Availability PPPs have unique implications for capital and recurrent budgetary frameworks for major projects.
Availability PPP contracts will typically involve a General Government agency or Public Trading Enterprise (Relevant Entities) entering into a design, build, finance, maintain and operate (DBFMO) contract with a private sector Special Purpose Vehicle (SPV) for an extended operating term (e.g. 15 to 30 years).
Availability PPPs are typically structured with the private sector SPV being responsible for raising private finance to fund the capital expenditure required to construct the asset during a project's Construction Phase. Construction completion and commencement of the Operational Phase is usually the key trigger for the Relevant Entity to start making monthly or quarterly Service Payments to the private sector SPV until the end of the Operational Phase. Abatements to the Service Payment are typically made for unavailability of the asset or poor performance, in accordance with the agreed contractual arrangements. Under an Availability PPP, Government retains demand risk and the main form of revenue for the SPV is therefore the Service Payment for making the asset available and providing the required services to the required performance standard.
Availability PPPs differ to demand based PPPs whereby the private sector SPV bears demand risk and derives revenue from third parties (for example user charges) instead of receiving a Service Payment from Government.
At a high level, Service Payments for Availability PPPs comprise three key components:
■ Capital element associated with the cost of constructing the asset
■ Financing costs associated with the debt and equity raised to finance the project
■ Ongoing operating, maintenance and lifecycle costs.
Procurement of Availability PPP projects is governed by the NSW Government's Public Private Partnerships Guidelines (August 2012) and National PPP Guidelines. The Policy should be read in conjunction with these guidelines, relevant accounting standards and other NSW Treasury Policy and Guidelines related to major capital projects, Total Asset Management and Public Private Partnerships.
The Policy is not intended to provide details concerning accounting treatment and financial disclosure requirements for PPP projects. Yet the budgeting should be consistent with the relevant accounting treatment, which varies from Project to Project. Prior to contract execution the Relevant Entities should seek confirmation of the accounting treatment with NSW Treasury and advise the Auditor General per the NSW PPP Guidelines.