3000 kb - Mid Western Regional Council - NSW Government

charges. Where capital works costs are low and cash levels are high this may be possible
but it may also suggest that current levels of charging are too high.
On the other hand deferring expenditure is consistent with the goal of inter-generational
equity when considering long-term asset management. Longer period loans spread the
cost of works over a longer period, eliminating early peaks in annual charges. Often
councils will have no choice except to borrow for major projects because collecting
sufficient cash in advance is impracticable and would require an unacceptably high level
of charges.
In general most councils use a mix of revenue and borrowings to meet Council’s financial
performance policy criteria. Given that this is achieved, the latest DEUS Guidelines
recommend adoption of the lowest possible steady rate of long-term charges in real terms
that is achievable. In the Phase 1 runs of the model the default loan period used was
twenty years.
Phase 2 – Preferred model and sensitivity
After consideration of Phase1 issues a preferred option will be finally reviewed and
updated to suit any last minute planning refinements and detailed cost estimating carried
out.
While the preferred model reflects the expected performance of the systems, it does not
give any indication of the sensitivity of the proposed solution should the basic
assumptions used prove significantly different in practice.
It is recommended that a sensitivity analysis be carried out if it is perceived that a variable
may change significantly in the future. The value of a sensitivity analysis is that it shows:
• the sensitivity of the results to assumptions (uncontrollable variables)
• the impact of changing controllable variables.
The guidelines suggest that a number of sensitivities be carried out to test the robustness
of the plan. In regard to controllable variables such as type of loan structure, level of
developer charges etc., the model enables Council to make decisions to establish the
right management policies.
It is important to demonstrate the impact of the ‘no subsidy’ scenario, which shows the
potential benefits of government assistance. Council’s expectations for receiving subsidy
are included in the final preferred model as being the most realistic future scenario.
With uncontrollable variables, Council is at the mercy of change. The downside risk of an
increase in interest rates, or low growth rates, or rise in energy costs, may be
considerable. Increasingly the impact of water demand management may be felt in the
future and expected water savings although resulting in loss of revenues, should be more
than compensated for by deferment of capital works and lower operational costs.
On-going Review
Over time, changes in model variables can have a significant impact on the model’s
accuracy and this has implications for Council’s forward planning. It is recommended that
the models be revisited regularly to ensure that they retain their currency. Where Council
has an active capital works program requiring subsidy then annual updates are
recommended.
Mid-Western Regional Council Part C - Detailed Information Page 83
Strategic Business Plan for Sewerage