The financial model of the PSC incorporates discrete adjustments for risk in the model's numerator cashflows. For this reason, discount rates are not adjusted to reflect project risk. PSC cashflows - and those of the private sector proponent - are discounted at the State's long term cost of funds as estimated by Treasury and Finance.
The long-term nature of public private partnerships requires the PSC to be valued in terms of a long run, stable discount rate. Treasury and Finance adopts a long-term real interest rate that removes the impact of short-term inflation expectations and other speculative factors. The current estimate for the State real interest rate is 5% pa, which should be converted to a nominal rate if nominal cashflows are used in the PSC, which is the preferred approach. This rate is subject to periodic review by Treasury and Finance.