- 8
.
d)
deferral of second runway
in the event of lower traffic growth, the timing for the construction of the second runway could be deferred since this timing is linked to the need to cope with traffic demand. deferral of costs would significantly assist the cashflows in coping with such adverse events.
This
23. Given the intention to maximise borrowings in the "base case" (see paragraphs 6 & 19 above) and the fact that it would be very difficult to raise additional debt in adverse circumstances, it is anticipated that the "low case" risks would need to be covered in full by additional Government equity rather than additional borrowings.
24.
It is most unlikely that all the adverse circumstances modelled in the "low case" would actually occur. It was considered prudent, nevertheless, to test the financing plan against a range of possible eventualities in order to ensure that it is sufficiently robust.
Draft Agreement with the PAA
25.
On the basis of the cashflows developed and agreed in the "base" and "low" cases, the Government and the PAA have reached an
understanding on a framework of principles which it is intended should form the basis for a detailed financial agreement between the two sides. An important purpose of such an agreement would be to establish a reasonable basis on
which the PAA/AA may solicit lendings from banks, export credit agencies and other private financial institutions. It must therefore provide an adequate degree of assurance to potential lenders that the shareholder (Government) will support the project through to completion, even in the event of adverse circumstances.
26.
The Government has been careful to ensure that the principles set out in the draft agreement avoid as far as possible the creation of open-ended or unquantifiable liabilities and contingencies either for the present or the future Government. A copy of the draft agreement is attached at Annex B. The key elements are discussed below.
Recitals
27.
not be
In
the future full agreement, these sections would legally binding. They are essentially statements of intent by both parties which preface the agreement and may provide a guide to interpretation.