Choose your own adventure: finding a suitable discount rate for evaluating value for money in public-private partnership proposals
By: Zwalf, Sebastian.
Contributor(s): Alam, Quamrul | Hodge, Graeme.
Material type:
ArticlePublisher: 2017Description: p.301-315.Subject(s): Public private partnerships
In:
Australian Journal of Public AdministrationSummary: The public sector comparator (PSC) is the key test for determining value for money in public-private partnership (PPP) proposals. Central to the use of the PSC is the discount rate adopted to develop a net present cost for the comparison of privately financed versus traditional delivery options. Several major theories exist informing what the discount rate should be; however, scholarly debate has been inconclusive about which theory is most suitable. This paper considers the two major discount rate theories and examines the discount rate policy applied in eight jurisdictions giving consideration to the rate applied and the theoretical basis on which discount rate policy is developed. It finds that the majority of jurisdictions rely on a variable project specific discount rate formula; a prescribed number is rare; most jurisdictions depart from the major theoretical schools and no two jurisdictions have the same approach; further, that a very wide range of discount rates are in use, ranging from 3.94% (nominal) to 10.15% (nominal) being observed. - Reproduced.
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Articles
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Indian Institute of Public Administration | Volume no: 76, Issue no: 3 | Available | AR116714 |
The public sector comparator (PSC) is the key test for determining value for money in public-private partnership (PPP) proposals. Central to the use of the PSC is the discount rate adopted to develop a net present cost for the comparison of privately financed versus traditional delivery options. Several major theories exist informing what the discount rate should be; however, scholarly debate has been inconclusive about which theory is most suitable. This paper considers the two major discount rate theories and examines the discount rate policy applied in eight jurisdictions giving consideration to the rate applied and the theoretical basis on which discount rate policy is developed. It finds that the majority of jurisdictions rely on a variable project specific discount rate formula; a prescribed number is rare; most jurisdictions depart from the major theoretical schools and no two jurisdictions have the same approach; further, that a very wide range of discount rates are in use, ranging from 3.94% (nominal) to 10.15% (nominal) being observed. - Reproduced.
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