Contents

Overview
Chairman's Report
CEO’s Report
Renewable Energy Assets
Thermal Energy Assets
Water Assets
Board of Directors
Executive Management
Financial Report

Corporate Governance Statement

Background

Transfield Services Infrastructure Fund (TSI Fund) is a triple stapled entity where a unit in Transfield Services Infrastructure Trust (TSIT) is stapled to one share in Transfield Services Infrastructure Limited (TSIL) and one share in TSI International Limited (TSIIL), so that none of the securities (unit and shares, collectively Stapled Securities) can be dealt with separately. Infrastructure Fund Management Limited (IFML) is the responsible entity of TSIT (RE).

The RE, TSIL and TSIIL have entered into a stapling deed, which sets out the terms and conditions governing the relationship between them in respect of the Stapled Securities.

The boards of the RE, TSIL and TSIIL (collectively the Board) are composed of the same Directors, and hold Board and committee meetings concurrently.

TSI Fund has entered into a Management Services Agreement (MSA) with Transfield Services (Australia) Pty Limited (Manager), a wholly-owned major operating subsidiary of Transfield Services Limited (Transfield Services).
Under the MSA, the Manager sources investment opportunities, provides management, corporate, and administrative services, and operations and maintenance services to TSI Fund.

The management of TSI Fund is, however, vested in the Directors of TSI Fund and they are ultimately accountable to securityholders for the activities and performance of TSI Fund.

Relationship between TSI Fund and Transfield Services

Given the arrangements between TSI Fund and Transfield Services, a protocol has been developed to manage governance issues that may arise between TSI Fund and Transfield Services and its related bodies corporate. This protocol is contained in the Corporate Governance Framework and is supported by TSI Fund’s Conflict of Interest Policy and Related Party Transactions Policy.

To illustrate, the Corporate Governance Framework addresses the management of conflicts between TSI Fund and Transfield Services in the pursuit of new investment opportunities. The Manager must act in the best interests of TSI Fund securityholders at all times. Any pursuit of investment opportunities, which involves both TSI Fund and Transfield Services, is agreed on a case-by-case basis under the MSA and the Corporate Governance Framework.

ASX Recommendations

TSI Fund is committed to genuine and robust corporate governance, as it aims to:

TSI Fund is required to report on its compliance with the ASX Corporate Governance Principles and Recommendations in this Annual Report.

In 2007, the ASX Corporate Governance Council introduced its revised Principles and Recommendations, with the effective compliance date being the first financial year commencing on or after 1 January 2008. TSI Fund is transitioning to the revised Principles and Recommendations in this Annual Report.

TSI Fund believes that it has complied with the Principles and Recommendations during this reporting period, other than Recommendation 2.4 in respect of a Nomination Committee for reasons set out on page 18 and Recommendation 8.1 in respect of a Remuneration Committee for reasons set out on page 20.

Principle 1: Lay solid foundations for management and oversight

The Board is accountable to securityholders for the overall direction and management of TSI Fund.

A formal Board Charter outlines the Board’s roles, responsibilities and internal procedures. The Board’s responsibilities include:

The Board meets as frequently as required, but not less than six times a year.

The Board Charter is available at www.tsinfrastructurefund.com.

The Board may refer some of its functions to committees formed to provide expert advice on specific matters. The Board has established the following committees:

The committees regularly report to the Board and make recommendations to it.

The number of Board and committee meetings held and Director attendance is set out in the Directors’ Report on page 24 of this Annual Report.

Upon appointment, new Directors are provided with a letter of appointment, which sets out their term in office, duties and responsibilities and other matters such as remuneration and time commitment.

The term of appointment is agreed as part of such appointment. However, TSI Fund’s constitutions require that every three years, a third of Directors must retire and, if applicable, offer themselves for re-election.

The powers and duties of Directors are set out in TSI Fund’s constitutions, the Board Charter and the Corporations Act.

The Board has arranged for a Chief Executive Officer (CEO), Chief Financial Officer (CFO), and General Manager Assets (collectively Seconded Employees) to be provided by the Manager to TSI Fund on secondment under the MSA. The Board has assigned roles and responsibilities to the CEO subject to specified limits set out in a delegated authority statement.

The CEO is supported by the Investment Review Committee – a committee of the Board formed to assist the Board by providing early involvement, feedback and guidance in respect of investment opportunities. The committee comprises all members of the Board, with the CEO and CFO being regular attendees.

A TSI Fund Management Committee, involving TSI Fund’s CEO and CFO and Transfield Services representatives will oversee the management of MSA activities and address areas for modification and improvement. Transfield Services has appointed an MSA Manager who will be responsible for overseeing MSA activities, and will participate in the Management Committee.

New Directors and Seconded Employees will participate in an induction program as an introduction to TSI Fund’s vision and functions, as well as its systems, processes and key contacts. The program, operating under the MSA, offers resources to allow Directors and Seconded Employees to participate in TSI Fund’s operations at the earliest opportunity.

The performance of Seconded Employees is reviewed by the Manager with input from the Board. The Board may notify the Manager of its recommended revisions to key performance measures, remuneration and incentive programs, which the Manager must consider in consultation with the Board. This review has been completed in accordance with the process disclosed.

The performance of dedicated personnel, other than Seconded Employees, who provide support to TSI Fund, remains the responsibility of Transfield Services. Dedicated personnel participate in an annual Performance Development Review and, in some instances, a Short Term Incentive Scheme, where performance is measured against set key performance indicators. Transfield Services has completed these evaluations in accordance with its internal processes.

Principle 2: Structure the Board to add value

The Directors are profiled on pages 14 - 15 of this Annual Report. The Directors’ skills, knowledge and experience are appropriate to ensure the effective performance of TSI Fund and to address current and emerging industry issues.
The Board comprises five Directors, of whom a majority (three) are independent non-executive Directors, including the Chairman. The CEO is not a Director.

TSI Fund has determined that Peter Young, David Mathlin and Kate Spargo are independent having regard to the guidelines set out in the ASX Corporate Governance Principles and Recommendations. These guidelines seek to determine whether a Director is generally free of any interest or other relationship, which could or could reasonably be perceived to materially interfere with the Director’s ability to act in the best interests of TSI Fund. TSI Fund reviews Directors’ independence on an ongoing basis.

Peter Young holds an advisory role with ABN AMRO Group. ABN AMRO Group may potentially earn fees for transactions entered into by TSI Fund. David Mathlin holds an executive role with Sinclair Knight Merz Group, which may potentially earn fees for transactions on which it advises TSI Fund. As the interests held by Peter Young and David Mathlin either do not provide a personal benefit to them or are not material given the Directors’ circumstances, the Board considers them to be independent, notwithstanding the relationships described. The Directors have provided standing notices to these interests to other Directors, and the Board considers that they are able to exercise independent and unfettered judgment in discharging their duties.

The other two Directors, Anthony Shepherd and Peter Watson, are non-executive, but are not considered to be independent as they are the nominee directors of Transfield Services, a substantial holder of TSI Fund. In accordance with TSI Fund’s constitutions, while Transfield Services holds at least 15 per cent of the Stapled Securities, it may appoint two Directors to the Board. The Board considers this to be in the best interests of TSI Fund as the nominee Directors provide access to Transfield Services’ significant expertise in the operation and management of infrastructure assets, as well as its expertise in sourcing acquisitions, and improving and developing infrastructure assets.

All Directors are required to exercise independent and informed judgment in their role on the Board. To this end, the Board Charter facilitates Directors having access, where necessary, to independent, external and professional advice at TSI Fund’s expense. Directors also have access to Transfield Services’ executives for direct information to assist in making informed decisions.

Given the current size of the Board (with the majority being independent Directors), the arrangements between TSI Fund and Transfield Services, and TSI Fund having only listed on the ASX in 2007, the Board has not established a Nomination Committee. This is inconsistent with Recommendation 2.4 which recommends the Board establish a Nomination Committee. The functions of a Nomination Committee, including ensuring the appropriate structure of the Board, and setting and reviewing selection, appointment and performance criteria of the Board, are carried out by the Board. The Board considers this appropriate in the current circumstances and will continue to review the need for a separate committee to perform these functions.

Board, committee and Director performance will be reviewed internally on an annual basis. The internal review process for this reporting period will involve seeking responses from directors and Seconded Employees in relation to key elements of Board effectiveness, including:

The results of the review will be analysed and recommendations formed and adopted to enhance performance.

Principle 3: Promote ethical and responsible decision-making

TSI Fund recognises the value of ethical and responsible corporate practices and decision-making. To promote appropriate practices, TSI Fund has adopted a Code of Conduct and a comprehensive policy framework.

The Code of Conduct outlines TSI Fund’s commitment to a high standard of behaviour, including:

The Code of Conduct is available at www.tsinfrastructurefund.com.

Ethical decision-making is further promoted through the following policies:

The Securities Trading Policy restricts Directors and designated persons to buy or sell TSI Fund Stapled Securities only in the one-month period immediately following the announcement of half-yearly and annual results, and the Annual General Meeting. The Chairman or the Company Secretary may waive the restriction in limited circumstances.

The policy also places restrictions on TSI Fund Directors, CEO, CFO, General Manager Assets, and the Company Secretary trading in Transfield Services shares.

Directors and designated persons are prohibited from buying or selling securities in TSI Fund at any time they are in possession of market-sensitive information.

The Conflicts of Interest Policy is aimed at protecting the integrity of TSI Fund’s decision-making processes by avoiding ethical, legal, financial or other conflicts of interest.

The Related Party Transactions Policy provides guidance on recognising and reporting related party transactions, and where necessary submitting these for securityholder approval.

These policies are available at www.tsinfrastructurefund.com.

Principle 4: Safeguard integrity in financial reporting

The Board has established the Risk, Audit and Compliance (RAC) Committee to oversee the financial and business risk management of TSI Fund, and report significant matters to the Board.

The committee comprises three Non-Executive Directors (two of whom are independent). It is chaired by an independent Non-Executive Director, who is not the Chairman of the Board.

The RAC Committee operates in accordance with its Charter, which sets out its responsibilities, composition and internal procedures. The responsibilities of the RAC Committee cover:

TSI Fund’s procedure for the selection, appointment, removal and rotation of external auditors follows the relevant statutory requirements.

The RAC Committee receives written representation letters from the CEO and CFO regarding the accuracy and completeness of financial information, prior to the Board’s approval of their respective financial reports.

The RAC Committee Charter is available at www.tsinfrastructurefund.com.

Principle 5: Make timely and balanced disclosure

TSI Fund aims to support the transparency and integrity of the market through timely and accurate disclosure of material information.

TSI Fund’s Continuous Disclosure Policy sets out obligations and guidelines for disclosure of material information, pursuant to the ASX Listing Rules. The policy also outlines the role of TSI Fund’s Disclosure Committee, which is responsible for determining what information must be disclosed and ensuring TSI Fund complies with its disclosure obligations. The committee comprises an independent Non-Executive Director, CEO, CFO, Company Secretary and Transfield Services’ Group General Manager, Corporate Affairs.

The policy is available at www.tsinfrastructurefund.com.

Principle 6: Respect the rights of securityholders

TSI Fund believes in providing securityholders and the market with timely, clear and consistent communication in relation to TSI Fund’s operations and performance.

TSI Fund follows communication plans to ensure its message is effectively delivered through various communication channels. ASX announcements are a primary source of material information regarding TSI Fund. Both ASX and media announcements are immediately uploaded to TSI Fund’s website. The website contains information about TSI Fund’s operations and achievements and features publications and investor presentations.

Annual General Meetings are an opportunity to outline TSI Fund’s recent developments and strategy. The Board encourages securityholder participation at the meetings, allowing securityholders to ask questions or make comments on the management of TSI Fund. Securityholders also have the opportunity to ask TSI Fund’s external auditor questions relevant to its audit function.

Principle 7: Recognise and manage risk

The Board is responsible for determining the overall risk management strategy for TSI Fund and communicating it to Seconded Employees and dedicated personnel involved in TSI Fund operations. The Board is also responsible for reviewing major risk exposures and monitoring the overall effectiveness of the risk management program.

To assist the Board in discharging its risk management duties, the Board has delegated the following activities to the RAC Committee:

Although ultimate responsibility for risk management lies with the Board and the RAC Committee, the day-to-day responsibility for risk management rests with the Manager. As part of the services provided under the MSA, the Manager is required to maintain, identify and implement appropriate risk management policies and procedures in respect of TSI Fund and report on the adequacy and effectiveness of those policies and procedures on a regular basis to the Board.

TSI Fund’s CEO and the Transfield Services’ Group Risk Officer are responsible for the overall coordination of the risk management services to be provided by the Manager to TSI Fund.

Transfield Services’ General Counsel and the legal team manage commercial risks by undertaking thorough contract and transaction reviews to identify and address commercial and legal implications.

Transfield Services’ Financial Controls Group ensures that financial policies and processes include appropriate controls required to identify and manage financial risks.

TSI Fund also utilises the expertise of Transfield Services’ Health, Safety and Sustainability Committee which provides risk management support in the areas of health, safety, sustainability and environmental performance.
Pertinent findings and recommendations are communicated to the RAC Committee, which then ensures that management effectively responds to the recommendations. The Chairman of the RAC Committee raises significant risk issues with the Board.

As part of the annual financial reporting processes, the CEO and CFO have certified to the RAC Committee and the Board that TSI Fund’s financial results are founded on a sound system of risk management, internal compliance and controls adopted by the Board, and that the system is operating effectively in all material respects.

Principle 8: Remunerate fairly and responsibly

TSI Fund’s policy in relation to Director remuneration is set out in the Remuneration Report on pages 26 - 33 of this Annual Report.

All personnel involved in TSI Fund’s operations are employed by the Manager and provided to TSI Fund as part of the MSA. This includes TSI Fund’s CEO, CFO and General Manager Assets.

The performance review process of Seconded Employees and dedicated personnel involved in TSI Fund operations is outlined under Principle 1.

TSI Fund can make recommendations to the Manager on revisions to remuneration, incentive payments and programs linking remuneration to key performance measures of the Seconded Employees.

In light of the above, the Board does not consider it appropriate or necessary to establish a separate Remuneration Committee, as recommended by Recommendation 8.1.

TSI Fund is responsible for the remuneration of independent Non-Executive Directors. Transfield Services nominee Directors do not receive fees from TSI Fund. The review of TSI Fund’s Director performance is outlined under Principle 2.

Fees for independent Non-Executive Directors are directly calculated on the extent of their involvement at Board and committee level. They are not based on TSI Fund’s performance. Independent Non-Executive Directors are not entitled to options, bonuses or retirement benefits other than statutory entitlements as part of their remuneration package.

Compliance structure of the RE

The RE has a compliance program to ensure it complies with, and fulfils its obligations under the Compliance Plan for TSIT, and all other requirements set out in the Corporations Act, its Australian Financial Services Licence (AFSL) conditions and other relevant regulations.

These compliance procedures include arrangements for monitoring and supervision of outsourced providers of services and arrangements for dealing with conflicts of interest.

The Responsible Managers under the RE’s AFSL include a Compliance Officer who is primarily responsible for monitoring compliance issues for the RE and TSIT. The Compliance Officer reports regularly to the RAC Committee.