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Question 2: How were the risks mitigated in the structuring of the project?
Risks How to Mitigate
Financial Risk The state would also share the risk of refinancing losses equally with
Aquasure. Procuring a state-supported guarantee for the debt funding,
payment of termination payment, or pay out of the balance of any un-
refinanced debt.
Credit Risk Procuring a state-supported guarantee for the debt funding, payment
of termination payment, or pay out of the balance of any un-
refinanced debt.
Energy Price Risk Through price-reset mechanism
Demand Risk Government guarantees provided, by providing minimum fixed
payment.
Service payment Risk The plant would built with redundancy, with the parallel processing
and modular design allowing for the repair of components on a
segregated basis. With additional and full capacity
Procurement Risk State supported guarantee for procurement.
Refinancing Risk State share the losses of refinancing.
Interest Rate Risk Interest rate risk hedged with interest rate derivatives.
Force Majeure Force Majeure Clause.
Question 3: What was the role of state and how important was it in getting
project going?
Role of State:
Contracting entity with Aquasure.
Responsible for procuring the land for the desalination plant.
The state also provided support for the financing of the project through guaranteeing the
debt.
Share the refinancing losses equally with Aquasure.
Share the risk of funding costs of the senior debt.
Procuring a state-supported guarantee for debt funding.
Risk of high energy cost.
As the project took place against the backdrop of the global financial crises which rocked
financial markets, which lead towards the increase in financial, credit and many other risks. In
these types of conditions the private parties are not willing to take the project without some
guarantees provided by the government. That is why it is very important for government to take
responsibility for procuring land and provide sovereign guarantees, by sharing risk, losses etc.
Cons of PPP:
From the above pros and cons of the PPP, Victorian desalination plant support the practices of
the PPPs.
Question 5: Was the transfer of risk reflected in the discount rate used in the
Public sector comparator (PSC)?
NO, the transfer of risk did not reflected in the discount rate used in the public sector
comparator. The discount rates was the different patterns of cash outlays in the PSC option
versus the PPP option. The PSC typically required a large capital outlay from government for
construction in the early years, followed by much smaller outlays for operations and maintenance
over the service life of the facility. In contrast, under PPP, as the private provider financed the
construction, the government avoided major expenditure in the beginning but had to make larger
payments during the service life of the facility (so that the private provider would recover the
investment costs as well as pay for operations and maintenance).