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| Variables | Observations | Default Value/Range | |
| Escalators | Stage 2 | Stage 1 | ||
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| 4. CapEx Escalator | This escalator increases the projected Initial CapEx. In the absence of DEFRA indices, the value should be determined in conjunction with the technical advisor. One reference point is the Buildings Costs Indexation Service ("BCIS"). Information may be found at www.bcis.co.uk. Another reference point is the DTI which supplies civil engineering indices. Data may be sourced from the following website:- | {2.5}% | {2.5}% |
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| 5. OpEx (Non Employment) Escalator | This escalator is applied to all non wage related operating expenditure, lifecycle costs and third party income. Non wage related OpEx includes a number of costs (eg fuel & landfill) for which the escalation rates may differ significantly. To increase the accuracy of the Model outputs, a project specific non employment OpEx escalator should be developed, as per the example in Appendix A. An average annual rate of inflation is assumed for each of the main cost components, and these are then weighted according to the proportion of the total non wage related OpEx the relevant component represents. A single (weighted) average annual escalation rate is then derived. In the event that there is a fairly strong correlation in the rate of change for the principal costs underpinning the non employment OpEx and/or the relevant data is not available to develop a project specific non employment OpEx escalator, then the prevailing GDP Deflator value could be used as a proxy. The GDP Deflator may be sourced from the following web address: http://www.hm-treasury.gov.uk/media/CDA/4C/gdp_deflators300605excel.xls | {2.5}% | {2.5}% |
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| 6. OpEx (Employment ) Escalator | Applied to all wage related costs and should reflect the projected increase in salary and wage costs. UK average earnings index data is available from the following web address: http://www.incomesdata.co.uk/statistics/stataver.htm Civil engineering indices may be sourced from the following website:- | {2.5}% | {2.5}% |
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| 7. Unitary Charge Escalator | The unitary charge in the main cashflow model is determined by:-1. the volume of waste disposed; and 2. a gate fee per tonnage. The volume of waste handled is a function of waste growth rates and household growth rates. Whilst the volumes treated could both increase and decrease in the course of a year, annual growth rates are generally positive. Based on current data, average annual waste growth rates are likely to be relatively low at project start. Furthermore, with an effective waste minimisation policy, it is to be anticipated that growth rates reduce during the contract period. The gate fee will also vary over time, thereby ensuring that the revenue stream to the PFI Contractor is sufficient to cover | N/A | {80}% |
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| the non linear operational and lifecycle costs. Therefore, unlike most other types of PFIs, the unitary charge for waste projects typically exhibits a non linear profile. However revenue received is smoothed to some extent by the application of the appropriate escalator. In the VfM Model a flat unitary charge value is generated which is escalated by a unitary charge escalator. The Unitary Charge Escalator in the Model is expressed as a percentage of the OpEx (Non Employment) Escalator, which should be calculated in accordance with item 5 above, and should therefore provide an acceptable proxy. The percentage of the OpEx (Non Employment) Escalator which should be used to inflate the Unitary Charge should correspond to that share of the Unitary Charge which is not fixed (i.e. debt), and should therefore be subject to inflationary forces. For example, if debt service corresponds to 20% of the Unitary Charge, then the Unitary Charge Escalator would be 80%. An example of how to determinine the Unitary Charge Escalator is provided in Appendix A. A similar spreadsheet showing the same workings should be included in each OBC to show how the unitary charge escalator has been derived for the Model. |
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| 8. Base Year Values | With the exception of the Indirect VfM Factors and the sterling swap rate, all input data should be in real terms. Ideally the data should be expressed in real terms as at project start date (i.e. the Base Year). The Model does however allow the user to insert data which is in real terms post project start date. If the data is real as at project start date then the Base Year value is 0. If conversely data is expressed in real terms post project start (e.g. the middle of year 3), then the Base Year value is 3. Data may not be expressed in real terms as at a period which is pre-project start date. (i.e.) the input value may not be negative. | {0} | {0} |