TPP15-02 Budgeting For Availability Based Public Private Partnerships
TPP15-02 Budgeting For Availability Based Public Private Partnerships
TPP15-02 Budgeting For Availability Based Public Private Partnerships
tpp
15-02
Preface
This Budgeting for Availability based Public Private Partnerships Policy and
Guidelines Paper reflects the Government’s objective of a consistent, strategic
and systematic approach to recognising the present and future liabilities
associated with Availability PPPs across the whole of Government.
This policy applies to all General Government agencies and Public Trading
Enterprises (PTEs) for financial years beginning on or after 1 July 2014 for all
Availability PPPs.
Philip Gaetjens
Secretary
NSW Treasury
February 2015
Note
General inquiries concerning this document should be initially directed to:
The Infrastructure & Structured Finance Unit, NSW Treasury
Tel: 9228 3944, or email: [email protected].
Contents:
Page
Preface i
Executive Summary 1
Introduction 2
Compliance 3
Policy Overview 3
Overview 4
Reporting Requirements 4
Submission Requirements 6
Reporting Frequency 8
Sign Off 9
Further Information 10
Guidance material 10
Treasury Contacts 10
Associated Instruments 10
Executive Summary
All Relevant Entities that are in the process of procuring or are bound by an
Availability PPP contract must comply with this policy.
PPP Data Table submissions should be made as part of the budget returns
process.
Introduction
Availability PPPs have unique implications for capital and recurrent budgetary
frameworks for major projects.
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:
Compliance
All General Government agencies and PTEs (Relevant Entities) that are in the
process of procuring or bound by an Availability PPP contract are required to
comply with this policy.
Policy Overview
PPP Data Table submissions should be made as part of the budget returns
process.
This policy requires Relevant Entities to budget for the liabilities that arise in
relation to projects that are delivered under Availability PPP contracts. This
includes budgeting for the capital, operational and financing elements of the
Service Payment. In addition, it requires Relevant Entities to budget for the
relevant projects at all stages, from investment decision through to the
operational period of the Availability PPP project, and provides guidance on
reporting requirements.
For the avoidance of doubt, this policy does not replace any existing
government policies or circulars concerning budgeting for capital projects. The
guidance is to be used in conjunction with relevant policies that relate to
planning for and managing major capital works.
Treasury uses the Budgeting for Availability PPPs data to assist consideration of
the:
Financial impact of Availability PPPs on the State budget over the PPP
lifecycle (i.e. project procurement, development, construction and
operations).
Overview
Availability PPPs follow the approval and procurement stages per the diagram
below (sourced from Figure 3.1 of the existing NSW Public Private Partnerships
Guidelines) Each reporting stage of Budgeting for Availability PPPs has been
identified alongside this diagram.
Cabinet/Ministerial Procurement
Approval Milestones
Identify
Budget Funding Infrastructure
Approval Needs Reporting Stage 1
Procurement
Strategy
Approval to
Procure via PPP
Project
Development
Approval to invite
Expression of
Interest (EOI)
EOI Phase
Approval to issue Reporting Stage 2
Request for
Proposal (RFP)
RFP Phase
Approval of
Preferred Bidder
Negotiate and
Contract
Finalisation
Reporting Stage 3
Approval for
Project Execution, Disclosure
Contract
and Implementation
Execution
Reporting Requirements
Relevant Entities are required to follow the approach below when budgeting for
Availability PPPs.
At this stage there has been no decision made with regard to the procurement
process to be followed for the major project. Planning should follow the Total
Asset Management (TAM) policy (TPP 13-03) and there is no requirement for
any additional data or reporting. The major project is budgeted for as a
traditional project per the approved business case with the capital expenditure
profile budgeted for in the relevant years.
At this stage, if a decision has been made to procure the major project (i.e. go to
market) as an Availability PPP, then the PPP Data Tables will need to be
provided by the Relevant Entities to Treasury analysts as part of their
submission for budget and contract approval.. These tables will be used to
estimate the budgetary and fiscal impact of the Availability PPP, including any
provisions. In particular this will help compare the budget for PPP procurement
against the Public Sector Comparator and budget for traditional procurement.
Relevant Entities should continue to follow the TAM process for the major
project. The major project is budgeted for as a traditional project with the capital
expenditure profile budgeted for in the relevant years.
At financial close of the major project, the Relevant Entities will work with their
Treasury Analysts to amend their TAM submissions, Capital Expenditure
Authorisation Limits (CEALs) and other Budget Controls as part of the budget
process (in accordance with NSWTC 12/20). The capital reallocation will
involve:
Removal of the traditional capital expenditure profile for the major project
from the relevant years resulting in reduced CEALs
Reallocation, resulting in an increased CEAL to coincide with when the
completed asset is recognised in the accounts of the Relevant Entity to
reflect the timing and value stipulated by the relevant accounting policy
In addition, Relevant Entities will provide the PPP Data Tables, as per the
reporting frequency requirements of this policy, showing the impact of the
Availability PPP to the budget and forward estimates.
Following the submission of the PPP Data Tables and inclusion in the annual
Budget Process each Availability PPP will be granted an annual capital
appropriation budget reflecting the capital element of the forecast Service
Payment liabilities. This capital appropriation is provided to make Principal
repayments on the PPP and is not included in the CEAL of the ‘Relevant Entity’.
For any grant funded Relevant Entities, the principal agency will be granted an
annual recurrent appropriation reflecting the capital element of the forecast
Service Payment, which will then be provided to the grant funded Relevant
Entity as a capital grant.
The global recurrent element of the Service Payment may be met through the
Relevant Entity’s existing budget or through an additional recurrent
appropriation if approved through the Budget process as a Measure or
Parameter and Technical Adjustment (PTA).
A standing government approval (for the project term) should be sought for
changes in interest and other liabilities and payments assumed by Treasury, to
avoid seeking government approval each year.
Submission Requirements
Availability PPP cash flows and their call on budgets are materially different to
those under traditional procurement. Availability PPP Service Payments need
to be factored into forward budgets and considered as part of the State’s
broader financial management framework. To support this reporting
requirement, at financial close, an Availability PPP should no longer be reported
on a traditional basis but on the basis of the anticipated future liabilities of the
Relevant Entities as set out in the diagram below.
Service Payments
Relevant Entities are required to submit PPP Data Tables in accordance with
the budget process timeline. The PPP Data Tables provide information on the
anticipated future liabilities of the Relevant Entities in relation to a specific
Availability PPP.
PPP Data Tables should capture, at relevant stages of the project lifecycle, the
following information:
Conditional Debt Pay Down (CDPD) amounts: Where these have been
committed to be made during the Operational Phase subject to agreed
conditions being met
Actual PPP Service Payments: Reflecting actual payments made by the
Agency including any market adjusted amounts
PPP Data Tables should provide all information available for the project over the
entire life of the PPP (including that beyond the normal 10 year capital project
budgeting cycle). It is noted that the PPP Data Tables are intended to be output
schedules and can be tailored to each Project. Any calculations required to
inform the PPP Data Tables should be carried out separately.
It is noted that the Forecast PPP Service Payments and the related accounting
entries for the Availability PPP will be informed by the Budget and Accounting
Model (B&A Model). The B&A model is intended for budgeting purposes and
may also be used for other annual reporting purposes. It will be developed and
updated in accordance with the following steps:
The Infrastructure and Structured Finance Unit (ISFU) within Treasury will
work with the Relevant Entity during procurement to develop a tailored B&A
Model. If the Relevant Entity has an existing model that is consistent with the
B&A Model, then this may be used instead.
At financial close the model is updated to reflect the financial close model
and protocols are agreed for annual updates.
Throughout delivery and operations:
- If using the B&A Model, ISFU updates the model and provides the
model’s forecasts to the relevant Agency, Budget and Policy (ABP)
analyst within Treasury for review in line with existing budget
approvals.
- If using the Relevant Entity’s own model, ISFU reviews this model and
its forecasts for consistency.
Relevant Entities complete the Data Tables. Treasury reviews these before
being reflected in the Budget and Forward Estimates for the final Allocation
Schedule prior to the annual State Budget.
The Data Tables, Budget & Accounting Model and associated guidance will be
regularly reviewed and updated by Treasury.
Note: The information should be sourced from the most accurate source
possible, typically proxy financial models developed during the procurement
phase by the agency and bidders and the financial close model described in the
PPP Project Agreement and/or that used for calculation of service abatements.
Performance information is typically sourced from the SPV reporting documents
as stipulated in the Project Deed.
Reporting Frequency
The PPP Data Tables should be prepared as part of the NSW Treasury’s
Budget Process and consequently prepared in accordance with the following
indicative timeframes:
June Budget
Publish Budget Papers
Finalise the NSW 5 year
infrastructure plan
Sign off
Further information
Guidance material
Budgeting for Availability PPPs policy and guidelines are accessible at NSW
Treasury website:
http://www.treasury.nsw.gov.au/Treasury_Policy_Papers_Index_Page
Treasury contacts
Associated instruments
Please note that the above list outlines the primary instruments for
consideration. It is not intended to be exhaustive.
Acronyms
CDPD Conditional Debt Pay Down
CEAL Capital Expenditure Authorisation Limit
DBFMO Design, Build, Finance, Maintain and Operate
EOI Expression of Interest
INSW Infrastructure NSW
ISFU Infrastructure and Structured Finance Unit
KPI Key Performance Indicator
MTFM Medium Term Fiscal Model
PAFA Public Authorities Financial Arrangements
PPP Public Private Partnership
PTA Parameter and Technical Adjustment
PTE Public Trading Enterprise
RFP Request for Proposal
SPV Special Purpose Vehicle
TAM Total Asset Management
Glossary
Term Meaning
Availability A PPP project where the government pays the private party a
PPP Service Payment for the availability of an asset. The Service
Payment also covers the provision of ongoing maintenance
and operational services to the asset for the duration of the
PPP contract. Typically, the private party will be responsible for
designing, building, financing, maintaining and operating the
asset.
Financial The final step in the procurement process when all conditions
Close precedent have been met, all contracts are signed and the
financing for the project is locked in
Service The monthly or quarterly payment made to the SPV for making
Payment the facility available and providing the required services
Special An entity created for the sole purpose of delivering the asset
Purpose and services that are the subject of the PPP
Vehicle (SPV)