3.5.7  Calculation of PPP Discount Rate

To calculate the PPP Discount Rate the following steps need to be undertaken:

1.  To Calculate the Estimated Portion of Systematic Risk Premium related to each Systematic Risk, multiply the portion of the weighting per the Weighting column (Column 1) (i.e. weighting for individual Systematic Risk divided by Total Sum of all weightings) by the amount of the Systematic Risk Premium (as calculated in Step 3) and place the amount in the Estimated Portion of Systematic Risk Premium column (Column 2).

2.  To Calculate the Systematic Risk Premium transferred for each Systematic Risk multiply the amount in (Column 3) by the Estimated Portion of Project Premium (Column 2) and place the amount in the Systematic Risk Premium transferred column (Column 4).

3.  The Total estimated Systematic Risk Premium transferred, is then calculated by adding the amounts for each Systematic Risk in the Systematic Risk Premium column.

Following the process described above will provide practitioners with the allocated risk premium transferred to the Private Sector.

As a result, practitioners will be able to calculate the appropriate PPP Discount Rate for the purposes of comparing Private Sector bids.  The PPP Discount Rate can therefore be calculated as the Risk-free Rate plus the total estimated Systematic Risk transferred (per total of Column 4).