We applied an average interest rate saving of 0.5 per cent per annum, discounted at 15 per cent over a 30 year concession, to the total capital value figure of £7,137 million. As a result, the public sector share of the total interest saving on an NPV basis was £80m.
Assumptions:
1 We have assumed that the capital value of the projects is equal to the bank debt which will be refinanced, and that the level of debt will for simplicity remain constant throughout the life of the project.
2 The figure of 0.5 per cent is a typical savings figure, which we based on data used to calculate the interest rate saving in the Norfolk and Norwich refinancing.
3 The discount rate of 15 per cent per annum is a typical discount rate figure, which we based on data used to calculate the refinancing gains in the refinancing of Darent Valley Hospital.
4 Projects have a 30 year concession remaining.
As part of a sensitivity analysis we re-calculated the estimate assuming an interest rate saving of 0.7 per cent, which gave a predicted gain to the public sector of £113 million. However, it is possible that many of the projects would not be allowed to break swaps agreed as part of their original financing without incurring penalties, which would reduce the gains generated or might in some cases make undertaking the refinancing unprofitable. For this reason we feel that our assumed interest rate saving of 0.5 per cent gives a fair estimate, given that in practice a proportion of the projects could be unlikely to refinance.