13.1 Discount rate
Guidance notes - Discount rate Discount rate(s) to be used in construction of the PSC and in evaluating bids are to be derived in accordance with the methodology outlined in the Discount Rate Methodology Guidance and the latest parameter information advised by the relevant Treasury and/or Finance departments. |
The PSC is presented in net present cost (NPC) terms. The NPC is based on the 'time value of money' concept and takes into account the effects of the timing of different cash flows over the project life by calculating the total net amount of all cash flows in equivalent present-day values.
The forecast nominal cash flows in the PSC are discounted to 1 July 2002. The NPC analysis is conducted using nominal cash flows discounted at a nominal discount rate of 7.62 per cent per annum. This nominal discount rate is based on a real, pre-tax rate of 5.00 per cent per annum and an inflation rate of 2.5 per cent.
An analysis of the sensitivity of the PSC to changes in the discount rate has also been undertaken (refer to Section 16.3).