PSCs for Availability PPPs are calculated as the estimated net present value (NPV) of a project's expected cash flows based on traditional infrastructure procurement and delivery and whole-of-life project costs discounted by the risk-free rate.
The rationale for this calculation methodology is that revenue derived from this infrastructure is primarily sourced from the Responsible Agency (for and on behalf of the NSW Government), through availability-based payment mechanisms.
The PSC for Availability PPPs is cost-driven, and the Responsible Agency (for and on behalf of the NSW Government) generally retains most, if not all, of the demand risk.
The cash flows for the PSC include the following core components:
• base costs of delivering the services specified in the project brief based on traditional delivery through a NSW Government Agency
• competitive neutrality adjustment (if applicable), covering any expenditure-based State and Local Government taxes, fees and charges that the Responsible Agency is not required to make by virtue of its status; and
• estimate of the expected cost of risks that could potentially crystallise over the life of the project. The PSC should distinguish between the expected cost of risks that would be retained by the Responsible Agency (for and on behalf of the NSW Government) and those that would be transferred to, and assumed by, the private sector.
There can be variations to the PSC described here, particularly where there are user-charges or for a RAB model. In all cases Responsible Agencies must consult with NSW Treasury on the approach to the PSC to ultimately assess the PPP project's value for money.