8. Discount rate methodology
Procuring Agencies are to consult DTF on the appropriate Discount Rate for use in assessing RFP responses. Discounted cashflow analysis is required to compare differing PSC and bid cashflows on a consistent basis. The National PPP Guidelines provide a methodology for determining the discount rates to be used in making this comparison and determining whether PPP delivery offers value for money (refer Volume 5: Discount Rate Methodology).
The discount rate methodology under the National Guidelines is not appropriate for use in making the investment decision, that is, it is not appropriate for deciding at business case stage whether the investment has merit and should proceed.
The national guidance focuses upon the development of the discount rate for social infrastructure projects, i.e. projects with net cash outflows for government. Different considerations will apply to economic infrastructure projects.
The appropriate national guideline is Volume 5: Discount Rate Methodology Guidance. The guideline includes a range of asset beta factors as one of the key inputs in determining the discount rate. Departments must consult DTF to
Current discount rate inputs and further information on determining the general inflation rate for use in Partnership Victoria projects is available on www.partnerships.vic.gov.au.