In preparing the 2016 Corporate Plan the FRA has had to make a number of assumptions. Should everything not happen as has been assumed the proposed work programme may be adversely affected. Eight areas where there is the potential for this to happen are listed in Table 6.
Table 6 – Significant Assumptions
|No.||Assumption||Likelihood of the Assumption Eventuating||Comments – Including the Likely Impact of Each Assumption|
|1||Annual Inflation and Cost Escalation During The Year Will Be Minimal
That annual inflation and cost escalation will be close to zero
|Medium||Inflation is the general price level of all goods and services. Cost escalation is the cost price of specific goods or services over a period of time and the two have to be considered carefully because they can differ so much.
If prices increase as a result of either, the financial forecasts will have to be increased.
The likelihood of this assumption eventuating is medium because there is the possibility that inflation or cost escalation (relating to a significant aspect of the FRA’s operations) will occur.
|2||The FRA Will Receive Sufficient Funding To Enable It To Carry Out Its Proposed Works Programme||Medium||The likelihood of this assumption eventuating is medium because the Government has already approved the funding for the work listed in this Corporate Plan. The key risk is that Government’s revenue assumptions a borne out to allow full funding of the programme.|
|3||Project Costs Will Be As Budgeted
That the proposed works will (accumulatively) be able to be provided to the standard required for not more than their estimated costs
|Medium||If the tendered price for any project is significantly higher than budgeted the FRA may be forced to review its options – which include reprioritising the project, abandoning it, reducing its scope, or deleting or deferring some other project in order to release funds to finance it. If this happens more than occasionally or more than in just a minor way the effect can be a quite serious ricochet effect on the entire programme (with other proposed projects being significantly delayed and having to be reprogrammed for future years or even not able to be done at all).
The likelihood of this assumption eventuating is medium because while preliminary or, in some cases detailed, designs and cost estimates have already been prepared, in others they have not and the forecasted cost can be considered to be little more than a subjective indication at this stage.
|4||No Additional Unforeseen Costs Will be Carried Forward from 2015
That no costs relating to work either already completed in 2015, or not completed in 2015 and carried forward to 2016, other than relating to those projects for which provision has been made for funding in 2016, will have to be funded in 2016.
|Medium||The budget for 2016 includes provision for funding December 2015 accruals and also for funding the cost of certain projects carried forward for completion from 2015. It has been assumed that the (actual) 2015 end of year situation will be as was forecasted when calculating the provision that has been made (in 2016) for these costs.
The likelihood of this assumption eventuating is medium because there is a risk that the forecasted end of year position may not be exactly as forecasted
|5||An Extraordinary Major Storm Event Will Occur
That the cost of repairing damage caused by any storm event (or other natural hazard event that may occur) will exceed $3m VIP in 2016
|High||Significant storm events are a fact of life in Fiji. The budget includes a provisional sum of $3m VIP for storm damage. If more than this is required either an additional funding allocation from Government will have to be obtained or other proposed work plan will have to be deferred or reduced in order to provide the required funds.
The likelihood of this assumption eventuating is high because there have been some very significant storm events in recent years.
|6||No Other Extraordinary Risk Event Will Occur
That no extraordinary risk event will occur – that all identified risks will be able to be avoided or mitigated in the manner recorded in the FRA’s Risk Register
|Medium/ High||Should an extraordinary risk event occur the most likely impact will be an additional funding allocation from the Government will have to be obtained or other proposed works deleted or their scope reduced in order to fund the cost of the risk event.
The likelihood of this assumption eventuating (i.e. of an extraordinary risk event not occurring) is medium/high because although the FRA has done a lot of work to identify all potential risks and agree a mitigation strategy for each (and where required make provision for it) there is the possibility that it may have missed something and/or that an event may occur that will have consequences that will require additional funding to resolve.
|7||No Significant Asset Failures (Or Other Unexpected Costs)
That there are no unforeseen significant asset failures for reasons other than storm damage – or no additional work identified as being urgent or which, for some other reason the FRA is financially liable for, that is in addition to that already planned. (e.g. bridge surveys identify additional urgent remedial works, a bridge collapses or a major slip occurs)
|High||In preparing this year’s work programme the FRA has endeavoured to make reasonable financial provision for all foreseeable needs and obligations. There is always a possibility however that additional non-programmed costs will be incurred because:
a) any unscheduled work need (including a need caused by a land development project – e.g. forestry harvesting, mining, or major public infrastructure development) of which the FRA was unaware or did not expect) arises;
b) of some sort of legal dispute; or
c) the FRA has a legal obligation of which it was previously unaware.
The likelihood of this assumption eventuating (i.e. there not being any significant asset failures or unexpected costs during the year) is high because the FRA’s knowledge about the network, and especially about the condition of the various assets, is much improved. This situation is continuing to improve.
|8||Tax Rates (including VAT) Will Not Change
That the Government will not increase VAT – or introduce any new or increase any of the other existing taxes (e.g. taxes payable on plant and other goods that the FRA may need to procure from other countries)
|High||If VAT or other relevant taxes are increased the forecasted cost of the work will increase.
The likelihood of this assumption eventuating is high because there has been no suggestion the Government is considering increasing VAT or the other relevant taxes – or introducing new taxes that might affect the FRA.
In fact VAT has been reduced from 15% to 9% as of 1st January 2016.
Note: If the ‘likelihood of the assumption’ eventuating is ‘low’ there is a high chance the assumption as stated will not be the case. If the rating is ‘high’ it is probable that the assumption as stated will occur. If the rating is ‘medium’ the assumption may or may not be correct. ‘Certain’ likelihood means that the assumption will definitely eventuate.