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DERIVATIVE FINANCIAL INSTRUMENTS | 12 Months Ended
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Dec. 31, 2021
Financial Instruments [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS | DERIVATIVE FINANCIAL INSTRUMENTS Brookfield Infrastructure’s activities expose it to a variety of financial risks, including market risk (i.e. currency risk, interest rate risk, commodity risk and other price risk), credit risk and liquidity risk. Brookfield Infrastructure and its subsidiaries selectively use derivative financial instruments principally to manage these risks. The aggregate notional amount of Brookfield Infrastructure’s derivative positions at December 31, 2021 and 2020 were as follows:
US$ MILLIONS |  | Note |  | 2021 |  | 2020
Foreign exchange contracts |  | (a) |  | $ | 4,383 |  |  | $ | 3,274 |
Interest rates swaps and other |  | (b) |  | 10,095 |  |  | 11,437 |
Commodity contracts |  |  |  | 424 |  |  | 32 |
|  |  |  | $ | 14,902 |  |  | $ | 14,743 |
The following table presents the change in fair values of Brookfield Infrastructure’s derivative positions during the years ended December 31, 2021 and 2020:
US$ MILLIONS |  | Unrealized Gains on Derivative Financial Assets |  | Unrealized Losses on Derivative Financial Liabilities |  | Net Change During 2021 |  | Net Change During 2020
Foreign exchange derivatives |  | $ | 145 |  |  | $ | (45) |  |  | $ | 100 |  |  | $ | (213) |
Interest rate derivatives |  | 454 |  |  | (156) |  |  | 298 |  |  | (173) |
Commodity derivatives |  | — |  |  | (43) |  |  | (43) |  |  | (17) |
|  | $ | 599 |  |  | $ | (244) |  |  | $ | 355 |  |  | $ | (403) |
(a)Foreign Exchange Brookfield Infrastructure held the following foreign exchange contracts with notional amounts at December 31, 2021 and 2020.
|  | Notional Amount (U.S. Dollars) |  | Average Exchange Rate
US$ MILLIONS |  | 2021 |  | 2020 |  | 2021 |  | 2020
Foreign exchange contracts |  |  |  |  |  |  |  |
British pounds |  | $ | 1,871 |  |  | $ | 1,404 |  |  | $ | 1.35 |  |  | $ | 1.31 |
Canadian dollars |  | 679 |  |  | 612 |  |  | 0.75 |  |  | 0.75 |
Australian dollars |  | 642 |  |  | 609 |  |  | 0.73 |  |  | 0.69 |
European Union euros |  | 367 |  |  | 239 |  |  | 1.21 |  |  | 1.21 |
Indian rupees |  | 216 |  |  | 308 |  |  | 0.013 |  |  | 0.013 |
Colombian pesos |  | 27 |  |  | 28 |  |  | 0.0002 |  |  | 0.0003 |
Peruvian soles |  | 9 |  |  | 12 |  |  | 0.26 |  |  | 0.28 |
Chilean pesos |  | — |  |  | 34 |  |  | — |  |  | 0.0013 |
Other(1) |  | 572 |  |  | 28 |  |  | — |  |  | — |
|  | $ | 4,383 |  |  | $ | 3,274 |  |  |  |  |
(1)Includes foreign exchange contracts at our operating subsidiaries intended to offset the risk associated with non-recourse borrowings in currencies other than the functional currency of the underlying operation. (b)Interest Rates At December 31, 2021, Brookfield Infrastructure held interest rate and cross currency interest rate swap contracts having an aggregate notional amount of $10,095 million (2020: $11,265 million). Brookfield Infrastructure has inflation linked swaps with an aggregate notional amount of $nil (2020: $172 million). Our partnership has an aggregate notional amount of $4,698 million floating interest rate derivatives that are benchmarked against the LIBOR, $440 million floating interest rates derivatives that are benchmarked against the bank bill swap rate and $1,741 million floating interest rates derivatives that are benchmarked against the CDOR. It is currently expected that the Secured Overnight Financing Rate will replace US$ LIBOR prior to June 30, 2023. As at December 31, 2021, none of our partnership’s floating rate borrowings have been impacted by this reform. Please refer to Note 3, Significant Accounting Policies, for more details. Other Information Regarding Derivative Financial Instruments The following table presents the notional amounts underlying Brookfield Infrastructure’s derivative instruments by term to maturity as at December 31, 2021 and the comparative notional amounts at December 31, 2020, for both derivatives that are classified as fair value through profit or loss and derivatives that qualify for hedge accounting:
|  | 2021 |  | 2020
US$ MILLIONS |  | < 1 year |  | 1 to 5 years |  | > 5 years |  | Total Notional Amount |  | Total Notional Amount
Fair value through profit or loss |  |  |  |  |  |  |  |  |  |
Foreign exchange derivatives |  | $ | 1,021 |  |  | $ | 1,082 |  |  | $ | — |  |  | $ | 2,103 |  |  | $ | 1,723 |
Interest rate derivatives |  |  |  |  |  |  |  |  |  |
Interest rate swaps, cross currency interest rate swaps and other |  | 579 |  |  | 107 |  |  | — |  |  | 686 |  |  | 779 |
Inflation linked swaps |  | — |  |  | — |  |  | — |  |  | — |  |  | 172 |
Commodity contracts |  | 424 |  |  | — |  |  | — |  |  | 424 |  |  | 32 |
|  | $ | 2,024 |  |  | $ | 1,189 |  |  | $ | — |  |  | $ | 3,213 |  |  | $ | 2,706 |
Elected for hedge accounting |  |  |  |  |  |  |  |  |  |
Foreign exchange derivatives |  | $ | 1,211 |  |  | $ | 497 |  |  | $ | 572 |  |  | $ | 2,280 |  |  | $ | 1,551 |
Interest rate derivatives |  |  |  |  |  |  |  |  |  |
Interest rate and cross currency interest rate swaps |  | 324 |  |  | 8,246 |  |  | 839 |  |  | 9,409 |  |  | 10,486 |
|  | $ | 1,535 |  |  | $ | 8,743 |  |  | $ | 1,411 |  |  | $ | 11,689 |  |  | $ | 12,037 |
The following table classifies derivatives elected for hedge accounting during the years ended December 31, 2021 and 2020 as either cash flow hedges or net investment hedges. Changes in the fair value of the effective portion of the hedges are recorded in either other comprehensive income or net income, depending on the hedge classification, whereas changes in the fair value of the ineffective portion of the hedge are recorded in net income:
|  | 2021 |  | 2020
AS AT AND FOR THE YEARS ENDED (MILLIONS) |  | Notional |  | Effective Portion |  | Ineffective Portion |  | Notional |  | Effective Portion |  | Ineffective Portion
Cash flow hedges |  | $ | 9,981 |  |  | $ | 288 |  |  | $ | 28 |  |  | $ | 11,089 |  |  | $ | (160) |  |  | $ | 9 |
Net investment hedges |  | 1,708 |  |  | 62 |  |  | (14) |  |  | 948 |  |  | 32 |  |  | 2 |
|  | $ | 11,689 |  |  | $ | 350 |  |  | $ | 14 |  |  | $ | 12,037 |  |  | $ | (128) |  |  | $ | 11 |
Our partnership settles the difference between the contracted fixed and floating rates of its interest rate swaps on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce our partnership’s cash flow exposure resulting from variable interest rates on borrowings. The interest rate swaps and the interest payments on the borrowings occur simultaneously and the amount accumulated in equity is reclassified to profit or loss over the period that the floating rate interest payments on borrowings affect profit or loss.

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