Calculation of PPP Discount Rate

Based on the above qualitative assessment of the relative importance and allocation of the Project's Systematic Risks, the Draft Guidance methodology provides a quantitative apportionment of the project risk premium estimated in Step 3 to assist with determining the PPP Discount Rate.

The methodology is based on a four column table as follows:

Column 1 is used to assign a weighting (on a scale of 1 to 5 with 5 being a risk assessed as being of high importance) based on the qualitative assessment from Step 4.

Column 2 is the weighted proportion of each risk to the total Systematic Risk premium.  This effectively quantifies each Systematic Risk.

Column 3 sets out the allocation of each risk to either the State (represented as 0) or Project Company (represented as 1) or shared between the parties as estimated in the discussion earlier in this paper.

Column 4 multiplies Column 2 by Column 3 to determine the appropriate risk premium to apply to the Risk Free Rate for the Project Company for the Complying Proposals.