PSCs for Economic Infrastructure

In developing a PSC for economic infrastructure projects, it is assumed that the most efficient government delivery method is using a special purpose vehicle, operating under the SOC Act and in accordance with NSW Government's Commercial Policy Framework10. This approach reflects the importance of revenue and the allocation of demand risk between the public and private parties in determining the financial outcomes of the project.

PSCs for economic infrastructure projects will incorporate the following principles:

•  competitive neutrality with the private sector through the payment of State and Commonwealth tax equivalents and other regulatory costs equivalent to those that would be faced by the private sector;

•  a commercial capital structure, i.e. a level of debt and equity that optimises the value of the project while maintaining an investment-grade credit rating for the project's debt.  Prudential constraints will be applied to the project's financial structure, including minimum debt service cover ratios and reserves for debt service;

•  Government guarantee fee, reflecting the margin between the project's credit rating and the credit rating of the NSW Government a commercial level of return on the Government's equity investment in the project, reflecting the project and financial risks borne by equity throughout the project's life.

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10 This framework seeks to replicate within Government businesses appropriate disciplines and incentives that lead private sector businesses towards efficient commercial practices. The framework includes financial performance monitoring, financial distributions, capital structure, guarantee fees, social programs and assessment of projects of State significance. Relevant policy documents are available from NSW Treasury at http://www.treasury.nsw.gov.au