Guidance note: The variable in Table 12 (Discount Rates) relating to State Contribution(s) should be deleted if a State Contribution(s) will not be paid by the State to Project Co in respect of the Project and Section 5.5.1 ([#State Contribution / #State Contributions)] is deleted. |
Volume 5: Discount Rate Methodology Guidance of the National Public Private Partnership Guidelines sets out an approach using the Capital Asset Pricing Model (CAPM) to determine the amount of the systematic risk in the Project.
It then uses a modification in the application of CAPM to determine an appropriate discount rate to reflect the value to the public sector of the systematic risk transferred under each Proposal. In short, where systematic risk is transferred under the Proposal, the discount rate used for the PSC and to evaluate each competing Proposal will differ according to the systematic risk borne by each party.
Table 12 (Discount Rates) below contains the Discount Rates that will apply to the PSC and Proposals respectively (note these rates are current as at RFP release).
Table 12: Discount Rates
Payment Stream | Description | |
Risk free rate | [#]% | |
|
| |
Proposal Evaluation Discount Rate (assuming a nominal financing structure) | [#]% | |
Adjusted Proposal Evaluation Discount Rate | [#]% | |
The Proposal Evaluation Discount Rate applicable to each Proposal will differ according to the systematic risk borne by each party. This includes the level of inflation risk transferred under a Proposal. As a guide, Table 12 (Discount Rates) details the current Proposal Evaluation Discount Rate assuming a nominal financing structure (where the non-indexing element of the Service Payment is equal to the full capital component of the Service Payment).
Consistent with Partnerships Victoria Requirements, the State uses the one month rolling average yield on Treasury Corporation of Victoria (TCV) 10-year bonds as a proxy for the risk free rate. This rate is determined at the time of RFP release and is generally meant to be kept constant throughout the RFP Phase. However, the State reserves the right to make an adjustment to this rate (and all Discount Rates) at the time Proposals are submitted, if it deems that a significant movement in the risk free rate has occurred since RFP release. Adjustments, if any, to the risk free rate at such time will be undertaken by the State and will be fully disclosed to Respondents.
The National Discount Rate Methodology Guidance is available at: https://infrastructure.gov.au/infrastructure/ngpd.