2.5.1.2 Operational Phase

The length of the Operational Phase is initially determined by the State on a project specific basis and included in the RFP taking into account matters such as:

• the anticipated duration of the State's need for the Services;

• whole of life costing benefits such as:

- the expected economic life of the asset;

- anticipated timing of major upgrades or refurbishment; and

- expected technological life of the asset;

• the minimum term considered necessary to deliver a reasonable return to Project Co on its investment and amortise the capital value of the asset such that the asset can revert to the State without further payment (which will depend on a variety of factors including the likely length of the Development Phase); and

• the need to retain the State's flexibility in the long term.

In the PV Standard Project Deeds the proposed Operational Phase is 25 years, being the period between the Original Date for Commercial Acceptance and the Final Expiry Date. As the Final Expiry Date is defined as the 25th anniversary of the earlier of the Date for Commercial Acceptance and the Date of Commercial Acceptance, the Final Expiry Date is extended for the same period as the Date for Commercial Acceptance is extended for Extension Events under the Project Deed in order to retain the Operational Phase proposed by the State (unless Commercial Acceptance is achieved after the Date for Commercial Acceptance).

The actual Operational Phase is the period between the Date of Commercial Acceptance and the Final Expiry Date. If the Date of Commercial Acceptance is later than the Date for Commercial Acceptance, the Operational Phase is reduced correspondingly.

This is shown in Diagram 6 below.

Diagram 6

The Service Payments payable to Project Co during the Operational Phase are fixed in time and amount on the basis of the Operational Phase anticipated at Financial Close. The amount of the Service Payment is then only adjusted for Change Compensation Events under the Change Compensation Principles. For example, if the Service Payment is intended to be made monthly over 25 years and is for a monthly amount of $5 million, there are intended to be 300 Service Payments for a total of $1.5 billion. If the actual Operational Phase is less than the proposed Operational Phase because Commercial Acceptance is achieved after the Date for Commercial Acceptance, the Service Payments payable to Project Co are reduced accordingly. If the Operational Phase is actually 24 years there will be 288 Service Payments for a total amount payable of $1.44 billion. This assumes a flat Service Payment for the duration of the Operational Phase which may not always be the case.

This is set out in Diagram 7 below:

Diagram 7