4 Key sources of estimation uncertainty
The key assumptions made concerning the future, and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year include:
Discount rates used in estimating provisions
The PTA undertook an actuarial assessment of its long service leave provision and is using employees’ age based factors for discounting its expected future payments between valuations. These factors incorporate a series of assumptions like demographics, salary inflation, and market yields on commonwealth government bonds. Fluctuations in any of the assumptions used to calculate these factors may impact the provision for annual and long service leave.
Estimating useful life of key assets
The useful lives are estimated having regard to such factors as asset maintenance, rate of technical and commercial obsolescence and asset usage. The useful lives of key assets are reviewed annually.
The estimated useful life of Freight Network Infrastructure is based on the term of the freight lease, i.e. 49 years.
Depreciated replacement cost of railway infrastructure assets
The Building Cost Index from the Department of Treasury and Finance has been applied in a model developed by the PTA for measuring the current replacement cost of railway infrastructure.
Contingencies
The PTA is unable to assess the outcome of the classification process for 34 possible contaminated sites. Possible remediation costs associated with these sites might have an impact on the provision for contaminated sites.
PTA has issued indemnities to parties to cross border lease transactions for the financial obligations and performance of the lessees and deposit takers. In the event of default by lessees or deposit takers the PTA will need to meet these liabilities and it will have an impact on its financial performance. PTA has issued indemnities to cross border lease parties in respect to taxation resulting from changes in law, taxation administration determinations or as a result of loss of railcars. In case of adverse taxation circumstances the PTA will need to honour its obligations. (See note 37 ‘Contingent liabilities and contingent assets’ for more details).
Freight Network Infrastructure
The Freight Network consists of approximately 5,000 kilometres of standard and narrow gauge track constructed over a considerable time period with varying axle load and train speed capacities. The Freight Network asset is a unique asset with no comparable market based evidence.
The asset was leased for a period of 49 years commencing in December 2000 under separate lease arrangements for standard and narrow gauge rail lines. The lessee is obligated to maintain the infrastructure in a ‘fit for purpose condition’ over the period of the leases. PTA valued the network as at 1 July 2003 at $250,298,000 based on the lump sum lease payment made in December 2000 adjusted for expired lease income recognised prior to 1 July 2003 as this provides the best and available evidence of the fair value of the asset. The leases also provide for the State to replace and/or add to the freight infrastructure. Additions to the freight infrastructure have been recorded at cost which is deemed to be fair value. The Freight Network Infrastructure assets is depreciated on a straight line basis over the remaining term of the lease and has a carrying amount of $266,096,000 as at 30 June 2009.
The 1 July 2003 valuation model incorporated a discounted cash flow model, with a discount rate of 6.9%
in order to recognise revenue from the prepaid lease that was applicable to the Western Australian Government Railways Commission. The discount rate used was based on the independent rail access
regulator’s determined weighted average cost of capital for the 2003/04 year.
The leases provides for individual rail lines making up the narrow and standard gauge leases to be surrendered and determined as uneconomic, subject to tests specified in the lease. Since the commencement of the lease to June 2009, no line has been surrendered. In the event that a line is surrendered, there would be no adjustment to the lease value paid in 2000 nor to the fair value determined at 1July 2003.