3000 kb - Mid Western Regional Council - NSW Government

Financial Management
Contains a summary of the financial modelling process and the input data used.
Overview of Financial Planning
The objective of financial planning is to model the full life cycle costs for the preferred
service planning option and to determine appropriate funding strategies and to ensure that
the services remain affordable in the long term.
By taking a long-term view, financial peaks and troughs can be smoothed to provide the
basis for a consistent charging policy and to highlight any current impact of future actions.
The new NSW Financial Planning Model (FINMOD Version 4.0), issued by the
Department of Water and Energy (previously DEUS) in November 2003, has been used
for this modelling. A 30-year planning horizon has been adopted as recommended in the
Department of Energy, Utilities and Sustainability Guidelines.
To establish a financial plan various scenarios are explored in order to determine the best
funding strategy.
It is important to identify a logical progression of asset creation, rehabilitation, and
replacement over at least 20 years in order to develop a working perspective for the
management of these infrastructure assets which have expected lives of up to one
hundred years.
The preferred model presented here assumes that government grants are available to
Council for the Mudgee STP augmentation work. Where funding from revenue would
require an unrealistic level of charging in the short term then borrowing will be undertaken.
The overall goals of financial modelling are to optimise a long term funding strategy to
meet the demands of the capital works programme and day to day operations, while
ensuring a minimum level of cash liquidity and a stable level of average residential
charges.
AAS27 reporting for the financial statements requires that all funds be declared as assets
under cash and investments in the statement of financial position. Also that assets are
valued on a fair value basis which is depreciated current replacement cost or market value
depending on the type of asset.
All capital works estimates in the text are quoted in real (2006) dollars unless specified
otherwise. The output data is quoted in real and inflated dollars.
When assessing affordability, note that a $1 charge now will be equivalent to $1.80 in 20
years time, assuming a 3% annual inflation rate.
A summary of the financial modelling results is included on the following pages and
detailed input and output data are available in the Appendices.
Mid-Western Regional Council Part C - Detailed Information Page 79
Strategic Business Plan for Sewerage