PSCs for stand-alone economic infrastructure projects (such as road and transport projects, which generate third-party revenue) will usually be developed on a project financed basis.
This approach reflects:
• The importance of revenue and revenue risk in determining the financial outcome of the project
• The usual method of delivering such infrastructure (i.e. Through a stand-alonegovernment business and in accordance with the nsw government’s commercial policy framework)29.
The project delivery vehicle will normally be assumed to be a special purpose vehicle operating under the State Owned Corporations Act 1989. PSCs for economic infrastructure projects will incorporate the following principles:
• Competitive neutrality with the private sector through the payment of State and Commonwealth tax equivalents and other regulatory costs equivalent to those that would be faced by the private sector
• A commercial capital structure, i.e. A level of debt and equity that optimises the value of the project while maintaining an investment-grade credit rating for the project’s debt. Prudential constraints will be applied to the project’s financial structure, including minimum debt service cover ratios and reserves for debt service
• Debt guarantee, reflecting the margin between the project’s credit rating and the AAA-rating of the NSW Government
• A commercial level of return on the Government’s equity investment in the project, reflecting the project and financial risks borne by equity throughout the project’s life.
Constructed in this way, PSCs for economic infrastructure can serve two functions:
• As an initial test of the commercial viability of the project
• As a benchmark for testing value for money in bids received.
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29This framework seeks to replicate within Government businesses appropriate disciplines and incentives that lead private sector businesses towards efficient commercial practices. The framework includes financial performance monitoring, financial distributions, capital structure, guarantee fees, social programs and assessment of projects of State significance. Relevant policy documents are available from NSW Treasury at http://www.treasury.nsw.gov.au.