Document:

<PAGE>

                                                                    EXHIBIT 10.3

TERMS AND CONDITIONS OF
CLASS A PREFERRED EQUITY
CERTIFICATES

Dated                                      - 2004

Macquarie Luxembourg Water Sarl (1)
Macquarie Infrastructure Company LLC (2)

<PAGE>

                     TABLE OF CONTENTS

<TABLE>
<S>                                                                                      <C>
AUTHORISATION FOR PREFERRED EQUITY CERTIFICATES                                          1
TERMS AND CONDITIONS                                                                     1
1     Definitions                                                                        1
2     Return                                                                             4
3     Redemption                                                                         4
4     Withholding Taxes                                                                  5
5     Covenants                                                                          6
6     Default                                                                            6
7     Registration of the A PECs; Transfer Restrictions; Issuance and Exchange
      of PEC Certificates; Loss of PEC Certificates                                      6
8     General Terms and Conditions of A PECs                                             7
9     Miscellaneous                                                                      7
</TABLE>

<PAGE>

      DATE                                                               -, 2004

      PARTIES

      MACQUARIE LUXEMBOURG WATER SARL., a private limited liability company,
      incorporated under the laws of Luxembourg, whose registered office is at
      5, rue Guillaume, BP 2501, L-1025 Luxembourg (the "COMPANY"); and

      MACQUARIE INFRASTRUCTURE COMPANY LLC, a limited liability company,
      incorporated under the laws of Delaware, having its registered office at
      600 Fifth Avenue, 21st Floor, New York, New York 10020 ("MICL").

      AUTHORISATION FOR PREFERRED EQUITY CERTIFICATES

      The board of managers of the Company has authorised the issuance of -
      Class A Preferred Equity Certificates (collectively the "A PECs" and
      individually an "A PEC") to MICL, having an aggregate par value of
      (pound) - in respect of making equity investments in infrastructure and
      related assets located in European EOCD countries. The PECs shall be
      denominated in Euro (EUR) upon issuance thereof. Each A PEC shall be
      issued in registered form.

      Terms and Conditions

1     DEFINITIONS

      As used in this Agreement, the following terms shall have the following
      meaning:

      A PEC                         shall mean the PECs issued, or to be
                                    issued, by the Company under this Agreement;

      A PEC Register                shall mean the register and
                                    transfer book maintained by the Company for
                                    the A PECs;

      Accrual Period                shall mean each period from, and
                                    including, one Payment Date to, but
                                    excluding, the next following Payment Date,
                                    except for the initial Accrual Period that
                                    will commence on, and include, the Date of
                                    Issuance. If the A PECs are redeemed under
                                    any provision of Section 3, the Accrual
                                    Period, with respect to the A PECs redeemed,
                                    shall mean the period from and including the
                                    Payment Date immediately preceding the date
                                    of redemption of the A PECs to but excluding
                                    the date of redemption;

      Annual Payment Date           shall mean each twelve-month anniversary
                                    after the initial Payment Date;

      Applicable  Rate              shall mean the rate of return equal to
                                    the 12 month EURIBOR rate at the Date of
                                    Issuance of the A PECs plus 200 basis points
                                    for each Accrual Period;

                                        1
<PAGE>
      Available Amount              shall mean the amount available to make
                                    payments to the holders of the A PECs;

      Business Day                  shall mean any day other than a Saturday,
                                    Sunday or other day on which banking
                                    institutions in Luxembourg and London are
                                    required or authorised to remain closed;

      Company                       Macquarie Luxembourg Water Sarl, a private
                                    limited liability company, incorporated
                                    under the laws of Luxembourg, whose
                                    registered office is at 5, rue Guillaume, BP
                                    2501, L-1025 Luxembourg;

      Company's Income              shall mean 85% of all income (dividend and
                                    capital gains) less 85% of the Costs, by the
                                    Company from its Investments in the Accrual
                                    Period;

      Costs                         shall mean all costs and expenses incurred
                                    by the Company in the Accrual Period that
                                    are economically attributable to the
                                    Investment. Such Costs will not include the
                                    Return paid or accrued during such Accrual
                                    Period on the A PECs, nor income taxes
                                    imposed by the Grand-Duchy of Luxembourg or
                                    any sub-division, municipality or local
                                    authority thereof;

      Date of Issuance              shall mean the date as of which the A PECs
                                    are issued;

      Excess                        shall mean the amount with which the Nominal
                                    Amount exceeds the Available Amount;

      Excluded Return               for any given period means the total amount
                                    of return excluded from such period by
                                    reason of the limitations set forth in
                                    Section 2.2;

      Initial Accrual Period        shall mean the period from and including the
                                    Date of Issuance up to but excluding the
                                    Initial Payment Date;

      Initial Payment Date          will mean [30 September 2004];

      Insolvent                     shall mean the situation where the aggregate
                                    amount of the Company's obligations,
                                    determined in accordance with generally
                                    accepted accounting principles as in effect
                                    in Luxembourg, exceeds the fair market value
                                    of the Company's assets. The A PECs and any
                                    Class of Preferred Equity Certificates that
                                    will be issued after this date will be
                                    regarded as obligations of the Company for
                                    the purpose of computing the Company's
                                    insolvency;

      Intermediary Payment Date     shall mean any date determined
                                    at the discretion of the Board of Directors
                                    of the Company.

      Investment                    shall mean the Company's equity investment
                                    in Macquarie Water (UK) Limited as held at
                                    the Date of Issuance or to be increased or
                                    decreased by the Company thereafter;

      Liquidation                   shall have meant the event of any voluntary
                                    or involuntary liquidation, bankruptcy,
                                    dissolution or winding up of the affairs of
                                    the Company;

                                        2
<PAGE>
      Mandatory Redemption Date     means the Payment Date nearest and prior to
                                    the 98th anniversary of the Date of
                                    Issuance;

      Nominal Amount                shall mean the Par Value of any outstanding
                                    A PEC plus any Unpaid Return;

      Par Value                     shall mean EUR 1.00 (one Euro) with
                                    respect to each outstanding A PEC;

      Payment Date                  shall mean the Initial Payment Date,
                                    any Annual Payment Date, any Intermediary
                                    Payment Date, and the Redemption Date. A
                                    reasonable amount of time will be granted to
                                    the Board of Directors of the Company after
                                    each Payment Date to determine the amount of
                                    Return payable for any Accrual Period;

      PEC                           shall mean the Preferred Equity Certificate
                                    issued or to be issued by the Company under
                                    the Terms and Conditions of Preferred Equity
                                    Certificates;

      PEC Register                  shall mean the register and transfer book
                                    maintained by the Company for the PECs;

      Person                        shall mean any individual, corporation,
                                    company, voluntary association, partnership,
                                    joint venture, trust, unincorporated
                                    organisation or government (or any agency,
                                    instrumentality or political subdivision
                                    thereof);

      Redemption Date               shall mean the date fixed for redemption of
                                    the A PECs;

      Redemption Price              shall mean a value equal to the sum of (i)
                                    the Par Value for each outstanding A PEC
                                    that will be redeemed plus (ii) unpaid
                                    Return accumulated through the Redemption
                                    Date;

      Retained Earnings             shall mean the retained earnings of the
                                    Company determined on an unconsolidated
                                    basis in accordance with the generally
                                    accepted accounting principles as in effect
                                    in Luxembourg. However the retained earnings
                                    will be computed without taking into account
                                    the Unpaid Return on the A PECs;

      Return                        for any Accrual Period shall accrue on the A
                                    PECs from the Date of Issuance to but not
                                    including the earlier of (i) the date on
                                    which the A PECs have been redeemed in whole
                                    or otherwise paid in full and (ii) the
                                    Payment Date nearest and prior to the
                                    Mandatory Redemption Date. Return will
                                    accrue for each Accrual Period, subject to
                                    the payment limitation of section 2.2, in an
                                    amount equal to the (i) Excluded Return for
                                    the prior Accrual Period and (ii) the
                                    Company's Income on the Investment during
                                    such Accrual Period. Such amount accrued at
                                    any time for all Accrual Periods since the
                                    Date of Issuance, whether or not declared,
                                    is herein called the "Return". The Return
                                    shall be distributed among the holders of A
                                    PECs in a proportion equal to that which the
                                    number of ordinary shares in the Company
                                    held by each holder of A PECs bears to the
                                    total

                                       3
<PAGE>

                                    number of ordinary shares of the Company in
                                    issue at any given time;

      Subordinated Securities       shall mean all shares of common stock,
                                    whether outstanding on the date hereof or
                                    issued in the future; and

      Unpaid Return                 shall be any amount of Return that has
                                    accrued but has not become payable pursuant
                                    to the payment limitations of section 2.1.

2     RETURN

2.1   Return on the A PECs shall be payable on each Payment Date only if and to
      the extent

      (a)   declared by the Board of Directors of the Company,

      (b)   the Company is not immediately before and after given effect to such
            payment Insolvent; and

      (c)   that such payment, will not violate any covenant contained in or
            result in a default under any agreement or other financial
            obligation of the Company.

2.2   Each payment of Return on the A PECs shall be made by the Company directly
      to the holders of record as their name appears on the A PEC Register on
      the record date for such payment. The record date for such payment shall
      be the Business Day immediately preceding the applicable Payment Date or,
      if not paid on a Payment Date, the Business Day immediately preceding the
      actual payment date.

2.3   Each payment made with respect to the A PECs shall be by wire transfer to
      any account maintained by such holder with a bank identified by such
      holder in a written notice given to the Company not later than three
      Business Days prior to the relevant Payment Date.

3     REDEMPTION

3.1   Mandatory Redemption

      On the Mandatory Redemption Date, the Company shall redeem the outstanding
      A PECs at the Redemption Price provided that:

      (a)   the Par Value of the A PECs will be payable to the extent the
            Company will not be Insolvent after making such payment; and

      (b)   the Unpaid Return will be payable only to the extent the Company
            will not be Insolvent after making such payment.

      The Redemption Price shall be paid to the holders of record on the
      Mandatory Redemption Date.

3.2   Redemption upon Liquidation of the Company

      In the event of a Liquidation the holders of the A PECs shall be entitled
      to be paid the Redemption Price, in any event before any payment shall be
      made or any assets distributed to the holders of any Subordinated
      Securities, provided that:

     (a)   the Par Value of the A PECs will be payable to the extent the Company
           will not be Insolvent after making such payment; and

     (b)   the Unpaid Return will be payable only to the extent the Company will
           not be Insolvent after making such payment.

     The Redemption Price shall be paid to the holders of record ultimately on
     the date on which the liquidation of the Company shall be completed.

                                       4
<PAGE>

      The Board of Managers of the Company shall not cause the shareholders of
      the Company to adopt a resolution to commence a voluntary Liquidation
      without the consent of the holders of the A PECs unless the Nominal Amount
      of the outstanding A PECs can be paid.

      For purposes of this Section 3.2 neither the voluntary sale, conveyance,
      exchange or transfer (for cash, shares, stock, securities or other
      consideration) of all or substantially all the property or assets of the
      Company nor the consolidation or merger of the Company with one or more
      corporations shall be deemed to be a Liquidation unless such voluntary
      sale, conveyance, exchange or transfer shall be in connection with a
      dissolution or winding up of the business of the Company.

3.3   Optional Redemption by the holders of A PECs

      As of the date of an Event of Default (as defined in Section 6), the
      holders of the A PECs shall be entitled, by notice in writing to the
      Company, to have the A PECs held by it redeemed at the Redemption Price,
      before any payment shall be made or any assets distributed to the holders
      of any Subordinated Securities, provided that:

      (a)   the Par Value of the A PECs will be payable to the extent the
            Company will not be Insolvent after making such payment; and

      (b)   the Unpaid Return will be payable only to the extent the Company
            will not be Insolvent after making such payment.

      The Redemption Price shall be paid to the holder of record ultimately on
      the 15th day after the aforementioned notice has been received by the
      Company.

3.4   Redemption at the option of the Company

      The Company may at any time on giving not less than 10 Business Days
      notice to the holder thereof, redeem the A PECs in whole or in part (but
      if in part only in whole multiples of (pound)10,000) at par together with
      any accrued but unpaid Return thereon down to the date of redemption
      PROVIDED THAT simultaneously with such redemption the Company redeems an
      equal proportion of each of the other preferred equity certificates issued
      by it (including for the avoidance of doubt, any other preferred equity
      certificates issued to MICL).

3.5   General

      Redemption of the A PECs will be subject to the condition that:

      (a)   from and after the Redemption Date, the A PECs shall cease to accrue
            a Return, and the A PECs shall no longer be deemed to be outstanding
            and all rights of the holders thereof (except the right to receive
            from the Company the Redemption Price) shall cease. Upon the
            Redemption Date, specified for redemption in any such notice, the
            payment of the Redemption Price by the Company shall become payable.
            Surrender of the A PECs shall be made at the registered office of
            the Company. Upon surrender in accordance with said notice of the A
            PECs so redeemed (properly endorsed or assigned for transfer, if the
            Board of Directors of the Company shall so require and the notice
            shall so state), such A PECs shall be redeemed by the Company at the
            Redemption Price as aforesaid;

      (b)   any Return, any Unpaid Return or any other amount due and not paid
            on the Redemption Date will accrue interest at the Applicable Rate
            beginning on and including the Redemption Date.

4     WITHHOLDING TAXES

      All payments on the A PECs shall be made free and clear of withholding
      taxes imposed by any taxing jurisdiction, unless the withholding of such
      tax is compelled by law. For purposes of this

                                       5
<PAGE>

      Section 4, withholding taxes shall not include income taxes measured or
      imposed upon the net income of the holder.

5     COVENANTS

      After the Date of Issuance and for so long as the A PECs are outstanding,
      the Company will not, without the written consent of the holders of the A
      PECs, issue any shares of capital stock having, upon or following the
      Liquidation of the Company, any right to payment ranking prior or equal to
      the payment in full of the Nominal Amount on the A PECs to the holders.

6     DEFAULT

6.1   Each of the following events shall constitute an "Event of Default":

      (a)   the Company shall fail to pay the full amount of any Return, as to
            which the requirements of section 2.1 have been met, on the
            applicable Payment Date or fail to make any payments required under
            Section 3 and such failure continues for five Business Days
            following the date on which the holder of record gives notice of
            such failure to the Company; or

      (b)   except as expressly permitted herein, the Company shall:

            (i)   be dissolved or liquidated;

            (ii)  become insolvent or unable to pay its debts as they become
                  due; or

            (iii) institute or have instituted against it a proceeding seeking a
                  judgement of insolvency or bankruptcy or any other relief
                  under bankruptcy or insolvency law, and in the case any such
                  proceeding or petition instituted or presented against it,
                  such proceeding or petition:

                  (A)   results in a judgement of insolvency or bankruptcy or
                        the entry of an order for relief or the making of an
                        order for its winding-up or liquidation; or

                  (B)   is not dismissed, discharged, stayed or restrained in
                        each case within 90 days of the institution or
                        presentation thereof.

6.2   The Company shall promptly notify the holders of the A PECs if an Event of
      Default occurs.

7     REGISTRATION OF THE A PECs; TRANSFER RESTRICTIONS; ISSUANCE AND EXCHANGE
      OF PEC CERTIFICATES; LOSS OF PEC CERTIFICATES

7.1   The A PECs shall be issued only in registered form, and the name and
      address of the holder of each certificate representing the A PECs shall be
      entered into the A PEC Register by the Company. Except as expressly
      required by law, the Person in whose name the A PEC stand in the A PEC
      Register shall be deemed to be the full and undivided owner and record
      holder thereof for all purposes.

7.2   Upon request of the holder of record of the A PECs, the Company shall, at
      the cost of such holder, issue a certificate evidencing one or more A
      PECs. In case such certificate evidences more than one A PEC, the Company
      shall upon request of the holder of record replace, at the cost of such
      holder, such certificate by new certificates evidencing one or more A
      PECs.

7.3   Each holder of record shall promptly notify the Company of any mutilation,
      loss, theft, or destruction of any certificate or certificates evidencing
      the A PECs of which it is the record holder. The Company may, in its
      discretion, issue a new certificate in place of any certificate
      theretofore issued by it and alleged to have been mutilated, lost, stolen
      or destroyed, upon satisfactory proof of such mutilation, loss, theft or
      destruction.

                                       6
<PAGE>

8     GENERAL TERMS AND CONDITIONS OF A PECs

8.1   Ranking

      Subject to the terms and conditions hereof, the A PECs shall, with respect
      to payment rights, which includes the Return, redemption and rights on
      liquidation, winding up and dissolution, rank prior to all Subordinated
      Securities but the obligations in respect of the A PEC shalls, except for
      any other Class of Preferred Equity Certificates issued by the Company at
      present or in the future which shall rank pari passu with the A PEC's,
      rank subordinate to all other present and future obligations of the
      Company whether secured or unsecured.

8.2   Convertibility

      The A PECs shall not be convertible into any other security issued by the
      Company.

8.3   Voting Rights

      The holders of record of the A PECs shall not be entitled to any voting
      rights in respect of the Company by reason of their ownership of the A
      PECs.

8.4   Non recourse

      Notwithstanding any provision of these Terms and Conditions, the
      obligations of the Company hereunder to make payments to the holders of
      the A PECs are, at any time of determination, limited to the lesser of the
      Nominal Amount and the Available Amount. The Available Amount shall,
      subject to any other provision of this A PEC, at all times be limited to
      the income the Company has received from its Investment up to and
      including the date of its Liquidation and the value of the Investment on
      that date. On a liquidation of the Company, in the event that the Nominal
      Amount exceeds the Available Amount, the right of any person to claim
      payment in respect the Excess shall be extinguished. No party will, at any
      time, have recourse to, or make demand or initiate proceedings against,
      the Company in respect of the Excess. The Company shall incur no liability
      and be under no additional duty to any person solely as a result of any
      inability on its part to make payments or to perform other obligations
      hereunder, which inability results from the operation of the foregoing
      provisions of this clause.

9     MISCELLANEOUS

9.1   Governing Law

      These Terms and Conditions of the A PECs shall be governed by and shall be
      construed in accordance with the laws of Luxembourg and the Company and
      the holders of the A PECs accepting these terms and conditions hereby
      submit to the non-exclusive jurisdiction of the Courts of Luxembourg with
      respect to any suit, action or proceeding relating hereto.

                                       7
<PAGE>

EXECUTED AS AN AGREEMENT

SIGNED by                                     )
for and on behalf of
Macquarie Luxembourg Water Sarl               )      ...........................
                                              )      Director
                                              )
                                              )
                                              )      ...........................
                                              )      Director
                                              )

SIGNED by                                     )
for and on behalf of                          )      ...........................
Macquarie Infrastructure Company LLC          )      Director

                                              )
                                              )
                                              )      ...........................
                                              )      Director
                                              )

                                       8<PAGE>

                                                                    EXHIBIT 10.4
TERMS AND CONDITIONS OF
CLASS B PREFERRED EQUITY
CERTIFICATES

Dated                                  - 2004

Macquarie Luxembourg Water Sarl. (1)
Macquarie Infrastructure Company LLC (2)

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                                  <C>
AUTHORISATION FOR PREFERRED EQUITY CERTIFICATES                                                      1
TERMS AND CONDITIONS                                                                                 1
1     Definitions                                                                                    1
2     Return                                                                                         4
3     Redemption                                                                                     4
4     Withholding Taxes                                                                              6
5     Covenants                                                                                      6
6     Default                                                                                        6
7     Registration of the B PECs; Transfer Restrictions; Issuance and Exchange of B PEC
      Certificates; Loss of B PEC Certificates                                                       6
8     General Terms and Conditions of B PECs                                                         7
9     Miscellaneous                                                                                  7
</TABLE>

<PAGE>

      DATE                                                               -, 2004

      PARTIES

      MACQUARIE LUXEMBOURG WATER SARL., a private limited liability company,
      incorporated under the laws of Luxembourg, whose registered office is at
      5, rue Guillaume, BP 2501, L-1025 Luxembourg (the "COMPANY"); and

      MACQUARIE INFRASTRUCTURE COMPANY LLC, a limited liability company,
      incorporated under the laws of Delaware, having its registered office at
      600 Fifth Avenue, 21st Floor, New York, New York 10020 ("MICL").

      AUTHORISATION FOR PREFERRED EQUITY CERTIFICATES

      The board of managers of the Company has authorised the issuance of
      9,712,500 Class B Preferred Equity Certificates (collectively the "B PECs"
      and individually, a "B PEC") to MICL, having an aggregate par value of
      (pound)9,712,500 in respect of making debt investments in infrastructure
      and related assets located in European EOCD countries. The PECs shall be
      denominated in British Pounds upon issuance thereof. Each B PEC shall be
      issued in registered form.

      TERMS AND CONDITIONS

1     DEFINITIONS

      As used in these Terms and Conditions, the following terms shall have the
      following meaning:

      ACCRUAL PERIOD                shall mean each period from, and including,
                                    one Payment Date to, but excluding, the next
                                    following Payment Date, except for the
                                    initial Accrual Period that will commence
                                    on, and include, the Date of Issuance. If
                                    the B PECs are redeemed under any provision
                                    of Section 3, the Accrual Period, with
                                    respect to the B PECs redeemed, shall mean
                                    the period from and including the Payment
                                    Date immediately preceding the date of
                                    redemption of the B PECs to but excluding
                                    the date of redemption;

      ANNUAL PAYMENT DATE           shall mean each twelve-month anniversary
                                    after the initial Payment Date;

      APPLICABLE RATE               shall mean the rate of return equal to the
                                    12 month EURIBOR rate at the Date of
                                    Issuance of the B PECs plus 200 basis points
                                    for each Accrual Period;

      AVAILABLE AMOUNT              shall mean the amount available to make
                                    payments to the holders of the B PECs;

                                       1
<PAGE>

      B PECs                        shall mean the PECs issued, or to be issued,
                                    by the Company under this Agreement;

      B PEC REGISTER                shall mean the register and transfer book
                                    maintained by the Company for the B PECs;

      BUSINESS DAY                  shall mean any day other than a Saturday,
                                    Sunday or other day on which banking
                                    institutions in Luxembourg and London are
                                    required or authorised to remain closed;

      COMPANY                       Macquarie Luxembourg Water Sarl, a private
                                    limited liability company, incorporated
                                    under the laws of Luxembourg, whose
                                    registered office is at 5, rue Guillaume, BP
                                    2501, L-1025 Luxembourg;

      COMPANY'S INCOME              shall mean all income and realised gains
                                    received by the Company from its Investment
                                    during the Accrual Period, less the Costs;

      COSTS                         shall mean all costs and expenses incurred
                                    by the Company during the Accrual Period
                                    that are economically attributable to the
                                    Investment. Such Costs will not include the
                                    Return paid or accrued during such Accrual
                                    Period on the B PECs, nor income taxes
                                    imposed by the Grand-Duchy of Luxembourg or
                                    any sub-division, municipality or local
                                    authority thereof;

      DATE OF ISSUANCE              shall mean the date as of which the B PECs
                                    are issued;

      EXCESS                        shall mean the amount with which the Nominal
                                    Amount exceeds the Available Amount;

      EXCLUDED RETURN               for any given period means the total amount
                                    of return excluded from such period by
                                    reason of the limitations set forth in
                                    Section 2.2;

      INITIAL ACCRUAL PERIOD        shall mean the period from and including
                                    the Date of Issuance up to but excluding the
                                    Initial Payment Date;

      INITIAL PAYMENT DATE          shall mean [30 September 2004];

      INSOLVENT                     shall mean the situation where the aggregate
                                    amount of the Company's obligations,
                                    determined in accordance with generally
                                    accepted accounting principles as in effect
                                    in Luxembourg, exceeds the fair market value
                                    of the Company's assets. The B PECs and any
                                    Class of preferred equity certificates that
                                    will be issued after this date will be
                                    regarded as obligations of the Company for
                                    the purpose of computing the Company's
                                    insolvency;

      INTERMEDIARY PAYMENT DATE     shall mean any date determined at the
                                    discretion of the Board of Directors of the
                                    Company.

      INVESTMENT                    shall mean the Company's holding of an
                                    interest bearing loan receivable of
                                    (pound)41,680,500 on Macquarie Water (UK)
                                    Limited as held at the Date of Issuance or
                                    to be increased or decreased by the Company
                                    thereafter;

                                       2
<PAGE>

      LIQUIDATION                   shall mean the event of any voluntary or
                                    involuntary liquidation, bankruptcy,
                                    dissolution or winding up of the affairs of
                                    the Company;

      MANDATORY REDEMPTION DATE     shall mean the Payment Date nearest and
                                    prior to the 98th anniversary of the Date of
                                    Issuance;

      NOMINAL AMOUNT                shall mean the Par Value of any outstanding
                                    B PEC plus any Unpaid Return;

      PAR VALUE                     shall mean(pound)1.00 (one British Pound)
                                    with respect to each outstanding B PEC;

      PAYMENT DATE                  shall mean the Initial Payment Date, any
                                    Annual Payment Date, any Intermediary
                                    Payment Date and the Redemption Date. A
                                    reasonable amount of time will be granted to
                                    the board of managers of the Company after
                                    each Payment Date to determine the amount of
                                    Return payable for any Accrual Period;

      PEC OR PECs                   shall mean individually or collectively the
                                    Preferred Equity Certificates issued or to
                                    be issued by the Company under the Terms and
                                    Conditions of Preferred Equity Certificates;

      PEC REGISTER                  shall mean the register and transfer book
                                    maintained by the Company for the PECs;

      PERSON                        shall mean any individual, corporation,
                                    company, voluntary association, partnership,
                                    joint venture, trust, unincorporated
                                    organisation or government (or any agency,
                                    instrumentality or political subdivision
                                    thereof);

      REDEMPTION DATE               shall mean the date fixed for redemption of
                                    the B PECs;

      REDEMPTION PRICE              shall mean a value equal to the sum of (i)
                                    the Par Value for each outstanding B PEC
                                    that will be redeemed plus (ii) Unpaid
                                    Return accumulated through the Redemption
                                    Date;

      RETAINED EARNINGS             shall mean the retained earnings of the
                                    Company determined on an unconsolidated
                                    basis in accordance with the generally
                                    accepted accounting principles as in effect
                                    in Luxembourg. However the Retained Earnings
                                    will be computed without taking into account
                                    the Unpaid Return on the B PECs;

      RETURN                        for any Accrual Period shall accrue on B
                                    PECs from the Date of Issuance to but not
                                    including the earlier of (i) the date on
                                    which all of the B PECs have been redeemed
                                    in whole or otherwise paid in full and (ii)
                                    the Payment Date nearest and prior to the
                                    Mandatory Redemption Date. Return will
                                    accrue for each Accrual Period, subject to
                                    the payment limitation of section 2.2, in an
                                    amount equal to the sum of (a) the Excluded
                                    Return for then prior Accrual Period, (b)
                                    the Company's Income during such Accrual
                                    Period minus the net required taxable profit
                                    to be reported by the Company in Luxembourg
                                    with respect to its

                                       3
<PAGE>

                                    Investment during such Accrual Period. Such
                                    amount accrued at any time for all Accrual
                                    Periods since the Date of Issuance, whether
                                    or not declared, is herein called the
                                    "RETURN".

      SUBORDINATED SECURITIES       shall mean all shares of common stock,
                                    whether outstanding on the date hereof or
                                    issued in the future; and

      UNPAID RETURN                 shall be any amount of Return that has
                                    accrued but has not become payable pursuant
                                    to the payment limitations of Section 2.1.

2     RETURN

2.1   Return on the B PECs shall be payable on each Payment Date only if and to
      the extent

      (a)   declared by the board of managers of the Company;

      (b)   the Company is not immediately before and after given effect to such
            payment Insolvent;

      (c)   that such payment, will not violate any covenant contained in or
            result in a default under any agreement or other financial
            obligation of the Company.

2.2   Each payment of Return on the B PECs shall be made by the Company directly
      to the holders of record as their names appear on the B PEC Register on
      the record date for such payment. The record date for such payment shall
      be the Business Day immediately preceding the applicable Payment Date or,
      if not paid on a Payment Date, the Business Day immediately preceding the
      actual payment date.

2.3   Each payment made with respect to a B PEC shall be by wire transfer to any
      account maintained by such holder with a bank identified by such holder in
      a written notice given to the Company not later than three Business Days
      prior to the relevant Payment Date.

3     REDEMPTION

3.1   Mandatory Redemption

      On the Mandatory Redemption Date, the Company shall redeem all (but not
      some) of the then outstanding B PECs at the Redemption Price provided
      that:

      (a)   the Par Value of the B PECs will be payable to the extent the
            Company will not be Insolvent after making such payment; and

      (b)   the Unpaid Return will be payable only to the extent the Company
            will not be Insolvent after making such payment.

      The Redemption Price shall be paid to the holders of record on the
      Mandatory Redemption Date.

3.2   Redemption upon Liquidation of the Company

      In the event of a Liquidation the holders of the B PECs shall be entitled
      to be paid the Redemption Price, in any event before any payment shall be
      made or any assets distributed to the holders of any Subordinated
      Securities, provided that:

      (a)   the Par Value of the B PECs will be payable to the extent the
            Company will not be Insolvent after making such payment; and

      (b)   the Unpaid Return will be payable only to the extent the Company
            will not be Insolvent after making such payment.

                                       4
<PAGE>

      The Redemption Price shall be paid to the holders of record ultimately on
      the date on which the Liquidation of the Company shall be completed.

      The board of managers of the Company shall not cause the shareholders of
      the Company to adopt a resolution to commence a voluntary Liquidation
      without the consent of the holders of the B PECs unless the Nominal Amount
      of the outstanding B PEC's can be paid.

      For purposes of this Section 3.2 neither the voluntary sale, conveyance,
      exchange or transfer (for cash, shares, stock, securities or other
      consideration) of all or substantially all the property or assets of the
      Company nor the consolidation or merger of the Company with one or more
      corporations shall be deemed to be a Liquidation unless such voluntary
      sale, conveyance, exchange or transfer shall be in connection with a
      dissolution or winding up of the business of the Company.

3.3   Optional Redemption by the holders of B PECs

      As of the date of an Event of Default (as defined in Section 6), any
      holder of B PECs shall be entitled, by notice in writing to the Company,
      to have the B PECs held by it redeemed at the Redemption Price, before any
      payment shall be made or any assets distributed to the holders of any
      Subordinated Securities, provided that:

      (a)   the Par Value of the B PECs will be payable to the extent the
            Company will not be Insolvent after making such payment; and

      (b)   the Unpaid Return will be payable only to the extent the Company
            will not be Insolvent after making such payment.

      The Redemption Price shall be paid to the holders of record ultimately on
      the 15th day after the aforementioned notice has been received by the
      Company.

3.4   Redemption at the option of the Company

      The Company may at any time on giving not less than 10 Business Days
      notice to the holder thereof, redeem the B PECs in whole or in part (but
      if in part only in whole multiples of (pound)10,000) at pAR together with
      any accrued but unpaid Return thereon down to the date of redemption
      PROVIDED THAT simultaneously with such redemption the Company redeems an
      equal proportion of each of the other preferred equity certificates issued
      by it (including for the avoidance of doubt, any other preferred equity
      certificates issued to MICL).

3.5   General

      Redemption of the B PECs will be subject to the condition that:

      (a)   from and after the Redemption Date, the B PECs shall cease to accrue
            a Return, and the B PECs shall no longer be deemed to be outstanding
            and all rights of the holders thereof (except the right to receive
            from the Company the Redemption Price) shall cease. Upon the
            Redemption Date, specified for redemption in any such notice, the
            payment of the Redemption Price by the Company shall become payable.
            Surrender of the B PECs shall be made at the registered office of
            the Company. Upon surrender in accordance with said notice of the B
            PECs so redeemed (properly endorsed or assigned for transfer, if the
            board of managers of the Company shall so require and the notice
            shall so state), such B PECs shall be redeemed by the Company at the
            Redemption Price as aforesaid;

      (b)   any Par Value or any Unpaid Return payable pursuant to Section 3.1.
            to and including Section 3.3. but not paid on the Redemption Date
            will accrue interest at the Applicable Rate beginning on and
            including the Redemption Date.

                                       5
<PAGE>

4     WITHHOLDING TAXES

      All payments on the B PECs shall be made free and clear of withholding
      taxes imposed by any taxing jurisdiction, unless the withholding of such
      tax is compelled by law. For purposes of this Section 4, withholding taxes
      shall not include income taxes measured or imposed upon the net income of
      the holder.

5     COVENANTS

      After the Date of Issuance and for so long as any B PECs are outstanding,
      the Company will not, without the written consent of the holders of the B
      PECs, issue any shares of capital stock having, upon or following the
      Liquidation of the Company, any right to payment ranking prior or equal to
      the payment in full of the Nominal Amount on each B PEC to the holders.

6     DEFAULT

6.1   Each of the following events shall constitute an "EVENT OF DEFAULT":

      (a)   the Company fails to pay the full amount of any Return, as to which
            the requirements of Section 2.1 have been met, on the applicable
            Payment Date or fails to make any payments required under Section 3
            and such failure continues for five Business Days following the date
            on which the holder of record gives notice of such failure to the
            Company; or

      (b)   except as expressly permitted herein, the Company:

            (i)   is dissolved or liquidated;

            (ii)  becomes insolvent or unable to pay its debts as they become
                  due; or

            (iii) institutes or has instituted against it a proceeding seeking a
                  judgement of insolvency or bankruptcy or any other relief
                  under bankruptcy or insolvency law, and in the case any such
                  proceeding or petition instituted or presented against it,
                  such proceeding or petition:

                  (A)   results in a judgement of insolvency or bankruptcy or
                        the entry of an order for relief or the making of an
                        order for its winding-up or liquidation; or

                  (B)   is not dismissed, discharged, stayed or restrained in
                        each case within 90 days of the institution or
                        presentation thereof.

6.2   The Company shall promptly notify the holders of the B PECs if an Event of
      Default has occurred.

7     REGISTRATION OF THE B PECs; TRANSFER RESTRICTIONS; ISSUANCE AND EXCHANGE
      OF B PEC CERTIFICATES; LOSS OF B PEC CERTIFICATES

7.1   All B PECs shall be issued only in registered form, and the name and
      address of the holder of each certificate representing a B PEC shall be
      entered into the B PEC Register by the Company. Except as expressly
      required by law, the Person in whose name the B PECs stand in the B PEC
      Register shall be deemed to be the full and undivided owner and record
      holder thereof for all purposes.

7.2   Upon request of the holder of record of the B PECs, the Company shall, at
      the cost of such holder, issue a certificate evidencing one or more B
      PECs. In case such certificate evidences more than one B PEC, the Company
      shall upon request of the holder of record replace, at the cost of such
      holder, such certificate by new certificates evidencing one or more B
      PECs.

7.3   Each holder of record shall promptly notify the Company of any mutilation,
      loss, theft, or destruction of any certificate or certificates evidencing
      any B PECs of which it is the record holder.

                                       6
<PAGE>

      The Company may, in its discretion, issue a new certificate in place of
      any certificate theretofore issued by it and alleged to have been
      mutilated, lost, stolen or destroyed, upon satisfactory proof of such
      mutilation, loss, theft or destruction.

7.4   The transfer of any B PEC is subject to the prior written consent of the
      Company.

8     GENERAL TERMS AND CONDITIONS OF B PECs

8.1   Ranking

      Subject to the terms and conditions hereof, the B PECs shall, with respect
      to payment rights, which includes the Return, redemption and rights on
      liquidation, winding up and dissolution, rank prior to all Subordinated
      Securities but the obligations in respect of the B PECs shall, except for
      any other class of preferred equity certificates issued by the Company at
      present or in the future which shall rank pari passu with the B PEC's,
      rank subordinate to all other present and future obligations of the
      Company whether secured or unsecured.

8.2   Convertibility

      The B PECs shall not be convertible into any other security issued by the
      Company.

8.3   Voting Rights.

      The holders of record of the B PECs shall not be entitled to any voting
      rights in respect of the Company by reason of their ownership of the B
      PECs.

8.4   Non recourse

      Notwithstanding any provision of these Terms and Conditions, the
      obligations of the Company hereunder to make payments to the holders of
      the B PECs are, at any time of determination, limited to the lesser of the
      Nominal Amount and the Available Amount. The Available Amount shall,
      subject to any other provision of this B PEC, at all times be limited to
      the income the Company has received from its Investment up to and
      including the date of its Liquidation and the value of the Investment on
      that date. On a liquidation of the Company, in the event that the Nominal
      Amount exceeds the Available Amount, the right of any person to claim
      payment in respect the Excess shall be extinguished. No party will, at any
      time, have recourse to, or make demand or initiate proceedings against,
      the Company in respect of the Excess. The Company shall incur no liability
      and be under no additional duty to any person solely as a result of any
      inability on its part to make payments or to perform other obligations
      hereunder, which inability results from the operation of the foregoing
      provisions of this clause.

9     MISCELLANEOUS

9.1   Governing Law

      These Terms and Conditions of the B PECs are governed by, and shall be
      construed in accordance with, the laws of Luxembourg and the Company and
      any holders of the B PECs accepting these terms and conditions hereby
      submit to the non-exclusive jurisdiction of the courts of Luxembourg with
      respect to any suit, action or proceeding relating hereto.

                                       7
<PAGE>

EXECUTED AS AN AGREEMENT

SIGNED by                            )
for and on behalf of
Macquarie Luxembourg Water Sarl      )    ......................................
                                     )    Director
                                     )
                                     )
                                     )    ......................................
                                     )    Director
                                     )

SIGNED by                            )
for and on behalf of                 )    ......................................
Macquarie Infrastructure Company LLC )    Director
                                     )
                                     )
                                     )    ......................................
                                     )    Director
                                     )

                                       8

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