Section 1: Agency overview and resources
1.1 Strategic direction statement
The Clean Energy Finance Corporation (CEFC) was established to facilitate increased flows of finance into the clean energy sector. The CEFC invests in accordance with its legislation, the Clean Energy Finance Corporation Act 2012 (CEFC Act) and the Clean Energy Finance Corporation Investment Mandate Direction 2013 (Investment Mandate), as issued by the former Treasurer and the former Minister for Finance and Deregulation on 24 April 2013.
The CEFC is a statutory authority under the Commonwealth Authorities and Companies Act 1997 (CAC Act). The CEFC commenced funding investments on 1 July 2013.
The CEFC is governed by an independent Board who have statutory responsibility for decision‑making and managing the CEFC's investments. The Board reports to parliament through its responsible Ministers.
The CEFC's investment objectives are to catalyse and leverage an increased flow of funds for the commercialisation and deployment of Australian based renewable energy, energy efficiency and low‑emissions technologies.
The CEFC achieves its objectives through the prudent application of capital, in adherence with its risk management framework, the Investment Mandate and the CEFC investment policies issued by the Board.
The Government has announced its intention to abolish the CEFC. Legislation to abolish the CEFC and transfer the CEFC's existing assets and liabilities to the Commonwealth is currently before Parliament.
1.2 Agency resource statement
Table 1.1 shows the total resources for the CEFC.
Estimate of prior year amounts available in 2014‑15 $'000 |
+ | Proposed at Budget 2014‑15 $'000 |
= | Total estimated 2014‑15 $'000 |
Actual available appropriation 2013‑14 $'000 |
|
---|---|---|---|---|---|---|
Opening balance/Reserves at bank | 401,707 | - | 401,707 | 14,133 | ||
REVENUE FROM GOVERNMENT | ||||||
Ordinary annual services | - | - | - | 8,000 | ||
Total revenue from Government | - | - | - | 8,000 | ||
FUNDS FROM OTHER SOURCES | ||||||
Interest | - | 38,166 | 38,166 | 36,554 | ||
Payment from the CEFC special account | - | - | - | 1,131,600 | ||
Total funds from other sources | - | 38,166 | 38,166 | 1,168,154 | ||
Total net resourcing for CEFC | 401,707 | 38,166 | 439,873 | 1,190,287 |
1.3 Budget measures
Budget measures relating to the CEFC are summarised below.
Programme | 2013‑14 $'000 |
2014‑15 $'000 |
2015‑16 $'000 |
2016‑17 $'000 |
2017‑18 $'000 |
|
---|---|---|---|---|---|---|
Expense measures | ||||||
Repeal of the Carbon Tax - abolishing other measures1 | 1.1 | (177,150) | (320,539) | (322,423) | (323,946) | (54,668) |
Total expense measures | (177,150) | (320,539) | (322,423) | (323,946) | (54,668) | |
Related capital | ||||||
Repeal of the Carbon Tax - abolishing other measures1 | 1.1 | (125) | (250) | (250) | (250) | (250) |
Total related capital | (125) | (250) | (250) | (250) | (250) | |
Related revenue | ||||||
Repeal of the Carbon Tax - abolishing other measures1 | 1.1 | 112 | (43,863) | (131,267) | (263,854) | (201,692) |
Total related revenue | 112 | (43,863) | (131,267) | (263,854) | (201,692) |
1. This measure was included in the Mid‑Year Economic and Fiscal Outlook 2013‑14 and has not previously appeared in a portfolio statement.
Prepared on a Government Finance Statistics (fiscal) basis.
Section 2: Outcomes and planned performance
2.1 Outcomes and performance information
Government outcomes are the intended results, impacts or consequences of actions by the Government on the Australian community. Commonwealth programmes are the primary vehicle by which government agencies achieve the intended results of their outcome statements. Agencies are required to identify the programmes which contribute to government outcomes over the budget and forward years.
The CEFC's outcome is described below, specifying the strategy, programme objective, programme deliverables and programme key performance indicators used to assess and monitor the performance of the CEFC.
Outcome 1: Facilitate increased flows of finance into Australia's clean energy sector, applying commercial rigour to investing in renewable energy, low‑emissions and energy efficiency technologies, building industry capacity, and disseminating information to industry stakeholders
Outcome 1 strategy
The scope of the CEFC's operations is guid
ed by an operating framework based on three principles that direct where and how the CEFC will invest.
Principle One Clean Energy Focus
The CEFC focuses its investments in clean energy, namely on renewable energy, low‑emissions and energy efficiency technologies in Australia, as well as manufacturing businesses that produce the required inputs.
The CEFC seeks diversity of technology and sector exposure. All sectors of the economy can contribute to emissions reduction and projects are drawn widely. The CEFC's portfolio is expected to evolve over time, noting the CEFC Act requirement that, on or after 1 July 2018, at least half of the funds invested must be invested in renewable energy.
In accordance with the requirements of the CEFC Act, the CEFC Board has published its investment policies and guidelines on low‑emissions technologies. In addition, the Board has published policy guidance as to the renewable energy technologies and energy efficiency technologies the CEFC will invest in. These documents are available on the CEFC's website
www.cleanenergyfinancecorp.com.au.
Principle Two Commercial Approach
The CEFC applies commercial rigour when making investment decisions and delivers a return on its investments above the CEFC's portfolio benchmark return. It focuses on projects and technologies at the later stages of development. The CEFC invests responsibly and manages risk appropriately to ensure that its investment portfolio performs in line with the portfolio benchmark return as set out in the Investment Mandate. The current portfolio benchmark requires the CEFC to target a portfolio above the five‑year Australian Government bond rate after recovering all operating costs.
The CEFC undertakes rigorous due diligence and financial modelling analysis along with assessments of other key investment risks, including credit risk, to determine appropriate investment structures, financial covenants and the required legal undertakings for an intended investment, all designed to enhance and protect the CEFC's position.
Principle Three Addressing Financial Barriers
The ways in which the CEFC addresses financial barriers include by:
- attracting finance to the Australian market to improve the flow and diversification of funds for investment into the sector;
- assisting project proponents as an arranger, helping to develop the business case and introduce the proponents to other financiers to seek transaction close;
- building knowledge and capacity within the finance sector by participating in transactions to de‑risk the investment, familiarising financiers with new asset types or through reducing their size of exposure;
- working with the finance sector to develop and deliver new financial products to the market, tailored to the needs, attributes and emerging delivery models for new technologies, which in turn enables small‑ and mid‑sized businesses to access finance for energy productivity enhancing capital investment;
- building knowledge and capacity within industry through demonstration and case studies to promote successful models and opportunities in energy productivity and clean energy investment; and
- providing loans at commercial and concessional rates. Where it is necessary and justified in the CEFC's assessment, it may choose to deploy concessional finance to assist in overcoming financial impediments and facilitate realisation of an otherwise bankable project;
- Such concessionality is made available on an individual transaction basis through availability, tenor or cost of finance or by absorbing additional risk. The CEFC sets terms on a case‑by‑case basis, lending at the rate that is commercially reasonable and on the least generous terms possible for the project to proceed (that is, as close to market terms as possible). This might happen where necessary under the project or where the CEFC is lending to public sector organisations like universities and local councils.
Outcome expense statement
Table 2.1 provides an overview of the total expenses for Outcome 1.
Outcome 1: Facilitate increased flows of finance into Australia's clean energy sector, applying commercial rigour to investing in renewable energy, low-emissions and energy efficiency technologies, building industry capacity, and disseminating information to industry stakeholders | 2013‑14 Estimated actual expenses $'000 |
2014‑15 Estimated expenses $'000 |
---|---|---|
Programme 1.1: Clean Energy Finance Corporation | ||
Revenue from Government | ||
Ordinary annual services (Appropriation Bill No. 1) | 8,000 | - |
Revenues from other independent sources | 10,159 | - |
Expenses not requiring appropriation | 13,646 | 3,709 |
Total expenses for Outcome 1 | 31,805 | 3,709 |
2013‑14 | 2014‑15 | |
Average staffing level (number) | 48 | - |
Contributions to Outcome 1
Programme 1.1: Clean Energy Finance Corporation
Programme objective
The objectives of the CEFC are:
- to invest, directly and indirectly, in clean energy technologies, which can be any one or more of the following:
- renewable energy technologies, which include hybrid technologies that integrate renewable energy technologies and enabling technologies, that are related to renewable energy technologies;
- energy efficiency technologies, including enabling technologies that are related to energy conservation technologies or demand management technologies; and
- low‑emissions technologies;
- to catalyse and leverage an increased flow of funds for the commercialisation and deployment of Australian based renewable energy, energy efficiency and low‑emissions technologies;
- to liaise with relevant persons and bodies, including the Australian Renewable Energy Agency, the Clean Energy Regulator, other Commonwealth agencies and State and Territory Governments, for the purposes of facilitating its investment function;
- to act as a catalyst to increase investment in the clean energy sector by working with industry, banks and other financiers, and project proponents; and
- to do anything incidental or conducive to the performance of the above functions.
Programme expenses
The Government has announced its intention to abolish the CEFC. Legislation to abolish the CEFC and transfer the CEFC's existing assets and liabilities to the Commonwealth is currently before Parliament.
Given the uncertainty regarding the timing of the passage of legislation, it is assumed that the CEFC is to be abolished from 1 July 2014. Accordingly, estimates been prepared on the assumption that there are no new investments entered into by the CEFC post 30 June 2014, that all operational expenses cease effective 30 June 2014 and that revenue from those contracts executed prior to 30 June 2014 continues through the life of those investments.
2013‑14 Revised budget $'000 |
2014‑15 Budget $'000 |
2015‑16 Forward year 1 $'000 |
2016‑17 Forward year 2 $'000 |
2017‑18 Forward year 3 $'000 |
|
---|---|---|---|---|---|
Annual departmental expenses: | |||||
Ordinary annual services | 8,000 | - | - | - | - |
Expenses not requiring appropriation | 23,805 | 3,709 | 5,387 | 5,147 | 5,082 |
Total programme expenses | 31,805 | 3,709 | 5,387 | 5,147 | 5,082 |
Programme deliverables
The CEFC co‑finances and invests, directly and indirectly, in clean energy projects and technologies which:
- meet the CEFC's Australian clean energy sector criteria;
- offer a commercial return and demonstrate a capacity to repay capital;
- are above the minimum transaction sizes which are set by the CEFC Board;
- result in an acceptable concentration of risk within the CEFC portfolio; and
- have priority against competing proposals within the balance of the $2 billion per annum investment budget.
Programme key performance indicators
The CEFC's Investment Mandate specifies a portfolio benchmark return for the performance of funds invested by the CEFC, net of operating expenses, based on a weighted average of the five‑year Australian Government bond rate. The portfolio benchmark return is a long‑term target and expected to be earned across the portfolio and over a period of time. Individual investments may be made with expected individual returns above or below the portfolio benchmark return.
The performance of the CEFC will be measured by reference to the following key performance indicators:
- performance against the portfolio benchmark return set out in the Investment Mandate;
- placement of funds into Australia's clean energy sector;
- investment in renewable energy, low‑emissions and energy efficiency technologies;
- building industry capacity; and
- dissemination of information to industry stakeholders.
A number of sectors have benefited from CEFC financing, including agribusiness, property, manufacturing, utilities and local government. This is building momentum in the market by demonstration effect, helping clean energy technologies move down the cost curve and encouraging increased investment flows from the private sector and development of new clean energy technologies.
The total investment portfolio to date stands at over $700 million. The CEFC has catalysed investments without providing significant levels of concessionality. The total value of concessions forecast to be provided by the CEFC through the end of 2013‑14 is $17.4 million. In all concessional loans, the CEFC's lending rate exceeds the five‑year Australian Government bond rate.
With matched private sector funds, the CEFC has been able to catalyse over $1.8 billion in non‑CEFC private capital investment in projects with over $2.5 billion in total value.
The CEFC is on track to reach its 2013‑14 target of investing more than $800 million in its first full financial year of operation.
Section 3: Explanatory tables and budgeted financial statements
Section 3 presents explanatory tables and budgeted financial statements which provide a comprehensive snapshot of agency finances for the budget year 2014‑15. It explains how budget plans are incorporated into the financial statements and provides further details of the reconciliation between appropriations, programme expenses, movements in administered funds and special accounts.
3.1 Explanatory tables
3.1.1 Movement of administered funds between years
The CEFC does not have any administered funds.
3.1.2 Special accounts
The CEFC does not administer any special accounts. The CEFC special account is administered by the Department of the Treasury. Details of the special account can be found in Table 3.1.2 in the Department of the Treasury's section of this Portfolio Budget Statement.
3.1.3 Australian Government Indigenous expenditure
The CEFC does not have any Australian Government Indigenous expenditure.
3.2 Budgeted financial statements
3.2.1 Differences in agency resourcing and financial statements
There are no material differences between agency resourcing and financial statements.
3.2.2 Analysis of budgeted financial statements
The budgeted financial statements have been prepared on the basis of Australian Accounting Standards and the basis of the Government's intention to abolish the CEFC.
Legislation to abolish the CEFC and transfer the CEFC's existing assets and liabilities to the Commonwealth is currently before Parliament.
Given the uncertainty regarding the timing of the passage of legislation, it is assumed that the CEFC is to be abolished from 1 July 2014. Accordingly:
- no new investments are forecast to be entered into by the CEFC post 30 June 2014;
- revenue from those contracts planned to be executed prior to 30 June 2014 is forecast to continue through the life of the investments (including revenue associated with the unwind of previously recorded concessionality charges);
- no additional concessionality charges are forecast to be incurred (consistent with the assumption of no new investments being entered into by the CEFC post 30 June 2014);
- all departmental funding from the Department of the Treasury for start‑up operational expenses ceases in 2013‑14;
- all operational expenses (employee benefits and supplier costs) are anticipated to cease effective 30 June 2014;
- an allowance for impairment has been provided in each period of the forward estimates in relation to the existing investment portfolio; and
- all outstanding liabilities to suppliers and employees are assumed to be settled at 30 June 2014.
The budgeted financial statements do not include an allowance for the following expenditure items:
- termination costs for facility operating leases;
- wind‑up costs such as redundancy payments for staff, consultant or contractor termination costs, and service contract termination costs;
- legal and administrative costs associated with the abolition and orderly transition of the investment portfolio from CEFC to the Department of the Treasury;
- write‑down of prepayments which would have no value post abolition; or
- costs to the Department of the Treasury for administering the existing investments for which revenue is being forecast.
The estimated actual surplus for 2013‑14 and the budget and forward estimates for 2014‑15 through 2017‑18 contain a number of significant non‑cash charges including a concessional loan charge in 2013‑14, and a provision for loan impairment and the non‑cash revenue from the unwind of the concessional loan charges in each of the forward estimate periods. After eliminating the impact of these non‑cash charges and revenue, the CEFC is forecasting operating surpluses of $28 million in 2013‑14, $35 million in 2014‑15, $41.3 million in 2015‑16, $46.2 million in 2016‑17 and $45.7 million in 2017‑18.
The estimated actu
al budgeted departmental balance sheet for 2013‑14 includes the impact of the Low Carbon Australia Limited net assets being transferred to the CEFC during the period.
3.2.3 Budgeted financial statements tables
Estimated actual 2013‑14 $'000 |
Budget estimate 2014‑15 $'000 |
Forward estimate 2015‑16 $'000 |
Forward estimate 2016‑17 $'000 |
Forward estimate 2017‑18 $'000 |
|
---|---|---|---|---|---|
EXPENSES | |||||
Employee benefits | 13,098 | - | - | - | - |
Suppliers | 5,037 | - | - | - | - |
Depreciation and amortisation | 345 | 313 | 134 | - | - |
Write-down and impairment of assets | 1,799 | 3,396 | 5,253 | 5,147 | 5,082 |
Borrowing costs | 11,526 | - | - | - | - |
Total expenses | 31,805 | 3,709 | 5,387 | 5,147 | 5,082 |
LESS: | |||||
OWN-SOURCE INCOME | |||||
Own-source revenue | |||||
Interest and dividends | 39,785 | 37,125 | 43,842 | 48,635 | 47,848 |
Total own-source revenue | 39,785 | 37,125 | 43,842 | 48,635 | 47,848 |
Total own-source income | 39,785 | 37,125 | 43,842 | 48,635 | 47,848 |
Net cost of (contribution by) services | 7,980 | 33,416 | 38,455 | 43,488 | 42,766 |
Revenue from Government | 8,000 | - | - | - | - |
Surplus (Deficit) attributable to the Australian Government | 15,980 | 33,416 | 38,455 | 43,488 | 42,766 |
ADD NON-CASH CHARGES | |||||
Concessional loan charge | 11,502 | ||||
Provision for loan impairment | 1,799 | 3,396 | 5,253 | 5,147 | 5,082 |
Total non-cash charges | 13,301 | 3,396 | 5,253 | 5,147 | 5,082 |
LESS NON-CASH REVENUE | |||||
Unwind of concessional loan charge | (1,233) | (1,850) | (2,448) | (2,429) | (2,129) |
Total non-cash revenue | (1,233) | (1,850) | (2,448) | (2,429) | (2,129) |
Surplus (deficit) attributable to the Australian Government after eliminating non-cash adjustments | 28,048 | 34,962 | 41,260 | 46,206 | 45,719 |
Prepared on Australian Accounting Standards basis.
Estimated actual 2013‑14 $'000 |
Budget estimate 2014‑15 $'000 |
Forward estimate 2015‑16 $'000 |
Forward estimate 2016‑17 $'000 |
Forward estimate 2017‑18 $'000 |
|
---|---|---|---|---|---|
ASSETS | |||||
Financial assets | |||||
Cash and equivalents | 401,707 | - | - | - | - |
Advances and loans | 864,961 | 821,885 | 796,909 | 746,448 | 598,251 |
Interest Receivable | 4,184 | 3,924 | 5,158 | 6,207 | 7,072 |
Investments | 300 | 565 | 565 | 565 | 565 |
Total financial assets | 1,271,152 | 826,374 | 802,632 | 753,220 | 605,888 |
Non-financial assets | |||||
Infrastructure, plant and equipment | 431 | 134 | - | - | - |
Intangibles | 16 | - | - | - | - |
Prepayments and other assets | 687 | - | - | - | - |
Total non-financial assets | 1,134 | 134 | - | - | - |
Total assets | 1,272,286 | 826,508 | 802,632 | 753,220 | 605,888 |
LIABILITIES | |||||
Provisions | |||||
Employees | 3,883 | - | - | - | - |
Concessional loan liability | 23,358 | 21,508 | 19,060 | 16,631 | 14,502 |
Other | 960 | - | - | - | - |
Total provisions | 28,201 | 21,508 | 19,060 | 16,631 | 14,502 |
Payables | |||||
Deferred revenue | 4,509 | 7,140 | 5,876 | 4,573 | 3,301 |
Total payables | 4,509 | 7,140 | 5,876 | 4,573 | 3,301 |
Total liabilities | 32,710 | 28,648 | 24,936 | 21,204 | 17,803 |
Net assets | 1,239,576 | 797,860 | 777,696 | 732,016 | 588,085 |
EQUITY | |||||
Contributed equity | 1,217,439 | 742,307 | 683,688 | 594,520 | 407,823 |
Retained surpluses | 22,137 | 55,553 | 94,008 | 137,496 | 180,262 |
Total equity | 1,239,576 | 797,860 | 777,696 | 732,016 | 588,085 |
Current assets | 406,578 | 3,924 | 5,158 | 6,207 | 7,072 |
Non-current assets | 865,708 | 822,584 | 797,474 | 747,013 | 598,816 |
Current liabilities | 9,352 | 7,140 | 5,876 | 4,573 | 3,301 |
Non-current liabilities | 23,358 | 21,508 | 19,060 | 16,631 | 14,502 |
Prepared on Australian Accounting Standards basis.
Estimated actual 2013‑14 $'000 |
Budget estimate 2014‑15 $'000 |
Forward estimate 2015‑16 $'000 |
Forward estimate 2016‑17 $'000 |
Forward estimate 2017‑18 $'000 |
|
---|---|---|---|---|---|
OPERATING ACTIVITIES | |||||
Cash received | |||||
Interest | 36,554 | 38,166 | 38,896 | 43,854 | 43,582 |
Grants | 8,000 | - | - | - | - |
Total cash received | 44,554 | 38,166 | 38,896 | 43,854 | 43,582 |
Cash used | |||||
Employees | 10,308 | 3,883 | - | - | - |
Suppliers | 5,113 | 960 | - | - | - |
Total cash used | 15,421 | 4,843 | - | - | - |
Net cash from or (used by) operating activities | 29,133 | 33,323 | 38,896 | 43,854 | 43,582 |
INVESTING ACTIVITIES | |||||
Cash received | |||||
Loan advances | 999 | 71,235 | 23,703 | 46,314 | 143,115 |
Total cash received | 999 | 71,235 | 23,703 | 46,314 | 143,115 |
Cash used | |||||
Purchase of property, plant and equipment and intangibles | 154 | - | - | - | - |
Loan advances | 821,111 | 31,555 | 3,980 | 1,000 | - |
Purchase of investments | - | - | - | - | - |
Total cash used | 821,265 | 31,555 | 3,980 | 1,000 | - |
Net cash from or (used by) investing activities | (820,266) | 39,680 | 19,723 | 45,314 | 143,115 |
FINANCING ACTIVITIES | |||||
Cash received | |||||
Contributed equity | 1,178,707 | - | - | - | - |
Total cash received | 1,178,707 | - | - | - | - |
Cash used | |||||
Return of equity | - | 474,710 | 58,619 | 89,168 | 186,697 |
Total cash used | - | 474,710 | 58,619 | 89,168 | 186,697 |
Net cash from or (used by) financing activities | 1,178,707 | (474,710) | (58,619) | (89,168) | (186,697) |
Net increase or (decrease) in cash held | 387,574 | (401,707) | - | - | - |
Cash at the beginning of the reporting period | 14,133 | 401,707 | - | - | - |
Cash at the end of the reporting period | 401,707 | - | - | - | - |
Prepared on Australian Accounting Standards basis.
Retained surpluses $'000 |
Asset revaluation reserve $'000 |
Other reserves $'000 |
Contributed equity/ capital $'000 |
Total equity $'000 |
|
---|---|---|---|---|---|
Opening balance as at 1 July 2014 | |||||
Balance carried forward from previous period | 22,137 | - | - | 1,217,439 | 1,239,576 |
Adjusted opening balance | 22,137 | - | - | 1,217,439 | 1,239,576 |
Comprehensive income | |||||
Surplus (deficit) for the period | 33,416 | - | - | - | 33,416 |
Total comprehensive income recognised directly in equity | 33,416 | - | - | - | 33,416 |
Transactions with owners | |||||
Contributions by owners | |||||
Distribution of equity | - | - | - | (475,132) | (475,132) |
Total transactions with owners | - | - | - | (475,132) | (475,132) |
Estimated closing balance as at 30 June 2015 | 55,553 | - | - | 742,307 | 797,860 |
Prepared on Australian Accounting Standards basis.
Estimated actual 2013‑14 $'000 |
Budget estimate 2014‑15 $'000 |
Forward estimate 2015‑16 $'000 |
Forward estimate 2016‑17 $'000 |
Forward estimate 2017‑18 $'000 |
|
---|---|---|---|---|---|
NEW CAPITAL APPROPRIATIONS | |||||
Capital budget - Bill 1 | - | - | - | - | - |
Total new capital appropriations | - | - | - | - | - |
Provided for: | |||||
Purchase of non-financial assets | - | - | - | - | - |
Total Items | - | - | - | - | - |
PURCHASE OF NON-FINANCIAL ASSETS | |||||
Funded internally from departmental resources | 154 | - | - | - | - |
TOTAL | 154 | - | - | - | - |
RECONCILIATION OF CASH USED TO ACQUIRE ASSETS TO ASSET MOVEMENT TABLE | |||||
Total purchases | 154 | - | - | - | - |
Total cash used to acquire assets | 154 | - | - | - | - |
Prepared on Australian Accounting Standards basis.
Buildings $'000 |
Other infrastructure, plant & equipment $'000 |
Intangibles $'000 |
Total $'000 |
|
---|---|---|---|---|
As at 1 July 2014 | ||||
Gross book value | - | 1,413 | 164 | 1,577 |
Accumulated depreciation/amortisation and impairment | - | 982 | 148 | 1,130 |
Opening net book balance | - | 431 | 16 | 447 |
Capital Asset Additions/Disposals | ||||
By purchase - appropriation ordinary annual services | - | - | - | - |
Disposals - gross value | - | - | - | - |
Total asset additions/disposals | - | - | - | - |
Other movements | ||||
Depreciation/amortisation expense | - | 297 | 16 | 313 |
Disposals - accumulated depreciation/amortisation | - | - | - | - |
Total other movements | - | 297 | 16 | 313 |
As at 30 June 2015 | ||||
Gross book value | - | 1,413 | 164 | 1,577 |
Accumulated depreciation/amortisation and impairment | - | 1,279 | 164 | 1,443 |
Closing net book balance | - | 134 | - | 134 |
Prepared on Australian Accounting Standards basis.
3.2.4 Notes to the financial statements
Basis of accounting
The departmental financial statements, included in Tables 3.2.1 to 3.2.6 have been prepared in accordance with the requirements of the CAC Act, the Finance Minister's Orders (Financial Statements for reporting periods ending on or after 1 July 2014), Australian Accounting Standards issued by the Australian Accounting Standards Board and the Department of Finance guidance for the preparation of financial statements.
The financial report has been prepared on an accrual basis and is prepared in accordance with the historical cost convention.
Notes to the departmental statements
The budget statements and estimated forward years should be read taking into account the following matters:
Concession loan discount
The CEFC is in the business of making loans that may be at a discount to the prevailing market equivalent rates or terms. For each investment, the CEFC attempts to maximise its return and provide only the level of discount from market rates/terms that is required to ensure the project proceeds, however, this will typically involve the CEFC taking a position that is not generally offered by other market participants (for example, longer term fixed‑rate debt or sub‑ordinated debt) at rates that may be below those that an equivalent market participant would demand if it were to participate in this market.
The CEFC is required to record a non‑cash charge referred to as a concessional loan discount in relation to any such loans and it is a matter of judgment as to the market equivalent rate used to ascertain the extent of the implicit discount attached to the loan.
Impairment of loans
The CEFC is required to ascertain the extent to which its portfolio of loans is likely to be recoverable. Given the CEFC is in the business of lending and earning a margin it takes credit risk and it is appropriate to provision for expected credit losses. As the CEFCs portfolio is mainly senior secured debt and secured project finance facilities, and there have been no specific impairments identified to date, a statistical probability of default must be used to determine the level of appropriate provisioning. The forecast impairment change is a provision determined as reasonable and appropriate when looking at the risks within the CEFC's current loans and in particular the current environment faced by the borrowers.