3.3.3 Identifying a Project Rate

Table 2 also presents the Nominal Risk Premium range which is intended to assist practitioners to select an appropriate Project Rate.

For example, drawing on Table 2, the Project Rate would be derived by adding a premium of between 1.8% pa and 4.8% pa to the Nominal Risk Free Rate, depending on the level of systematic risk transferred under a PPP availability-based social infrastructure contract.

The Nominal Risk Premium is calculated as Market Risk Premium x Asset Beta, where the Market Risk Premium is assumed to be 6.0 per cent.3 Jurisdictions may allow for practitioners to determine a specific Market Risk Premium based upon current market data.

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3 Officer, R. 'The Cost of Capital for the State of Victoria: a Synopsis'. Paper commissioned by the Department of Treasury and Finance, May 2001, p. 6, and confirmed in subsequent discussions.