity for its financial liabilities, on an undiscounted basis. Group Less than 1 year 1 to 5 years 5+ years Discount Total Financial liabilities $’000 $’000 $’000 $’000 $’000

Trade payables 2009 68,100 – – – 68,100 2008 102,858 – – – 102,858 Other payables 2009 184,655 10,165 – – 194,820 2008 254,017 – – – 254,017 Interest-bearing liabilities 2009 2,969,792 130,332 400,178 (272,530) 3,227,772 2008 1,620,346 3,597,717 585,325 (1,408,563) 4,394,825 Interest rate SWAPs(i) 2009 125,879 – – – 125,879 2008 (42,984) (126,848) (7,273) 30,308 (146,797) Electricity derivatives 2009 – 9,386 – (436) 8,950 2008 5,650 4,859 – – 10,509 Call option derivatives 2009 333 – – – 333 2008 666 333 – – 1,000 Foreign exchange contracts 2009 1,675 – – – 1,675 2008 12,612 134 – – 12,746

Company Less than 1 year 1 to 5 years 5+ years Discount Total Financial liabilities $’000 $’000 $’000 $’000 $’000

Trade payables 2009 23,847 – – 23,847 2008 22,883 – – 22,883 Other payables 2009 15,120 – – 15,120 2008 6,886 – – 6,886 Interest-bearing liabilities 2009 397,610 1,120,894 – (87,904) 1,430,600 2008 621,211 797,911 414,514 (392,274) 1,441,362 Call option derivatives 2009 333 – – – 333 2008 666 333 – – 1,000

(i) Interest swap difference payments/(receipts) are included in the table above as they form an integral part of the Group’s liquidity and interest rate risk management policies. Swap payments/receipts are settled on a net basis.

114 (B) Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the financial statements. (C) Fair value of financial instruments The Directors are of the opinion that the carrying amount of financial assets and financial liabilities recorded in the financial statements approximates their fair values (2008: fair value). In the case of BBPL’s inter-company loans receivable from, and investment in, Babcock & Brown Power Holdings Pty Ltd (BBPH) which has a combined carrying amount of $841.9 million, significant judgement has been applied in order to derive a value for its recoverability which included an impairment charge of $791 million based on various assumptions about the available equity within the BBPH group. The fair values of financial assets and financial liabilities are determined as follows: • the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices. • the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis. • the fair value of derivative instruments, included in hedging assets and liabilities, are calculated using quoted prices. The fair value of financial instruments that are not traded in an active market (for example, over the counter derivatives) is determined using valuation techniques. The entity uses a variety of methods, such as estimated discounted cash flows, and makes assumptions that are based on market conditions existing at each balance date. These amounts reflect the estimated amount which the Group would be required to pay or receive to terminate (or replace) the contracts at their current market rates at the reporting date. • valuation of electricity derivatives – electricity derivatives are valued using a number of proprietary models which source short-term price expectations from immediately observable market information. Medium to long-term electricity price data is sourced from independent price modelling consultancies. Valuation models are constructed to suitably match the nature of the derivatives employed by BBP in managing its electricity price risk. Future price and variation expectations are discounted back to present day values. These amounts reflect the estimated amount which the Group would be required to pay or receive to terminate (or replace) the contracts at their current market rates as at each reporting date. (D) Capital risk management The Group manages its capital so that it will be able to continue as a going concern while maximising the return to stakeholders through an appropriate mix of debt and equity. The capital structure of the Group as at balance date

consists of total corporate facilities, as listed in Note 25(c); and equity, comprising issued capital, reserves, and s retained earnings as listed in Notes 20, 21 and 22. The quantitative analysis of each of these categories of capital is provided in their respective notes to these financial statements.

The Board of Directors and management of BBP are in negotiations with the major external financiers of BBP with tement a a view to restructuring the terms associated with those facilities, as noted elsewhere in this report. t

(E) Hedging instruments l s

(i) Electricity derivatives cia n

While all derivatives are entered into for the purposes of hedging, only those derivatives that meet the strict criteria a of effective hedges can be designated as cash flow hedges for accounting purposes. Gains and losses on cash flow n hedges are recognised in the cash flow hedge reserve in equity on electricity derivatives and will be continuously released to the income statement in each period in which the underlying purchase or sale transactions are recognised in the income statement. Fair value of to thes to fi derivatives Impact Hedge maturity profile (years) 30 June 2009 Fair value Fair value on income asset/ in cash flow not in hedge statement Less than (liability) hedges relationship gain/(loss) 1 year 1 to 5 years 5+ years total Nature $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

2009 t 2009 – note Electricity derivatives 109,392 9,750 99,642 (60,075) 27,577 34,348 47,466 109,392 r o p 2008 l Re

Electricity derivatives 191,423 19,554 171,869 (125,243) 34,681 95,846 60,896 191,423 a BBP Annu

115 notes to the financial statements for the year ended 30 june 2009

32. Financial risk management (continued) (E) Hedging instruments (continued) (ii) Interest rate swap contracts Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on debt held. The fair value of interest rate swaps are based on market values of equivalent instruments at the reporting date and are disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year. Interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated and effective as cash flow hedges.

Average contract fixed rate notional principal amount Fair value 2009 2008 2009 2008 2009 2008 Fixed swaps % % $’000 $’000 $’000 $’000

Less than 1 year 6.58 6.74 3,456,854 216,210 (125,879) 3,737 1–5 years – 6.37 – 2,039,290 – 58,085 >5 years – 6.30 – 2,146,603 – 84,975 (125,879) 146,797

(iii) Interest rate swaption contracts Average contract fixed rate notional principal amount Fair value Outstanding options over 2009 2008 2009 2008 2009 2008 floating for fixed contracts % % $’000 $’000 $’000 $’000

Less than 1 year Nil nil nil nil nil nil

As at 30 June 2009, BBP did not have any purchased options over interest rate swaps (swaptions). (iv) Foreign currency risk management BBP undertakes certain transactions denominated in foreign currencies, related to capital expenditure, which result in exposure to exchange rate fluctuations. Exchange rate exposures are managed utilising forward foreign exchange contracts. Outstanding forward exchange contracts Notional principal amount Fair value as at 30 June 2009 Weighted average rate $’000 $’000 $’000

Contract to sell AUD, Buy USD AUD USD Less than 1 year 0.8522 811 691 49 From 1 to 5 years 0.8142 1,772 1,443 85

Contract to sell AUD, Buy EUR AUD EUR Less than 1 year 0.5657 32,613 18,450 (304) From 1 to 5 years 0.5518 197 109 –

Contract to sell AUD, Buy JPY AUD JPY Less than 1 year 91.06 1,475 134,319 263 From 1 to 5 years – – – –

Outstanding forward exchange contracts Notional principal amount Fair value as at 30 June 2008 Weighted average rate $’000 $’000 $’000

Contract to sell AUD, Buy USD AUD USD Less than 1 year 0.8727 (43,827) 38,248 (3,413) From 1 to 5 years 0.8244 (2,455) 2,024 (128)

Contract to sell AUD, Buy EUR AUD EUR Less than 1 year 0.6147 (43,839) 26,946 767 From 1 to 5 years 0.5597 (268) 150 (5)

Contract to sell AUD, Buy JPY AUD JPY Less than 1 year 92.97 (118,108) 10,980,405 (9,199) From 1 to 5 years 94.78 (13,260) 1,256,761 40 116 33. Material interests in entities which are not controlled entities Contribution Contribution Ownership to net profit/ Ownership to net profit/ interest held (loss) after tax interest held (loss) after tax Year ended Year ended Year ended Year ended Name of equity accounted associates, 30 June 2009 30 June 2009 30 June 2008 30 June 2008 joint ventures and other investments % $'000 % $'000

Babcock & Brown Power Oakey Pty Ltd 50 2,202 50 5,099 ERM Power Investments Pty Ltd(1) – – 40 816 Babcock and Brown Kwinana Pty Ltd(2) - (2,761) – – (559) 5,915

(1) refer to Note 30 Changes in the composition of the Consolidated Group for details on the sale of ERM Power Investments Pty Ltd. (2) BBP’s 40% interest in ERM Power Investments Pty Ltd (ERM) was sold on 18 December 2008. ERM held 50% of the Newgen Power Kwinana Partnership. BBP maintained a 50% interest in the Newgen Power Kwinana Partnership via its subsidiary Babcock & Brown Kwinana Pty Ltd, which was equity accounted until Babcock & Brown Kwinana Pty Ltd was disposed on 19 March 2009. 34. Remuneration of auditors During the year the following fees were paid or payable for services relating to the respective years, provided by the auditor of the parent entity, its related practices and non-related audit firms. (a) Audit services Consolidated Company 2009 2008 2009 2008 $’000 $’000 $’000 $’000

PricewaterhouseCoopers (PwC) Australian firm audit and review of financial reports 2,214 2,171 2,214 2,171 other audit work under the Corporations Act 2001 – 28 – – Non-PwC audit firms for the audit or review of financial reports of any entity in the Group(i) 153 350 – 33 Total remuneration for audit services 2,367 2,549 2,214 2,204

(i) this amount includes the review of the completion accounts by Alinta’s previous auditors as well as the statutory audit and review costs of subsidiaries not audited by PwC.

(b) Non-audit services s Consolidated Company 2009 2008 2009 2008

$’000 $’000 $’000 $’000 tement a t PricewaterhouseCoopers Australian firm l s Due diligence services 977 792 977 491 cia

(ii) n

Legal services 2,015 1,411 – – a n Tax services – 101 – 104 Other 68 166 – – Non-PricewaterhouseCoopers audit firms

Due diligence services(iii) – 2,260 – 2,260 thes to fi Tax compliance services 579 867 186 834 Transition consulting and other services 2,002 1,304 833 1,287 Total remuneration for non-audit services 5,641 6,901 1,996 4,976

(ii) this amount represents fees paid to PwC for legal services in relation to Redbank. PwC was engaged by the previous owner of Redbank and does not t 2009 – note perform the statutory audit of this asset in accordance with the Group’s auditor independence policy. The fees are subsequently recovered from the r o

previous owners. p (iii) This amount includes costs associated with the Alinta transaction including transitional and integration work, risk compliance reviews and provision of outsourced internal audit services. l Re a BBP Annu

117 notes to the financial statements for the year ended 30 june 2009

35. Net assets per security 30 June 2009 30 June 2008

Net tangible assets per stapled security (1.48) (1.05) Net assets per stapled security 1.31 1.92

BBP has negative net tangible assets per security of -$1.48 (2008: -$1.05). This is primarily attributable to the acquisition of the Alinta retail business during the 2008 financial year. The nature, and value, of the retail business is in its brand position as the pre-eminent gas retailer and its customer base (both existing and potential future growth). This business inherently is different to the existing power generation business as it relies on these characteristics to produce cash flows as compared to tangible assets such as power plants that characterise the power generation business. While the acquired intangibles and goodwill of the retail business in particular represent future economic value to the Group, they are deducted for the purposes of calculating net tangible assets per security. Net assets per security at 30 June 2009 was $1.31 (2008: $1.92). 36. Contingent assets and liabilities Contingent liabilities Reactive Capital Discussions are continuing between Western Power and Alinta in respect to connection support relating to the co-generation plants. The key issue has been whether the responsibility hence cost for system stability and reliability is for the account of the developer and manager of new power plants (in this case Alinta) or is a network charge that should be reflected in the network tariffs which support the electricity SWIS network’s operation. Alinta continues to work with Western Power to resolve this matter. North West Shelf Gas Contract Arbitration BBP has been in arbitration with the NWS in respect to the contract price for the supply of a material volume of gas for its Alinta business. The formal arbitration hearing was concluded in September 2009. The Arbitrator is not expected to hand down his determination until late October 2009 at the earliest. BBP has made an accounting provision for the outcome that it reasonably expects from the overall resolution of the NWS price dispute. Furthermore, BBP expects to be able to meet its obligations that might result from this dispute on the basis of the restructure of its financial arrangements as well as commercial discussions with both the NWS joint venture partners and BBP’s commercial customers. A determination that is significantly outside of BBP’s expectations may have a material impact on the Alinta business and at that time could result in a reassessment of the value of the Alinta business and the going concern assumptions. It is possible that the overall resolution of the NWS price dispute could result in an amount greater than the amount provided for. The information usually required by AASB 137 Provisions, Contingent Liabilities and Contingent Assets is not disclosed on the grounds that it can be expected to prejudice seriously the outcome of the arbitration and possible settlement. Price Determinations As part of the normal operations of an energy company, there are prescribed contractual price determinations at regular intervals. These price reviews are typical in gas contracts and any retrospective adjustments arising out of the process would immediately crystallise into a liability. Contingent assets Tamar Power Project During the current financial year, BBP sold its interest in the Tamar Power Station to the Tasmanian Government (Aurora Energy Tamar Valley). The asset was under construction at the date of sale and the contract for sale provided for BBP to continue to manage the construction to completion. Whilst BBP was to be paid (and has received) fees for its services, BBP was also entitled, as an incentive, to share in any unspent contingency. Until the contract is complete and all costs and charges discharged, there is uncertainty on the recoverability of this sum. At the date of this report, BBP estimates that it is probable but not virtually certain to receive a share of the unspent contingency amounting to approximately $10 million to $14 million. 37. Subsequent events There are no events subsequent to the balance date that have not been disclosed elsewhere in this report. 38. Additional information Babcock & Brown Power is a listed stapled security. Babcock & Brown Power Limited is incorporated and operates in Australia. Registered office of the Company Principal place of business Level 7 Level 7 50 Pitt Street 50 Pitt Street Sydney NSW 2000 Sydney NSW 2000 Telephone: +61 2 9372 2600 Telephone: +61 2 9372 2600

118 Babcock & Brown Power Limited Directors’ Declaration

1 In the opinion of the directors of Babcock & Brown Power Limited (“the Company”): (a) the financial statements and notes, set out on pages 49 to 118, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company’s and the Group’s financial position as at 30 June 2009 and of their performance, for the financial year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company and the Group will be able to pay their debts as and when they become due and payable within the context of the disclosures of the Directors’ Report and the financial statements and notes. 2 the directors have been given the declarations required by section 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer for the financial year ended 30 June 2009. Signed in accordance with a resolution of the directors:

Mr L F Gill Director, Babcock & Brown Power Limited Dated at Sydney this 30th day of September 2009 on i t ara l c ’ De rs to c e ir t 2009 – D r o p l Re a BBP Annu

119 Independent Auditor’s report To the members of Babcock & Brown Power Limited

PricewaterhouseCooperPricewaterhouseCooperss ABN52780 433757Services Pty Ltd ACN 082 982 554 DarlingParkTowerABN2 52 780 433 757 201SussexStreet GPOBOX 2650 Darling Park Tower 2 SYDNEYNSW 1171201 Sussex Street DX 77 Sydney GPO Box 2650 Australia sydney NSW 1171 Telephone +6128266DX 770000 Sydney Facsimile+61 2826Australia69999 Telephone 61 2 8266 0000 Facsimile 61 2 8266 9999

Independent auditor’s report to the members of Babcock & Brown Power Limited

Report on the financial report We have audited the accompanying financial report of Babcock and Brown Power Limited (the company), which comprises the balance sheet as at 30 June 2009, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for both Babcock and Brown Power Limited and the Babcock and Brown Power Group (the consolidated entity). The consolidated entity comprises 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(a), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit 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 the risks of material misstatement of 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 used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

120 Liability limited by a scheme approved under Professional Standards Legislation Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial report of Babcock & Brown Power Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position financial position as at 30 June 2009 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 consolidated financial statements and parent entity financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1(a). Significant uncertainty regarding continuation as a going concern Without qualification to our opinion expressed above, we draw attention to Note 1(a) to the financial statements which comments on the refinancing of financing arrangements within the group and the impact of the North West Shelf Joint Venture gas supply arbitration. These conditions indicate that there is a significant uncertainty as to whether Babcock & Brown Power Limited and its controlled entities will continue as a going concern and, therefore, whether they will realise their assets and extinguish their liabilities in the normal course of business and at the amounts stated in the financial statements. Significant uncertainty regarding the value of investments and loans to controlled entities (parent company only) Without qualification to the opinion expressed above, we draw attention to Note 1(a) to the financial statements, which comments on the significant uncertainty regarding the carrying value of loans receivable from, and investment in, controlled entities with an aggregate carrying value at 30 June 2009 of $841.9 million. Report on the Remuneration Report We have audited the Remuneration Report included in pages 39 to 44 of the directors’ report for the period ended 30 June 2009. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the Remuneration Report of Babcock and Brown Power Limited for the year ended 30 June 2009, complies with section 300A of the Corporations Act 2001. t

PricewaterhouseCoopers r o p e s r ’ r

Marc Upcroft Sydney di to Partner 30 September 2009 ent Au d en p e d t 2009 – In r o p l Re a BBP Annu

Liability limited by a scheme approved under Professional Standards Legislation 121 Additional Information

This report is based on accounts to which one of the following applies. the accounts have been audited. the accounts have been subject to review. the accounts are in the process of being audited or subject to review. the accounts have not yet been audited or reviewed. Description of likely dispute or qualification if the accounts have not yet been audited or subject to review or are in the process of being audited or subjected to review: Not applicable. Description of dispute or qualification if the accounts have been audited or subjected to review: None. Unquoted equity securities shareholdings greater than 20%: Nil Other stock exchanges on which securities are quoted: Nil Company Secretary Mr John Remedios Registered office Principal administration office Level 7 Level 7 50 Pitt Street 50 Pitt Street Sydney NSW 2000 Sydney NSW 2000 Telephone: +61 2 9372 2600 Telephone: +61 2 9372 2600 Share registry Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Telephone: 1800 260 668 International: +61 2 8280 7619 Fax: +61 2 9287 0303

122 Investor Information

Further information required by the Australian Securities Exchange (or other regulators) and not shown elsewhere in this report is as detailed below. The information is current as at 30 September 2009. Number of Stapled Securities and Holders One share in each of BBPL and one unit in BBPT, have been stapled together to form a single BBP Stapled Security. As at 30 September 2009, the total number of BBP Stapled Securities on issue was 726,328,872 and the number of holders of these Stapled Securities was 69,043. Substantial Security Holders The names of substantial BBP Security Holders who have notified BBP in accordance with section 671B of the Corporations Act 2001 are set out below.

BBP Stapled Securities Held Substantial BBP Security Holders Number percentage

Guinness Peat Group plc and its subsidiaries 77,242,565 10.63%

Voting Rights It is generally expected that General Meetings of shareholders of BBPL and unit holders of BBPT will be held concurrently where proposed resolutions relate to both BBP entities. At these General Meetings of BBPL and BBPT, the voting rights outlined below will apply. Voting rights in relation to General Meetings of BBPL: • on a show of hands, each shareholder of BBPL who is present in person and each other person who is present as a proxy, attorney or duly appointed corporate representative of a shareholder has one vote; and • on a poll, each shareholder of BBPL who is present in person has one vote for each share they hold. Also each person present as a proxy, attorney or duly appointed corporate representative of a shareholder, has one vote for each share held by the shareholder that the person represents. Voting rights in relation to General Meetings of BBPT: • on a show of hands, each unit holder who is present in person and each other person who is present as a proxy, attorney or duly appointed corporate representative of a unit holder has one vote; and • on a poll, each unit holder who is present in person has one vote for each one dollar of the value of the units in the Trust held by the unit holder. Also, each person present as proxy, attorney or duly appointed corporate representative of a unit holder has one vote for each one dollar of the value of the units in the Trust held by the unit holder that the person represents. Distribution of BBP Stapled Securities Category Holders Securities

1–1,000 42,764 14,475,936 1,001–5,000 16,750 39,930,472 5,001–10,000 4,228 31,620,896 10,001–100,000 4,643 138,536,838 on i

100,001– and over 658 501,764,730 t a m

Total 69,043 726,328,872 r o f The number of Security holders holding less than a marketable parcel of 6,757 BBP Stapled Securities

($0.074 on 30 September 2009) is 61,222 and they hold 64,407,496 BBP Stapled Securities. r In to s t 2009 – Inve r o p l Re a BBP Annu

123 Investor Information

Twenty Largest Security Holders BBP Stapled Securities Held Rank BBP Security Holder Number Percentage

1 merrill Lynch (Australia) Nominees Pty Ltd 77,242,565 10.63% 2 aGSO Property Pty Ltd ATF Babcock & Brown Prime Broking Trust 28,717,350 3.95% 3 Ultragas Pty Ltd 20,000,000 2.75% 4 HSBC Custody Nominees (Australia) Limited 17,065,484 2.35% 5 HSBC Custody Nominees (Australia) Limited – A/C 2 15,513,560 2.14% 6 national Nominees Limited 14,325,319 1.97% 7 Citicorp Nominees Pty. Limited 14,227,127 1.96% 8 JP Morgan Nominees Australia Limited 12,375,556 1.70% 9 HHH Group Pty Ltd 8,000,000 1.10% 10 octanex NL 7,263,289 1.00% 11 anZ Nominees Limited 6,412,209 0.88% 12 High Australian Investment Corporation Pty Ltd 5,980,000 0.82% 13 HSBC Custody Nominees (Australia) Limited-GSCO ECA 5,809,869 0.80% 14 Comsec Nominees Pty. Limited 5,808,909 0.80% 15 B&B Prime Securities Pty Ltd 4,777,272 0.66% 16 trebble Sum Pty Limited 4,650,000 0.64% 17 LJK Nominees Pty. Limited 4,250,000 0.59% 18 HHH Group Pty Ltd 4,000,000 0.55% 19 octanex NL 4,000,000 0.55% 20 mr Kevin Dean Ferreira 3,500,000 0.48% Total 263,918,509 36.34%

On-Market Buy-Back There is no current on-market buy-back of BBP Stapled Securities. Stapled Securities that are Restricted or Subject to Voluntary Escrow There are currently no BBP Stapled Securities which are restricted or subject to voluntary escrow. Disclosure of ASX’s Reservation of Right to De-List BBP advise that the ASX has reserved the right (but without limiting its absolute discretion) to remove either or both of BBPL and BBPT from the official list if any of the BBP Stapled Securities cease to be stapled together, or any equity securities are issued by either BBPL or BBPT which are not stapled to corresponding securities in the other. Unit Pricing Policy On 30 May 2007, in accordance with ASIC Class order 05/1236, BBPS in its capacity as responsible entity for BBPT adopted a unit pricing discretion policy. A copy of this policy is available free of charge on our website www.bbpower.com.

124 inside front cover 6.5 inside back cover

Contents CORPORATE DIRECTORY

1 Chairman’s Report BABCOCK & BROWN POWER LIMITED REGISTRY 3 CEO’s Report (ACN 116 665 608) Link Market Services Limited Level 7 Locked Bag A14 6 Industry Overview 50 Pitt Street Sydney South NSW 1235 7 Asset Summary Sydney NSW 2000 Telephone: 1800 260 668 8 Asset Reports Telephone: +61 2 9372 2600 Fax: +61 2 9287 0303 12 sustainability www.bbpower.com Email: [email protected] Website: www.linkmarketservices.com.au 15 Board of Directors DIRECTORS 16 Corporate Governance Statement Len Gill (Independent Chairman) AUDITOR 35 Financial Statements John Fletcher PRICEWATERHOUSECOOPERS Peter Kinsey Darling Park Tower 2 122 Additional Information Ross Rolfe (CEO & Managing Director) 201 Sussex Street 123 Investor Information Sydney NSW 2000 IBC Corporate Directory COMPANY SECRETARY John Remedios ANNUAL GENERAL MEETING The Annual General Meeting of Babcock & Brown Power RESPONSIBLE ENTITY FOR BABCOCK & BROWN will be held at Customs House, Level 1, 31 Alfred Street, POWER TRUST (ARSN 122 375 562) Circular Quay, Sydney, NSW Australia at 10.00am on BABCOCK & BROWN POWER SERVICES LIMITED Friday, 18 December 2009. (ACN 118 165 156, AFSL 299943) Level 7 ABOUT BBP AND THIS ANNUAL REPORT 50 Pitt Street Each Stapled Security in Babcock & Brown Power Sydney NSW 2000 (ASX:BBP) comprises one share in Babcock & Brown Telephone: +61 2 9372 2600 Power Limited, an Australian public company, and one unit in Babcock & Brown Power Trust, an Australian registered managed investment scheme whose responsible entity is Babcock & Brown Power Services Limited. All amounts expressed in dollars ($) in this annual report are Australian Dollars, unless otherwise specified.

DISCLAIMER Investments in BBP are subject to investment risk including possible loss of income and capital invested. Neither Babcock & Brown Power Limited nor any member of the BBP Group guarantees the performance of BBP or the payment of a particular rate of return on BBP securities. This report is not an offer or invitation for subscription.