Treasurymanagement guidelines

BorrowingandInvestmentPowersAct2007
June2007

Contents

ExecutiveSummary...................................................................................................... 1 1. 2. Purpose............................................................................................................. 3 AdministrativeFramework................................................................................ 4

2.1 BorrowingandInvestmentPowersAct ........................................................................................ 4 2.2 BorrowingPowers........................................................................................................................ 4 2.3 InvestmentandFinancialArrangement(Derivative)Powers...................................................... 5

3. 4.

PublicSectorDebtManagementObjectives.....................................................7 RolesandResponsibilities................................................................................. 8
4.1 DepartmentofTreasuryandFinance(DTF)................................................................................ 8 4.2 TreasuryCorporationofVictoria(TCV) ........................................................................................ 8 4.3 GovernmentBusinessEnterprises(GBEs)................................................................................... 9

5.

TreasuryManagementGuidelines..................................................................12
5.1 Guidelinesforthedevelopmentofbusinessspecifictreasurymanagement policies......................................................................................................................................13 5.2 GuidelinesforGBEswithoutBoardapprovedtreasurymanagementpolicies.........................16

6. 7.

ManagementofInvestments.......................................................................... 19 ComplianceMonitoringFramework...............................................................20
Schedule1: GBEsundertheBorrowingandInvestmentPowers(BIPAct)1987.............................21 Schedule2: ProFormaAnnualBorrowingApprovalRequest.........................................................23 Schedule3: ProFormaBorrowingPowers......................................................................................25 Schedule4: ProFormaFinancialArrangement(Derivative)Powers ...............................................29 Schedule5: ProFormaInvestmentPowers....................................................................................30 Schedule6: PublicSectorDebtManagementObjectives................................................................32 Schedule7: RecommendedInterestRateandRefinancingRiskLimitsforGBEs DevelopingTheirOwnTreasuryPolicies...................................................................................34 Schedule8: ProFormaAnnualCertificationofCompliance............................................................35

Schedules................................................................................................................... 21

Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

ExecutiveSummary

ThepurposeoftheTreasuryManagementGuidelines(theGuidelines)istosetaframework toguideGovernmentBusinessEnterprises(GBEs)inthedevelopmentandmanagementof theirtreasuryfunction.Theframeworkisdesignedtoensureconsistencywith: thedebtandfinancialmanagementobjectivesandrisktoleranceoftheState; theinstitutionalandadministrativestructureforpublicsectortreasurymanagement;and theaccountabilityframeworkthathasbeenestablishedundertheGBEreformprogram. Section2oftheseGuidelinesoutlinesthelegislativeframeworkthatgovernstheborrowing andinvestmentpowersofGBEs.Statutoryauthoritiesobtaintheirpowertoborrowand investundertheprovisionsoftheBorrowingandInvestmentPowersAct1987(BIPAct). ThesepowersaregrantedbytheTreasurersubjecttotheauthorityobservingthe Guidelines.Specialarrangementsapplytocorporationslawcompaniesestablishedaspartof theGBEreformprogram,whichrequirethemtoobservetheseGuidelines. Section3outlinestheGovernmentsoverallpublicsectordebtmanagementobjectives whichare: toensuretheStatesnetdebtismaintainedataprudentlevel; toensureaccesstofinancialmarkets; tominimiseborrowingcosts;and toensureeffectivemanagementoftheStatesfinancialrisks. TherolesandresponsibilitiesoftheDepartmentofTreasuryandFinance(DTF),Treasury CorporationofVictoria(TCV)andGBEsinachievingtheseobjectivesareexplainedin Section4.DTFisprimarilyresponsibleforensuringthattheGovernmentsobjectivesare achievedbysettingguidelinesandrecommendingborrowingandinvestmentpowersto applytoGBEs.TCVisresponsibleforensuringthattheStatesfundingandotherfinancial marketrequirementsareachievedandtoprovidefinancialproductsandotherservices whichmeetthefundingandriskmanagementneedsofitsclients.TheBoardsofGBEsare responsiblefordeterminingtheirownfundingneedsandmanagingtherisksassociatedwith theirbusiness.BydealingthroughTCV,funding,financialtransactionsandmarketrisksfaced byGBEsarereduced,allowingGBEstofocusontheircorebusinessrisks. InSection5,theGuidelinesareoutlined.TheobjectiveoftheGuidelinesistoensurethat theBoardsofGBEsareadoptingtreasurypoliciesthatareconsistentwiththeGovernments objectivesandwhichensurethatfinancialrisksoftheGBEsareeffectivelymanaged.Under theGuidelines,DTFformallynotestreasurypoliciesthatareapprovedbyGBEBoards. Section5.1providesanoutlineastowhatshouldbecontainedinatreasurypolicyforthose GBEsthatchoosetodeveloptheirownbusinessspecificpolicydocument.Section5.2 containstherecommendedapproachforthoseGBEsthathavenotdevelopedabusiness specifictreasurymanagementpolicyandalsotosmallerGBEsthatdonothavesufficiently sophisticatedtreasuryoperationstowarrantthedevelopmentofabusinessspecificpolicy. OncetreasurymanagementpoliciesareapprovedbytheGBEBoard,itisessentialthatthe Boardissatisfiedthattheorganisationisinfactoperatingwithintheapprovedlimitsand policiescontainedinthepolicydocument.Section7outlinesacompliancemonitoring

Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

frameworkincludingtherequirementthatGBEscertifytoDTFonanannualbasisthatthe organisationisoperatingwithintheapprovedtreasurypolicyparameters.

Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

1.

Purpose

ThepurposeoftheseGuidelinesistosetaframeworktoguideGBEsinthedevelopment andmanagementoftheirtreasuryfunction.Byworkingwithintheframework,theTreasurer canbeassuredthatGBEtreasuryoperationsareconsistentwith: theoveralldebtandfinancialmanagementobjectivesoftheState; theinstitutionalandadministrativestructureforthetreasurymanagementofborrowings andinvestmentsinVictoria; theaccountabilitiesandmanagementframeworkundertheGBEreformprogram implementedbytheGovernment;and theidentification,measurementandprudentmanagementoftheGBEsfinancialrisks. Theissueoftreasuryriskmanagementisoneofgreatimportanceinthewiderfinancial community.TheAustralianSocietyofCertifiedPractisingAccountantshasissueda handbookentitledUnderstandingandManagingFinancialRiskwhichoutlinestherelevant issuesintreasuryriskmanagement.Thishandbookisapracticalguidethatcanbeusedin thedevelopmentofatreasurypolicydocumentandtheprinciplesandconceptscontained inthehandbookhavebeenincorporatedintotheseGuidelines. TheseGuidelinesapplytoPublicTradingEnterpriseswhosepowertoborroworinvestis governedbytheBIPAct.TheseGuidelinesdonotapplytoPublicFinancialEnterprises operatingundertheBIPActwhicharesubjecttoseparateprudentialframeworks.State ownedcorporationslawcompaniesestablishedduringtherecentindustryreformare coveredbytheseGuidelines.AlthoughtheBIPActdoesnotdirectlyapplytothese companies,theTreasurerhasdirectedthattheyobserveaframeworksimilartotheBIPAct includingobservanceoftheseGuidelines.Schedule1providesdetailsofthesourceof borrowingandinvestmentpowersforindividualGBEs. TheseGuidelinesreplacetheTreasuryManagementGuidelinesissuedbyDTFinMarch 2000.OverthepastdecadetherehavebeensignificantdevelopmentsintheGovernments approachtotreasurymanagementissues,particularlythroughthecentralisationofthe StatesexposuretofinancialmarketsbytheestablishmentandpromotionoftheTreasury CorporationofVictoria(TCV)astheStatescentralisedtreasuryoperation. ForthepurposeoftheseGuidelines,adistinctionhasbeenmadebetweenmajorand smallerGBEs.MajorGBEsaredefinedasthoseGBEswithgrossdebtorinvestmentsequalto orgreaterthan$20million,andsmallerGBEsaredefinedasthoseGBEshavinggrossdebtor investmentsbelow$20million.TherequirementsinrelationtotheseGuidelineswilldiffer dependingupontheclassificationoftheGBEandarefurtherexplainedinSection5. MajorGBEsareexpectedtodevelopabusinessspecifictreasurypolicydocumentwhich addressesthefinancialrisksoutlinedinSection4.3oftheseGuidelines.SmallerGBEsare givenanoptiontoeitheradopttheirownbusinessspecifictreasurypoliciesapprovedby theirBoard,oralternatively,tooperatewithintherecommendedlimitsspecifiedinthese Guidelines(Section5.2). Oncedeveloped,thepolicydocumentisrequiredtobesubmittedtoDTFforcommentprior toobtainingBoardapproval.FollowingBoardapproval,thetreasurypolicydocumentshould beforwardedtoDTFforformalnoting,togetherwithacopyoftheBoardminute documentingtheBoardapproval.

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2.

AdministrativeFramework

2.1

BorrowingandInvestmentPowersAct
ThepurposeoftheBIPActistoprovidestatutoryauthoritieswiththepowertoborrowand investinawiderangeoffinancialproductsandtoaccessthefinancialarrangements requiredtoeffectivelymanagetheirdebtandinvestmentportfolios. TherearearangeofpowersavailableundertheBIPActincluding: Section5 Section8 Section9 Section10 Section11 Section20 OverdraftinAustralia; FinancialaccommodationinAustralia; FinancialaccommodationwithinoroutsideAustralia; Financialleases; Financialarrangements(derivatives)and; Investmentpowers.

ThespecificpowersavailabletoindividualstatutoryauthoritiesarespecifiedinSchedule1 oftheBIPAct.TheBIPActprovidesthesepowerssubjecttotheapprovaloftheTreasurer andinthecaseofinvestmentpowers,theTreasurerandtheGovernorinCouncil.The powersgrantedtocorporationslawcompaniesformedaspartoftheGBEreformprocess arebasedontheBIPframework. Thespecificfinancialarrangement(derivatives)andinvestmentpowersgrantedtoGBEsare listedintheGovernorinCouncilandTreasurersapprovalratherthantheBIPAct. ThepowersgrantedbytheTreasureraretailoredtotherequirementsoftheindividualGBEs ensuringthattheyareenteringintofinancialtransactionsthatareappropriatetotheir businesses. AllfinancialaccommodationandfinancialarrangementssubjecttoaGovernment guaranteearerequiredtobetransactedthroughTCV,otherthanbankoverdrafts(tocover overnightrequirements)andspecificallyexemptedtransactions.Nogeneralapprovalsare grantedtoenterintostructuredtransactionsincludingfinanceleasesandaccordingly specificapprovalforindividualtransactionsmustbesoughtfromtheTreasurer. BorrowingandinvestmentpowersaregrantedtoGBEsonthebasisthattheyobservethese Guidelines.

2.2

BorrowingPowers
TheBIPActframeworkoperatesonanannualcycle.EachyearinJune,theTreasurer approvestheborrowingrequirementsandtheborrowingpowersforeachGBEoperating undertheBIPActforthefollowingfinancialyear.Theborrowingrequirementsshouldbe consistentwithbusinessandcorporateplansapprovedbytheGovernmentwhichinturn willensurethatthelevelofborrowingsforeachGBEisconsistentwiththeState'saggregate financialplanningandobligationstotheAustralianLoanCouncil. InordertoobtaintheTreasurersapprovalfortheannualborrowingprogramand borrowingpowersofGBEs,DTFwillsurveyGBEsborrowingrequirementsfortheupcoming financialyearinaformatconsistentwithSchedule2,inApril/Mayeachyear.The Treasurersapprovalwillbeinthefollowingform:

Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

NewFinancialAccommodation; RefinancingofFinancialAccommodation(maturingandnonmaturing); TemporaryPurposeBorrowings;and Overdraftrequirements. Approvalfortheoverdraftwillbegivenonanongoingbasisuptoanapprovedlimit. Approvalfortherefinancingofdebtwillalsobeonanongoingbasisasrequired.Borrowing approvalswillbegivenontheunderstandingthatanydebtrepaymentsspecifiedinthe borrowingapprovalrequestwillbeachieved.ThiswillensureconsistencywiththeStates LoanCouncilAllocation. BorrowingpowersgrantedtoGBEsundertheBIPActareadministeredbytheCommercial& InfrastructureRiskManagement(CIRM)GroupofDTF.Schedule3providesaproformaof thestandardborrowingapprovalsthataregrantedtoGBEs Queriesinrelationtoborrowingpowersandapprovalsshouldbeaddressedto: AssistantDirector,Commercial&InfrastructureRiskManagementGroup DepartmentofTreasuryandFinance Level5,1TreasuryPlace MelbourneVIC3002 Tel:96510923 Fax:96515211

2.3

InvestmentandFinancialArrangement(Derivative)Powers
InorderforGBEstomanagesurplusfundsandfinancialrisks,investmentpowersand financialarrangement(derivative)powersaregrantedbytheTreasurer.Investmentpowers whichareapprovedbytheGovernorInCouncilandtheTreasurerprovideGBEswithalistof instrumentsinwhichtheGBEsareauthorisedtoinvestin.Thelistofapprovedinstruments willdependuponthenatureoftheorganisationandthelevelofinvestmentscurrentlyheld andanticipatedinthefuture. GBEsareencouragedtoapplysurplusfundstotherepaymentofdebtratherthanholding surplusfundsasinvestmentstoensureGBEsachievelowerborrowingcostsandminimise interestraterisk.SuchapolicymayalsoassistGBEsinachievingoptimalgearingandtarget capitalstructures. Financialarrangement(derivative)powersapprovedbytheTreasureraregrantedtoGBEsto ensurethattheassetsandliabilitiesofanorganisationareeffectivelymanagedand protectedagainstfinancialrisks.Thefinancialarrangements(derivative)powersgrantedto aGBEaredependantuponthenatureoftheorganisation,theexistingassetsandliabilities, expectedassetsandliabilitiesandthetypeofexposurestobemanaged.DTFspreferenceis forGBEstotransactusingthephysicalmarketratherthanderivativesasitallowsforgreater transparency,lessongoingmanagementeffortandremainsconsistentwiththeconservative riskphilosophyoftheState.Schedule4providesaproformaofthestandardfinancial arrangement(derivative)powersthataregrantedtoGBEs. Investmentpowersandfinancialarrangement(derivatives)powersareadministeredbythe CIRMGroupinDTF.YourorganisationwillneedtoprovideinformationtoCIRMonthetype ofpowersyouwishtobegrantedincludingabusinesscasewithsupportinginformation suchassizeandmaturityprofileofyourdebtandinvestmentportfolios.Schedule5provides aproformaoftheinvestmentpowerswhichDTFwillberecommendingtotheTreasureras thestandardinvestmentpowerstobegrantedtoallGBEs.
Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

Requestsforspecificpowersshouldbeaddressedto: AssistantDirector,Commercial&InfrastructureRiskManagementGroup DepartmentofTreasuryandFinance Level5,1TreasuryPlace MelbourneVIC3002 Tel:96510923 Fax:96515211

Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

3.

PublicSectorDebtManagementObjectives

TheGovernmentsoveralldebtmanagementobjectivesfortheStateareasfollows: a) b) c) d) EnsuretheStatesnetdebtismaintainedataprudentlevel; Ensureaccesstofinancialmarkets; Minimiseborrowingcosts;and ManageeffectivelytheStatesfinancialrisks.

Schedule6providesamoredetaileddescriptionofthegovernmentsdebtmanagement objectives. ThebroadapproachtothemanagementoftheStatesfinancialrisksunderlyingthese Guidelinesisfirstlytominimiseandcontrolfinancialrisksbymanagingfundingandfinancial marketriskscentrallyandsecondlytoensurethateffectivepoliciesandproceduresarein placetohedgeormanagethoserisksthatremaininindividualGBEs.

Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

4.

RolesandResponsibilities

4.1

DepartmentofTreasuryandFinance(DTF)
DTFisresponsibleforensuringthattheGovernmentsobjectivesinrelationtotreasury managementarebeingachieved.Akeypartofthisroleistosetguidelinestoensurethat GBEsareeffectivelymanagingtheirtreasuryfunctionsandthattheassociatedrisksare beingmonitoredandreported. DTFisalsoresponsibleforprovidingadvicetotheTreasurerinrelationtotreasury managementissuesaffectingtheStatepublicsectorincludingmakingrecommendationsin relationtotheborrowingandinvestmentpowersofGBEs. Section5detailsfurthertherolesandresponsibilitiesofDTF.

4.2

TreasuryCorporationofVictoria(TCV)
TCVwasestablishedinJanuary1993asthecentralisedtreasuryfortheState.Partofits charteristoensurethattheStatesourcesfundsatthelowestpossiblecostandeffectively managesthefinancialrisksassociatedwiththepublicsectordebt. FollowingtheestablishmentofTCV,theborrowingpowersofallmajorGBEssubjecttothe BIPActwereamendedtorequirethatallfutureborrowings,withtheexceptionofbank overdrafts,beundertakenthroughTCV.TheTreasuryCorporationofVictoria(Debt Centralisation)(Amendment)Actwaspassedin1994andestablishedmechanismsforthe existingdebtofthelargerGBEstobeprogressivelynovatedtoTCV.Thishasenabledthe StatetobenefitfromeconomiesofscaleinTCVdealingwithfinancialmarketsonbehalfof theState. CentralisationhasminimisedthefinancialrisksoftheStatebycontainingthemanagement offundingandfinancialmarketrisktoTCV,leavingTCVsclientstoconcentrateontheircore businessactivities.From1July1995,theborrowingpowersofallGBEsoperatingunderthe BIPAct,exceptthosespecificallyexemptedorwithoutthebenefitofaGovernment guarantee,havebeenamendedtorequirethatallfinancialarrangements(derivatives)be undertakenthroughTCV. InfulfillingitsroleastheStatescentraltreasury,TCVhasthefollowingobligationstoGBEs: a) toensurethatthefundingrequirementsofGBEsaremet; b) toensurethatasufficientrangeoffinancialproductsareavailabletomeetthe reasonableriskmanagementneedsofGBEs; c) toensurethatfinancialproductsarepricedconsistentwithacommercialand independentpricingpolicy;and d) toprovidetreasurymanagementandfinancialmarketadvisoryserviceswhichmeet theneedsofGBEs. TCVisabletoofferGBEsotherfinancialservicessuchasadviceinthedevelopmentofa treasurymanagementpolicyandtheoutsourcingoftreasuryoperations,permittingGBEsto achieveoperationalefficienciesandeffectivesegregationofduties.TCVisDTFspreferred provideroftreasuryservicesforGBEsandiscontractedbyDTFtoprovidetreasury accountingandreporting,treasurysystemssupportandriskmanagementadviceinrelation totheBudgetSectorDebtPortfoliowhichcomprisestheborrowingsthathavebeenraised tofundthestatebudget.

Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

RequestsforfurtherinformationonTCVsproducts,services,rolesandresponsibilities,in relationtotheseGuidelines,shouldbedirectedto: TreasuryClientServices TreasuryCorporationofVictoria Level12,1CollinsStreet MelbourneVIC3000 Tel:96514800 Fax:96514880

4.3

GovernmentBusinessEnterprises(GBEs)
SubjecttotheseGuidelinesandanyotherconstraints,theresponsibilityforthe managementoftheborrowings,investmentsandfinancialriskofGBEslieswithitsBoard.As thebusinessofeachauthority/companyisdifferent,theBoardisinthebestpositionto understandthenatureoftheirbusinessandtheresultingfinancialrisks.Inordertoensure thattheserisksareeffectivelymanaged,itisessentialthattheGBEBoardsapprovetreasury policiesandprocedureswhichensurethatfinancialrisksareprudentlymanaged. ThenatureofthemajorfinancialrisksfacedbyGBEsareasfollows: (a) InterestRateRisk

WhileTCVisresponsibleformanagingthefundingandfinancialmarketriskoftheState, GBEsareresponsibleforthemanagementofinterestrateriskontheirborrowings.Interest rateriskistherisktoearningsorcapitalarisingfrommovementsininterestrates.Interest rateriskfacedbyGBEsarisesfrom: Differencesbetweenthetimingofinterestratechangesandthetimingofcashflows (repricingrisk); Changingraterelationshipamongdifferentyieldcurvesaffectingactivities(basisrisk); and Changinginterestraterelationshipacrossmaturities(yieldcurverisk). Underthecentralisedmodel,basisriskandyieldcurveriskaremanagedbyTCV. Accordingly,GBEsmustdeterminenotonlytheirfundingandcashflowrequirements,but alsothetypeofborrowing,itstermtomaturityandinterestrateriskmanagement strategies.Interestrateriskmaybemitigatedbyincludingamixoffixedandfloatingrate debtwitharangeofmaturitiesintheliabilityportfolio,andensuringthatnewor replacementdebtisaddedinawaythatminimisesanyconcentrationofmaturitiesor repricingdates. TCVisresponsibleforprovidingfinancialproductswhichmeettheGBEsinterestraterisk managementneeds.Inaddition,TCVisavailabletoprovideadviceinrelationtointerestrate riskmanagementandfundingissues. (b) LiquidityRisk

GBEsareultimatelyresponsibleforthemanagementofliquidityriskoftheiroperations. LiquidityriskistheriskthataGBEdoesnothavesufficientfundsavailabletomeetcash outflowcommitmentsorfacesaliquiditycrisisbroughtonbyunforeseenevents.Liquidity riskconsistsoftwomainelements:fundsriskandtransactionrisk. FundsriskistheriskthattheGBEwillnotbeabletomeetitsobligationsastheyfalldue. Thisisacashflowriskanditismanagedbyensuringthatadequatefundsofthecorrect currencyareavailableintherightplacesattherighttime.

Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

 Transactionriskistheriskthatlosseswillarisefrombeingexposedtoanilliquidmarket. Thistiesverycloselytomarketrisk.Ifmarketratesbecomemorevolatile,transaction riskincreasesfortheGBEifittriestosellorbuyinthemarket. UndertheGovernmentscentralisedtreasurymodel,GBEsareresponsibleformanagingthe fundsrisk.TCVisresponsibleformanagingthetransactionriskandensuringthatfunding linesarealwaysavailabletotheirparticipatingauthorities.Consequently,GBEsshouldfocus onmanagingliquidityriskthroughcarefulcashflowforecastinganddevelopingan appropriatematurityprofiletomanagerefinancing. (c) ForeignExchangeRisk

Foreignexchangeriskistherisktoprofitorcapitalfromachangeinaninvestmentsvalue duetoachangeinforeignexchangerates.Foreignexchangeexposuresfallintothreetypes: Transactionexposures,resultingfromnormaloperationalbusinessactivities(trade purchasesandsales,shorttermborrowings,etc); Translationexposuresresultingfromconversionoflongtermforeigncurrencyassetsand liabilitiesintoAustraliancurrency(capitalitems,etc);and Competitiveexposuresthatmayresultfromadoptingadifferentapproachtomanaging foreignexchangeexposuresfromthattakenbytheorganisationscompetitors. Underthecentralisedtreasurymodel,GBEsarenotexpectedtoexperiencetranslation exposuresasTCVonlylendsoracceptsdepositsinAustraliandollars.Competitiveexposures arealsolikelytoberelativelyminorbecausemostGBEsarenotsubjecttodirect competitionwiththeprivatesector. ThemostsignificantcurrencyexposuresfacedbyGBEsarecashflowexposures.TCVoffersa varietyofspecificmarketinstrumentstomanagetheseexposures,includingforwardforeign exchange,currencyswaps,currencyfuturesandoptions,whichlendthemselvesreadilyto transactionexposures. TheBoardsofGBEsareresponsiblefordevelopingpoliciesandproceduresinrelationto foreignexchangeriskwhichidentifytheforeignexchangeexposureandrecognisethe Treasurersrequirementthattheseexposuresbefullyhedged.Policiesshouldtherefore specificallyaddresshowanyexposurearisingfromtradetransactions(payables/receivables) istobemanagedsoastoeliminateforeignexchangerisk. (d) CommodityPriceRisk

Commoditypriceriskistheriskthatachangeinthepriceofacommoditythatisakeyinput oroutputofabusinesswilladverselyaffectitsfinancialperformance.Itshouldbenoted thatmanycommoditieshaveaforeignexchangecomponentintheir$Apriceforexample oil,goldandsugar. Commoditypriceriskmaybecontrolledandmanagedbyarangeoffinancialinstruments thatincludeforwardsalesandpurchases,futures,swaps,andoptions,whichcanbe arrangedthroughTCV. TheBoardsofGBEsareresponsiblefordevelopingappropriatepoliciesandproceduresfor managingexposuretospecificcommodityriskwheretheBoardconsiderstheseriskscould haveamaterialimpactonthebusiness. (e) CreditRisk

Creditriskistheriskthatanotherpartyinatransactionwillfailtomeetitsfinancial obligations.Creditriskmayinclude:

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Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

Counterpartyrisk,whichistheriskthattheotherpartytoatransactionwillnotmeetits obligationsastotimingoramountofsettlement; Country/political/soverignriskassociatedwithgovernmentdirectivesandpoliciesthat mayaffectthecontractualperformanceofeitherpartytothetransaction,andthatare generallybeyondthedirectcontrolofthecounterparty;and Settlementordeliveryriskthatmayexistifthereisadefaultinasinglesettlementor delivery,inwhichcaseallotherexposuresorpositionswiththatcounterpartywillbe closedout,thusestablishingclaimsfortransactioncosts. CreditriskarisesfromdirectfinancialmarketactivitiesandarelargelycarriedbyTCV. PoliciesinrelationtocreditriskshouldthereforebefocusedonnonTCVinvestmentsand nonfinancialmarkettransactions. (f) OperationalRisk

Operationalriskistheriskoflosingmoneyasaresultoffailuresinsystems,peopleor proceduresinagivenmarket.Thefocusofoperationalriskmanagementwithinatreasury policyrelatestotherolesandresponsibilitiesofstaffemployedinthetreasuryfunctionand therelatedsystems.Financiallosscanoccurinthetreasuryfunctiondueto mismanagement,error,fraud,omission,theft,unauthoriseduseoftechniquesand/or financialproducts,orinadequateinformationsystems.Operationalrisksaremanagedby havinganadequatecontrolframeworkinplacewhichlimitsauthority,establishes supervisionandseparatessensitiveduties.Themanagementapproachtooperationalrisk shouldbetoclearlydefinetherolesandresponsibilitiesofstaffemployedinthetreasury section.Themanagementofoperationalriskwithinthetreasuryfunctionshouldbe consistentwithbroaderenterprisewideriskmanagementpoliciesoftheGBE.

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5.

TreasuryManagementGuidelines

TheobjectivesoftheGuidelinesaretoensurethatthefinancialrisksofGBEsarebeing effectivelymanagedandthattheobjectivesandstrategiesadoptedbyGBEsareconsistent withtheoverallobjectivesoftheGovernment.TheGuidelinesseektoachievethisby providingaframeworkforGBEBoardstofollowinthedevelopmentofatreasury managementpolicy. Section5.1outlinesaframeworkforGBEsdevelopingbusinessspecifictreasurypolicies. ThissectionisgenerallyforGBEswithgrossdebtorinvestmentsequaltoorgreaterthan $20million.Section5.2outlinesaminimumstandardoftreasurymanagementpolicyand limitsforsmallerGBEs(thosewithgrossdebtorinvestmentssmallerthan$20million)that maynotwanttodeveloptheirownbusinessspecifictreasurypolicy. TheGuidelinesseektoprovideageneralframeworkforwhichGBEsaretoworkwithin. ThereareinstanceswhereGBEsmaywishtodiscusstheirindividualcircumstancesor particularissueswithDTF.Suchinstancesmayinclude: DiscussionofinitialborrowingprogramwithDTFtoensurethereisastrategyinplaceto achievethedesiredspreadofmaturitiesacrossthetermstructure. Discussionoftheimpactthatanyregulatoryregimemayhaveontheirborrowing requirements. DiscussiononforeseeablebreachestotheTreasuryPolicy. GBEsareencouragedtodeveloptreasurymanagementpoliciesthatbestaddressthe financialrisksoftheGBEsbusiness.TheStatehasaconservativeriskphilosophyforthe managementoffinancialrisksandisthestakeholderandguarantorofGBEs.Itis appropriatethereforeforBoardstodeveloptreasurypoliciesthatareconsistentwithboth theunderlyingbusinessandtheconservativeriskphilosophyoftheState.Inordertoensure thattheStatestreasuryrisksarebeingproperlymanaged,powersgrantedtoGBEsbythe TreasurerundertheBIPACTaresubjecttotheGBEobservingtheGuidelines. DTFisresponsibleforensuringthattheGovernmentsobjectivesinrelationtotreasury managementarebeingachieved.InthisroleDTFreviewsGBEtreasurypoliciesandadvises onanyareaswherethepolicymaybeinadequateorinconsistentwiththeStatesoverall objectives.GBEsarerequiredtoforwarddraftpoliciestoDTFforcommentpriortoseeking Boardapproval.FollowingBoardapproval,thetreasurypolicydocumentshouldbe forwardedtoDTFforformalnoting,togetherwithacopyoftheBoardminutedocumenting theBoardapproval. PolicydocumentsthathavebeenformallynotedbyDTFwillbeforwardedtoTCV.GBEsare encouragedtoconsultTCVinthedevelopmentorreviewoftheirpolicies.Thisensuresthat TCVisawareofGBEstreasuryobjectivesandneeds.GBEsarerequestedtoadviseDTF whensubmittingtheirpoliciesiftheydonotwishtheirpolicydocumenttobeautomatically forwardedtoTCV. ItislikelythatGBEswillneedtoupdatetheirtreasurypoliciesfromtimetotime.Any revisionofthetreasurypolicydocumentwillneedtoberesubmittedtoDTFforformal commentpriortoobtainingBoardapproval.ThisensuresthatDTFisprovidedwiththe latesttreasurypolicydocumentandisinkeepingwiththecompliancecertification framework.

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Draftpoliciesforcommentandpoliciesbeingsubmittedforformalnoting,includingany queriesinrelationtotheseGuidelines,shouldbedirectedto: AssistantDirector,FinancialAnalysisandSuperannuation DepartmentofTreasuryandFinance Level9,1MacarthurStreet MelbourneVIC3002 Tel:96515305 Fax:96512321

5.1

Guidelinesforthedevelopmentofbusinessspecifictreasury managementpolicies
InnotingGBEtreasurymanagementpolicies,DTFwillgiveconsiderationtothefollowing: consistencywiththeGBEsfinancialaccommodation,financialarrangementand investmentpowersapprovedbytheTreasurerundertheBIPAct; appropriatenessoftheGBEspolicyandrisklimitstoitsunderlyingfinancialrisks; consistencywiththeStatesoverallriskphilosophyandfinancialmanagementobjectives; consistencywiththeGBEsbusinessandcorporateplansapprovedbytheGovernment; themaximumacceptableriskexposureoftheState;and theabilityofTCVtoaccommodatethetransactionsimplicitinGBEsstrategy. TheGuidelinesprovideaframeworkforGBEstofollowwhendevelopingtheirowntreasury managementpolicies.TheGuidelinesdrawontheAustralianSocietyofCertifiedPractising AccountantspublicationUnderstandingandManagingFinancialRisk.Astheframework reflectsbestpracticefortreasurymanagementpolicies,DTFexpectthatalltheitems containedintheframeworkwillbeaddressedinthepoliciesdevelopedbyGBEs. (a) IntroductionandOverview

Treasurymanagementpoliciessetparametersfortreasuryriskmanagementandmustbe consistentwiththebusinessoverallcorporatepolicies,objectivesandriskculture. Thetreasurypolicyshouldincludesufficientinformationtodetailallaspectsthatare relevanttoachievingtheprimaryobjectivesofthetreasuryoperation.Althoughthiswill varyfromoneorganisationtoanotherinitsspecificdetail,itwillbesimilarenoughtoapply toanyorganisationasfarasitsgeneralstructureisconcernedandshouldcover: purposeoftreasurypolicy scopeofthetreasurypolicy referencetootherrelevantdocuments maintenanceofthetreasurypolicy,thepositionresponsibleandtheapprovalprocessfor anychange,includingformalnotingbyDTF. (b) FinancialObjectivesandStrategies

Thepolicyshouldincludeabriefoutlineoftheobjectivesofthetreasuryoperation, includingstrategiesdevelopedtoachievethoseobjectives.TherisktoleranceoftheBoard shouldbereflectedinthetreasurysobjectivesandstrategies.

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(c)

RolesandResponsibilityStructureofTreasury

Thepolicydocumentshouldcontaininformationregardingtherolesandresponsibilitiesof thepartiesinvolvedinthemanagement,controlandreportingoftheorganisationsfinancial risks.Typicallytheinvolvedpartieswillbesomeorallofthefollowing: Board; ChiefExecutiveOfficer; ChiefFinancialOfficer; TreasuryCommittee;and TreasuryManager. (d) DelegationofAuthority

ThedelegationofauthorityfromtheBoardleveldownthroughtheorganisationtothe treasury,andalsowithinthetreasury,formsavitalpartofbothanorganisationsstructure andthetreasurypolicy. Alistingofdelegatedauthoritiesanddiscretionarylimits(oftenheldasanattachmenttothe policy)shoulddetailspecificallywhattransactionsaredelegatedtowhom,whoshould authorisethemandwhatlimitsapply.Itshouldbecomprehensiveincapturingalltypesof transactionsthataresubjecttodelegation. (e) FinancialRiskRecognitionandManagement

Thefinancialrisks(referSection4.3fordefinitions)tobecoveredinthetreasurypolicy include: interestraterisk(ReferSchedule7forrecommendedinterestandrefinancingrisklimits); liquidityrisk; foreignexchangerisk; commoditypricerisk; creditrisk;and operationalrisk. Foreachofthefinancialrisksitisimportanttoprovideacleardefinition,detailsofthe recognition,measurement,timingandobjectivesofriskmanagement. Indevelopingfinancialriskmanagementstrategies,GBEsshouldgiveconsiderationtothe followingfactors: projectedcashflowsofthebusinessovertheshorttomediumterm; thelifecycleofassetsandthestrategiesfortheirreplacement; thenatureandstructureofexistingliabilities; thesensitivityoftheGBEscashflowstomovementsineconomicvariables,commodity pricesandfinancialmarketvariablese.g.interestrates,inflationratesandexchange rates;and therisktoleranceoftheBoard. (f) ApprovedFinancialInstruments

Thetreasurypolicyshouldincludeonlythoseinstrumentswhichhavebeenapprovedbythe BoardandtheTreasurerofVictoria(undertheBIPAct).Foreachcategoryofapproved financialinstrument,thepolicydocumentshouldcoverthefollowing:

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maximummaturityforwhichinstrumentsmaybeenteredinto; maximumamountpertransaction;and listofapprovedcounterparties. (g) UseofDerivatives

Thetreasurypolicyshouldincludeguidelinesfortheuseofderivatives,inparticular: itemswhichexposetheorganisationtoriskandneedtobehedged; approvedinstrumentswhichareeffectiveinreducingtheexposures;and managementreportstomeasure,monitorandcontrolderivativeactivityincludingmark tomarketinformationonallopenpositionsbyinstrumentcategory. Thetreasurypolicyshouldalsoincludestatementsthat: theinstrumentmustbedesignedasahedgeatthetimeofenteringintotheinstrument; theitemmustnotalreadybeeffectivelyhedgedbyanoffsettingrisk; leveragingoftransactionsisnotpermitted;and tradingactivitiesinthecontextoftransactingtocreateneworadditionalexposuresare notpermitted. (h) InternalControlsandSystems i. theroleofInternalAudit,includingwhocarriesouttheinternalaudit,frequencyof auditsandtowhomtheresultsareconveyed. ii. adequateoperationalpoliciesthatreasonablyensurethat: treasurymanagementguidelinesarenotbreached; computersystemsareappropriateanderrorfree; risksarebeingregularlyidentified,measuredandevaluated; appropriatesegregationofduties;and managementpoliciesanddirectivesarebeingadheredto.

Thetreasurypolicyshoulddetailproceduresregarding:

iii. reportingofbreaches,includingprocedurestoensurethatbreachesare reportedappropriatelyandinternalcontrolsamendedifrequired.Thepolicy shouldalsorecordthatDTFmustbecontactedverbally,andinwriting,ofany breachesofapprovedpolicy. (i) ReportingtoBoardandManagement

Thepolicyshoulddetailthefrequencyandcontentsofreportstomanagementandthe Boardincludingthereportingoftreasuryactivitiesandadherencetodealinglimits. (j) AnnualCertificationofCompliance

ThepolicyshouldprovidedetailsontheannualcertificationofcompliancerequiredbyDTF. Thecertificate(seeSection7andSchedule8foraproforma)istobesignedbythe ChairmanoftheBoardandChiefExecutiveOfficerandstatesthattheorganisationhasbeen operatingwithintheparametersspecifiedinthetreasurypolicydocument.

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5.2

GuidelinesforGBEswithoutBoardapprovedtreasurymanagement policies
GBEsthathavenotdevelopedabusinessspecifictreasurymanagementpolicyapprovedby theBoardandformallynotedbyDTFareexpectedtooperatewithinthetreasuryrisklimits outlinedinthissection.Iftherearespecificbusinessneedstooperateoutsidethelimitsin thissection,theGBEisrequiredtoliaisewithDTF. TheserecommendedGuidelinesaremoreappropriateforsmallerGBEs(thoseGBEswith grossdebtorinvestmentsbelow$20million),whobelievetheirtreasuryoperationsdonot warrantacomprehensivetreasurymanagementframeworktobedeveloped.Iftheselimits andpoliciesaredeemedappropriate,theBoardsofGBEsarerequiredtoacknowledgeand approvetheselimitsandprovideanannualcompliancecertificatetoDTFasdetailedin Section7. (a) InterestRateandRefinancingRiskProfile

Volatilityininterestexpensewillarisepredominantlyfromfloatingrateloansthereforethe proportionoftotaldebtintheformoffloatingrateloansshouldbelimitedunlessthereare offsettingsensitivitiesinrevenue.Inaddition,interestexpensevolatilitycanbefurther reducedbyspreadingmaturitiesacrossthetermstructure.ItisrecommendedthatGBEs maintainadebtportfoliocompositionasfollows: Termtomaturity 01year* 14years 48years 8yearsandover Target% 20% 35% 35% 10% Limits 1030% 2050% 2050% 020%

*Loansmaturingwithin12monthsandtermloanswithfloatingrateresetsshouldbeincludedinthe 0to1yearperiod.

ForGBEswithasmalltreasuryfunction,interestrateriskshouldbemanagedprimarilyin thephysicalmarketbyobservingthetargetportfoliocomposition.Itisexpectedthatthe useoffinancialarrangements(derivatives)forinterestrateriskmanagementwillbelimited. Anexceptionismadeforthemanagementoflargefixedrateloansastheyapproach maturity.Inthiscase,TCVshouldberequestedtoprovideappropriatefinancial arrangements(derivatives)toensurethattherefinancingriskremainswithinacceptable bounds. Thefinancialarrangements(derivatives)thatcanbeusedbyaGBEformanaginginterest rateriskareidentifiedinthefinancialarrangementspowersapprovedbytheTreasurerfor eachGBE(seeSection2.3). Financialarrangements(derivatives)usedtohedgeinterestrateexposuresmustbethose identifiedintheTreasurersapproval.Itisexpectedthatfinancialarrangements(derivatives) areonlyundertakenbythosepeopleauthorisedtotransactsuchinstruments.Interestrate limitcompliancereportingtotheBoardshouldbeundertakenonaregularbasis. (b) LiquidityRisk

GBEswillneedtomaintainfundingsourcesorhaveaccesstocreditlinestobeabletomeet unexpectedfundingrequirements.TCVisabletoprovidethissourceofshorttermfunding. Therecognitionofliquidityriskisbasedontheregularidentificationandmonitoringofthe

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maturityprofileoftheorganisationsliquidassetsandliabilitiestogetherwithanticipated cashflows.Regularforecastsshouldbepreparedoffuturecashflowstoeffectivelymonitor theorganisationsfuturefundingrequirements. (c) ForeignExchangeRisk

GBEsshouldnotmaintainanyforeigncurrencyexposure.AsTCVonlendstoparticipating authoritiesinAustralianDollars,noforeigncurrencyexposurecanarisefromnew borrowings.Foreigncurrencyexposurefrombusinessoperationsshouldbeidentifiedand fullyhedgedonceexposuresareknownandquantifiable.Thefinancialarrangements (derivatives)thatcanbeusedbyaGBEformanagingforeignexchangeriskareidentifiedin thefinancialarrangement(derivatives)powersapprovedbytheTreasurerforeachGBE(see Section2.3). (d) CreditRisk

ThemajorityofinvestmentandriskmanagementtransactionsareundertakenwithTCV, thereforethemajorcreditriskexposureofaGBEistoTCVwhichcarriesacreditrating equivalenttotheStateofVictoria. Counterpartylimitssettingoutthemaximumexposureleveltothirdpartiesshouldbe establishedforallcounterpartiesoftheGBE.Anycreditpolicyinrelationtoinvestments mustbeconsistentwiththatoftheinvestmentapprovalgrantedundertheBIPAct(see Section2.3).Theselimitsshouldstatethemaximumexposureleveltoeachcounterparty andthemaximummaturityperiodforeachfinancialinstrument. (e) OperationalRisk

Thelownumbersofstaffinvolvedinasmalltreasuryoperationgivesrisetoriskoferroror fraudresultingfrominadequatesegregationofduties.Inthissituation,internalorexternal auditorsshouldberequestedtoreportonthismatterandifitisfoundthatthereis inadequatesegregationofduties,compensatingchecksshouldbeundertakenby managementtominimisetheriskoferrororfraud. Inordertoachieveoperationalefficienciesandeffectivesegregationofduties,DTF encouragestheoutsourcingoftreasuryoperations,suchasriskmanagementadvice, treasuryaccountingandsystems.TCVisDTFspreferredprovideroftheseservices. (f) CommodityPriceRisk

Commoditypriceriskistheriskthatachangeinthepriceofacommoditythatisakeyinput oroutputofabusinesswilladverselyaffectitsfinancialperformance.Giventhatcommodity riskmayplayasmallifnotnegligibleroleintherisksofmanyoftheGBEs,theBoardmay notneedtosetanyguidelines.Ifatanytime,theGBEbecomesexposedtocommodityriskit shouldbeimmediatelyrecognisedandamanagementstrategydeveloped. (g) AnnualCertificationofCompliance

AnannualcertificatewillneedtobeprovidedtoDTFstatingthattheorganisationis complyingwiththerecommendedrisklimitsoutlinedabove.SeeSection7forfurther detailsregardingtheannualcertificationofcompliance. (h) ReportingPolicyBreaches

ShouldGBEsfindthemselvesoperatingoutsidetheBoardapprovedtreasurypolicyorthe recommendedlimits,itisrequiredthatDTFbenotifiedimmediatelyverballyandinwriting ofthebreach.Thenotificationshouldoutlineanexplanationofthebreachincludinga strategytocorrectthebreach.NoncompliancewiththeGuidelinesmayresultinGBEs

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havingtheirborrowingandinvestmentpowersrevokedandGBEsmaybeplacedonamore onerousborrowingandinvestmentapprovalprocess. (i) ReviewofTreasuryPolicy

Oncedeveloped,GBEsarerequiredtoforwardadraftoftheirtreasurypoliciestoDTFfor commentpriortoseekingBoardapproval.GBEsareencouragedtoconsultTCVinthe developmentorreviewoftheirpolicies.FollowingBoardapproval,thetreasurypolicy shouldbeforwardedtoDTFforformalnoting,togetherwithacopyoftheBoardminute documentingtheBoardsapproval. PolicydocumentsthathavebeenformallynotedbyDTFwillbeforwardedtoTCV,unless DTFisnotifiedotherwise. ItislikelythatGBEswillneedtoupdatetheirtreasurypoliciesfromtimetotime.Any revisionsofthetreasurypolicydocumentwillneedtoberesubmittedtoDTFforcomment priortoobtainingBoardapproval.ThisensuresthatDTFisprovidedwiththelatesttreasury policydocumentandisinkeepingwiththecompliancecertificationframework. Draftpoliciesforcommentandpoliciesbeingsubmittedforformalnoting,includingany queriesinrelationtotheGuidelines,shouldbedirectedto: AssistantDirector, FinancialAnalysisandSuperannuation DepartmentofTreasuryandFinance Level9,1MacarthurStreet MelbourneVIC3002 Tel:96515305 Fax:96512321

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6.

ManagementofInvestments

ThemanagementofinvestmentsistheresponsibilityoftheindividualGBEs.However,GBEs areencouragedtouseanysurplusinvestmentstoreducetheirlevelofdebt.Fromtimeto timeaGBEmayfinditselfinapositionofhavingsurplusinvestmentswithnodebt.Whileit isnotexpectedthataGBEwouldremaininapositionofhavingsurplusinvestmentsforany lengthyperiodoftime,aGBEmaybeholdingsurplusinvestmentspendingfuturecapital works.InsuchsituationsaGBEisencouragedtoinvestfundstomatchanticipatedfuture cashflows.Thiswillensurethattheinvestedfundsareavailablewhenrequiredand borrowingswillnothavetobemadeintheinterimbeforeinvestmentsbecomeavailable. TCVareavailabletoprovidecompetitiveandappropriatefacilitiestoGBEsforthe investmentofsurplusfunds.

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7.

ComplianceMonitoringFramework

OncetreasurymanagementpoliciesareapprovedbytheBoarditisessentialthattheBoard issatisfiedthattheorganisationisinfactoperatingwithintheapprovedlimitsandpolicies containedinthepolicydocument. AstheBoardisnotexpectedtobeacrossthedetailsofthedaytodayactivitiesofthe treasuryoperation,seniormanagementmustcertifytotheBoardwhetherornottreasury activitiescomplywithpoliciesandproceduresasapprovedbytheBoardonaregularbasis. Fororganisationswithsignificanttreasuryoperations,thiscompliancereportingtothe Boardshouldbeoccurringonamonthlybasis.Itisalsoanimportantaspectindischarging thefiduciaryandlegalobligationsofdirectors. ThecompliancereportingtotheBoardshouldinclude: asummaryoftreasuryactivitiesovertheperiodincludingreportingagainstapproved limitsanddetailsofunrealisedprofits/lossesonoutstandingderivativepositions; certificationthatallpolicieshavebeenadheredto; detailsofareas,ifany,wherestatedpolicieshavebeenbreached;and identificationofthereasonsfortheoccurrenceofanybreachesandwhatactions,ifany, havebeentakentorectifythebreachedsituation. Underthetreasurymanagementframework,theChairmanandCEOofGBEsaretocertifyto DTFonanannualbasisthattheBoardissatisfiedthattheorganisationisoperatingwithin theBoardapprovedtreasurymanagementpolicies.BeforethiscertificationisgiventoDTF, theBoarditselfmustbesatisfiedthattheorganisationisoperatingwithintheBoard approvedpolicies.TheabovecompliancereportingframeworkallowstheBoardtomake thisjudgementbeforeitprovidesacertificationofcompliancetoDTF. Schedule8includesproformasoftheannualcompliancecertificatesapplicabletoGBEs operatingunderbusinessspecificpoliciesandGBEsoperatingundertherecommended limitscontainedintheseGuidelines(Section5.2). ShouldGBEsfindthemselvesoperatingoutsidetheBoardapprovedtreasurypolicyorthe recommendedlimits,itisrequiredthatDTFbenotifiedimmediatelyverballyandinwriting ofthebreach.Thenotificationshouldoutlineanexplanationofthebreachincludinga strategytocorrectthebreach.NoncompliancewiththeGuidelinesmayresultintheGBEs havingtheirborrowingandinvestmentpowersrevokedandtheGBEmaybeplacedona moreonerousborrowingandinvestmentapprovalprocess. TheAnnualCertificateofComplianceisdueonemonthaftertheendofthefinancialyear andshouldbeforwardedto: AssistantDirector,FinancialAnalysisandSuperannuation DepartmentofTreasuryandFinance Level9,1MacarthurStreet MelbourneVIC3002 Tel:96515305 Fax:96512321

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Schedules

Schedule1:

GBEsundertheBorrowingandInvestmentPowers (BIPAct)1987

PUBLICTRADINGENTERPRISES Authority MetropolitanUrbanWaterBusinesses CityWestWater MelbourneWater SouthEastWater YarraValleyWater RegionalWaterBusinesses BarwonWater CentralHighlandsWater ColibanWater EastGippslandWater GippslandWater GoulburnValleyWater GrampiansWimmeraMalleeWater LowerMurrayWater SouthGippslandWater WannonWater WesternWater WesternportWater RuralWaterBusinesses FirstMilduraIrrigationTrust GoulburnMurrayWater SouthernRuralWater PublicFinancialCorporations RuralFinanceCorporationofVictoria TransportAccidentCommission TreasuryCorporationofVictoria VictorianFundsManagementCorporation VictorianManagedInsuranceAuthority VictorianWorkcoverAuthority EnergyBusinesses StateElectricityCommissionofVictoria VENCorp

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AlpineResortBusinesses FallsCreekAlpineResortManagementBoard LakeMountainAlpineResortManagementBoard MtBawBawAlpineResortManagementBoard MtBullerAlpineResortManagementBoard MtHothamAlpineReportManagementBoard OtherBusinesses AustralianGrandPrixCorporation CountryFireAuthority DairyFoodSafetyVictoria DirectorofHousing FedSquarePtyLtd MelbourneandOlympicParksTrust MelbourneMarketAuthority PortofMelbourneCorporation QueenVictoriaWomensCentreTrust StateSportCentresTrust V/LinePassengerCorporation VicForests VictorianRegionalChannelsAuthorityVictorianRailTrack VictorianUrbanDevelopmentAuthority(VicUrban) ZoologicalParksandGardensBoardofVictoria

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Schedule2:

ProFormaAnnualBorrowingApprovalRequest

ANNUALBORROWINGPROGRAM20XXXX OF: ASAT: CONTACTNAME: CONTACTNUMBER: TABLEA

(a) (b) (d) (e)

(participatingauthorityname) (preparationdate) (nameofpersonnel) (phonenumberofpersonnel)

ANNUALBORROWINGAPPROVALREQUEST TypeofFinancialAccommodation
NewFinancialAccommodation RefinancingofMaturingFinancialAccommodation TemporaryPurposeFinancialAccommodation BankOverdraft TOTAL

CapitalProceed ($million)s

TABLEB Investments
TCV Other TOTAL

INVESTMENTS Estimated30June2007

Estimated30June2008 ($million)

TABLEC DEBTMATURITYPROFILE Estimated30June2007 ($million)

TermtoMaturity(years)
0to1 1to2 2to3 3to4 4to5 5to6 6to7 7to8 8to9 9to10 Beyond10 TOTAL

Estimated30June2008 ($million)

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ANNUALBORROWINGPROGRAM20XXX OF:
Jul07 Aug07 Sep07 Oct07 Nov07 Dec07 Jan08 Feb08 Mar08 Apr08 May08 Jun08 TOTAL

(participatingauthorityname) MONTHLYCASHFLOWESTIMATE

TABLED

NetCashflowexcept Financeflows

PLUS
InflowfromBorrowings

LESS
InterestExpense ($million)

LESS
OutflowfromDebt Repayment

NetCashflow

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Schedule3:

ProFormaBorrowingPowers

BorrowingandInvestmentPowersAct1987 APPROVALOFTHETREASUREROFTHESTATEOFVICTORIA FORAUTHORITY NEWFINANCIALACCOMMODATIONANDTEMPORARY PURPOSEFINANCIALACCOMMODATION I,JOHNBRUMBYMP,TreasurerofVictoria, (1) approvetheAuthority,obtainingfinancialaccommodationpursuanttosection8of theBorrowingandInvestmentPowersAct1987(theAct)bywayoffinancial accommodationfromtheTreasuryCorporationofVictoriasubjecttothetermsand conditionssetoutintheSchedulewhichisattachedtothisapproval. confirmthatthefinancialaccommodationobtainedbytheAuthorityunderthis approvalhasthebenefitoftheguaranteecontainedinsection13(2)oftheAct.

(2)

Dated:

JOHNBRUMBYMP Treasurer

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SCHEDULETOAPPROVALFORAUTHORITY FOR NEWFINANCIALACCOMMODATIONANDTEMPORARY PURPOSEFINANCIALACCOMMODATION TermsandConditions Application 1. Thisapprovalappliesto: Effect 2. Thisapprovalhaseffectfortheperiodfrom1July20XXto30June20XX(inclusive). ApprovalLimit 3. TheAuthoritymustnotobtainfinancialaccommodationunderthisapprovalifatthat timethetotalliabilityoftheAuthorityinrespectoffinancialaccommodationobtained underthisapproval,wouldthenexceed(inamountsequivalenttoAustraliandollars): a) withrespecttonewfinancialaccommodation,$Xmillion; b) withrespecttotemporarypurposefinancialaccommodation$Xmillion. 4. TheAuthority,indeterminingitsliabilityinrespectoffinancialaccommodationobtained underthisapproval,mustincludethefollowingamounts: a) thediscountedprincipalproceedsofeachbillofexchangedrawnandeachpromissory noteandsecurityissuedbyitunderthisapprovalwhichhasnotmatured;and b) thediscountedprincipalproceeds(capitalproceeds)*fromanydiscountorpremium loanwhichhasnotmaturedunderthisapprovalandtheprincipalamount outstandingoneachotherloan. EvidenceofCompliance 5. ItwillbesufficientforTreasuryCorporationofVictoriatobesatisfiedastocompliance withthisapprovaliftheTreasureroftheAuthorityprovidesacertificateconfirmingthat alltermsandconditionsofthisapprovalhavebeencompliedwith.
*Capitalproceedsisequivalenttomarketvaluelessaccruedinterest.

newfinancialaccommodationwhichisobtainedbytheAuthority; temporarypurposefinancialaccommodationtoberepaidpriorto30June20XX.

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BorrowingandInvestmentPowersAct1987 APPROVALOFTHETREASUREROFTHESTATEOFVICTORIA FORAUTHORITY OVERDRAFTANDREFINANCINGFINANCIALACCOMMODATION I,JOHNBRUMBYMP,TreasurerofVictoria, 1. approvetheAuthority,obtainingfinancialaccommodation: pursuanttosection5oftheBorrowingandInvestmentPowersAct1987(the Act)byobtainingafinancialbenefitorassistancetoobtainafinancialbenefit bywayofoverdraftofaccountatanybankoranyotherfinancialinstitutionin Australia; pursuanttosection8oftheActbywayoffinancialaccommodationfromthe TreasuryCorporationofVictoriaforthepurposesofrefinancingmaturing financialaccommodationpreviouslyobtainedbytheAuthority; subjecttothetermsandconditionsintheScheduletothisapproval.

2. confirmthatthefinancialaccommodationobtainedbytheAuthorityunderthisapproval hasthebenefitoftheguaranteecontainedinsection13(2)oftheAct. Dated: JOHNBRUMBYMP Treasurer

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SCHEDULETOAPPROVALFORAUTHORITY FOR OVERDRAFTANDREFINANCINGFINANCIALACCOMMODATION TermsandConditions Effect 1. ThisApprovalhaseffectandappliesfromandincluding1July20XXuntilwithdrawnby writtennoticegivenbytheTreasurertotheAuthority. ApprovalLimits 2. TheAuthoritymustnotobtainfinancialaccommodationunderthisapprovalifatthat timethetotalliabilityoftheAuthorityinrespectoffinancialaccommodationobtained underthisapproval,wouldthenexceed(inamountsequivalenttoAustraliandollars): a) withrespecttofinancialaccommodationobtainedbywayofoverdraftondomestic bankswithinoroutsideAustralia,$X; b) withrespecttofinancialaccommodationobtainedtorefinancefinancial accommodation,withoutlimitation. 3. TheAuthority,indeterminingitsliabilityinrespectoffinancialaccommodationobtained underthisapproval,mustincludethefollowingamounts: a) theamountdrawndownundereachoverdraftfacility. b) thediscountedprincipalproceedsofeachbillofexchangedrawnandeachpromissory noteandsecurityissuedbyitunderthisapprovalwhichhasnotmatured;and c) thediscountedprincipalproceeds(capitalproceeds)*fromanydiscountorpremium loanwhichhasnotmaturedunderthisapprovalandtheprincipalamount outstandingoneachotherloan. EvidenceofCompliance 4. Itwillbesufficientforalendertobesatisfiedastocompliancewiththisconditionifthe TreasureroftheAuthorityprovidesacertificateconfirmingthatalltermsandconditions ofthisapprovalhavebeencompliedwith.
*Capitalproceedsisequivalenttomarketvaluelessaccruedinterest.

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Schedule4:

ProFormaFinancialArrangement(Derivative) Powers

BorrowingAndInvestmentPowersAct1987 APPROVALOFTHETREASUREROFVICTORIA FINANCIALARRANGEMENTS Pursuanttosection11(a)oftheBorrowingandInvestmentPowersAct1987(theAct),I, JOHNBRUMBYMP,TreasureroftheStateofVictoria,herebyapprovetheAuthority enteringintoandperforming: 1. ThefollowingfinancialarrangementswiththeTreasuryCorporationofVictoria: VicHotStockForwardcontracts; VicInterestRateForwardcontracts; VicSwitchAgreements; VicSwapAgreements; optionsontheabovearrangements; anycombinationoftheabove; optionsforthepurchaseorsaleofsecuritiesissuedbytheTreasuryCorporation ofVictoria;and forwardrateagreements.

tohedgeorprotectthevalueoftheAuthoritysliabilitiesinrespectoffinancial accommodationagainstmovementsininterestratesinaccordancewiththeAuthoritys TreasuryPolicyStatement. 2. ThefollowingfinancialarrangementswithTreasuryCorporationofVictoria: forwardforeignexchangetransactions;and spotforeignexchangetransactions.

tohedgeorprotectthevalueoftheAuthoritysassetsorliabilities,orprospectiveassetsor liabilitiesinrespectofanunderlyingexposuretomovementsincurrencyratesinaccordance withtheAuthoritysTreasuryPolicyStatement. Thisapprovalhaseffectandappliestoallfinancialarrangementsenteredintobythe Authorityasfromthedateofthisapproval. Dated: JOHNBRUMBYMP Treasurer

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Schedule5:

ProFormaInvestmentPowers

BorrowingAndInvestmentPowersAct1987 INVESTMENTPOWERS ORDERINCOUNCIL TheGovernorinCouncilundersection20oftheBorrowingandInvestmentPowersAct 1987,ontherecommendationoftheTreasurer,herebyapprovestheAuthorityinvestingits moniesinthefollowingmanner: 1. Ondepositwith: a) abank; b) amoneymarketcorporation,inAustralia,whichdepositissecuredbyamortgageof approvedsecuritiesofamarketvalueatthetimeofthedepositofnotlessthanthe amountofthedeposit; c) theTreasuryCorporationofVictoria. 2. Inthepurchaseof,orsubscriptionfor: a) anysecuritiesof,orguaranteedby: (i) (ii) theCommonwealth; aStateorTerritoryoftheCommonwealth;

b) anysecuritiesofapublicbodyconstitutedbyorunderalawoftheCommonwealth, orofaStateorTerritoryoftheCommonwealth; c) anycertificateofdepositissuedbyabankwhethernegotiable,convertibleor otherwise; d) anybillofexchangethathasbeenacceptedorendorsedbyabank; Unlessacontraryintentionappears: Approvedsecuritiesmeans: a) securitiesof,orguaranteesby,theCommonwealthofaStateorTerritoryofthe Commonwealth; b) securitiesofapublicbody,constitutedbyorunderalawoftheCommonwealth,orof aStateorTerritoryoftheCommonwealth; c) billsofexchangethathavebeenacceptedorendorsedbyabank; d) certificatesofdepositissuedbyabankwhethernegotiable,convertibleornot. Bankmeans: a) abankwithinthemeaningoftheBankingAct1959oftheCommonwealth; b) abankestablishedbyorunderalawofaStateorTerritoryoftheCommonwealth. CommonwealthmeanstheCommonwealthofAustralia. MoneyMarketCorporationmeansacorporationregisteredasamoneymarket corporationundertheFinancialCorporationsAct1974oftheCommonwealth. Securitiesincludesstocks,debentures,bonds,notes,promissorynotesandothersecurities whetherconstitutingachargeonpropertyornot,butdoesnotincludebillsofexchange.

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Referencestoastatuteincludereferencestoanyamendmentorconsiderationofor substitutionforthestatute. Dated: ResponsibleMinister JOHNBRUMBYMP Treasurer ClerkoftheExecutiveCouncil

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Schedule6:

PublicSectorDebtManagementObjectives

TheGovernmentsoveralldebtmanagementobjectivesareasfollows: (a) ToEnsuretheStatesNetDebtisMaintainedataPrudentLevel ThecreditratingoftheStateanditsborrowingcostsareimpactedbytheleveloftheStates netdebtand,inparticular,itslevelrelativetothatofotherStates.TheGovernmentis thereforeconcernedtoensurethatthecurrentlowlevelofStatenetdebtismaintained. InordertoachievethisobjectiveandtoensurethatindividualGBEsmaintainappropriate levelsofgearing,targetcapitalstructuresandtargetmaturityprofilesarerequiredtobe nominatedinGBEbusinessplanswhich,inturn,areapprovedbytheTreasurer.These targetsformthebasisoftheannualnewmoneyborrowingsandmaturitiesforeachGBE approvedundertheBIPAct. (b) EnsureAccesstoFinancialMarkets ToenabletheStateanditsGBEstocarryouttheirbusinessoperations,itisessentialthat theStatehasaccesstoborrowingsatreasonablecost,asandwhenrequired.Centralisation ofpublicsectorborrowingsthroughTCVassiststhisobjective. (c) MinimiseBorrowingCosts InterestisamajorcosttotheStateandmanyofitsGBEs.TheborrowingcostsoftheState canbestbeminimisedthroughacoordinatedapproachtofundraisingwhichinvolvesthe followingelements: i. CoordinatedDevelopmentoftheStatesborrowingprogram. AtanypointintimenotallGBEswillneedtoborrow.Somemayhavetemporaryor permanentcashsurplusestobeinvested.TheStatesborrowingrequirement,andas aresultitsborrowingcost,canbeminimisedifthereiseffectiveoffsettingof investmentsandborrowingsofStateauthoritiesthroughacentralborrowing authority(TCV). Borrowingcostscanbeloweredbydevelopingefficientaccesstoappropriate financialmarkets.Suchaccessisaidedbycentralisingofthefundingfunctionas investorsareattractedtosecuritieswithliquidsecondarymarketswheretheycan betradedwithouttheriskofsubstantialcapitallossandarewillingtopaya premiumtothoseborrowersthatcanrespondtothisdemand.Liquiditypremiums canbestbeachievedbyestablishinglinesofstockwithlargevolumesonissueacross allmaturities. Investorsareattractedtoavarietyofsecuritiesincludingfixedinterest,floatingrate andinflationindexedsecuritiessuchascapitalindexedbondsandindexedannuities. ThenumberofpotentialinvestorsinVictoriangovernmentsecuritiescanbe increasedandthereforetheStatesoverallborrowingcostminimisedbyTCVsability tooffersecuritiesthatareattractivetoawiderangeofinvestors.

ii FinancialMarketDevelopment.

Iii FinancialProductDevelopment.

(d) ManageEffectivelytheStatesFinancialRisks. ThemajorfinancialrisksthattheStatefacesinrelationtoitstreasuryactivitiesarefunding relatedrisks,financialmarketrelatedrisksandbusinessrelatedrisks.Fundingriskisthe

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potentialforlossresultingfromthestructureandtimingoftheStatesborrowing requirements.Themajorrisksinthiscategoryareliquidityandrefinancingrisk.Financial marketrisksariseprimarilyfromtheprocessoftransactingdirectlywithfinancialmarkets. Theserisksincludeforeigncurrencyriskassociatedwithborrowings,creditriskand operationalrisk.Businessrelatedrisksarisefromtheoperationsofthebusinessandare uniquetothatbusiness.Businessrelatedrisksincludeinterestraterisk,foreigncurrencyrisk arisingfromcontractsandcommoditypricerisk.

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Schedule7:

RecommendedInterestRateandRefinancingRisk LimitsforGBEsDevelopingTheirOwnTreasury Policies

DTFhasdevelopedasetofrecommendedinterestratelimitswhicharebasedonthelimits usedfortheBudgetSectorDebtPortfolioandincorporatetheconservativeriskphilosophy oftheTreasurer. Theselimitsincludeanevenspreadofmaturities,providingrelativecertaintyinborrowing costsandensuringthatasmallproportionofdebtissubjecttorepricinginanyoneperiod. Thelimits(shownbelow)maybeausefulguidetomajorGBEsinthedevelopmentoftheir treasurypolicies. Section5.2outlinesbroaderlimitsapplicableforsmallerGBEs,giventheirlowerlevelsof debt. Interestraterisklimits Termtomaturity
0to1year* 1to3years 3to5years 5to7years 7to9years 9to11years 11yearsandover

Target%
10% 16% 16% 16% 16% 16% 10%

Limits
020% 721% 721% 721% 721% 721% 020%

*Loansmaturingwithin12monthsandtermloanswithfloatingrateresetsshouldbeincludedinthe 0to1yearperiod.

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Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

Schedule8:

ProFormaAnnualCertificationofCompliance

ForGBEswithbusinessspecificpolicies TREASURYMANAGEMENTGUIDELINES ANNUALCERTIFICATIONOFCOMPLIANCE (NameofGBE) Forthefinancialyearended I,(NameofChairperson),theChairpersononbehalfoftheBoardandI,(NameofChief ExecutiveOfficer),theChiefExecutiveOfficerof(NameofGBE)(theorganisation)certifyas follows: (a) theorganisationhasinplaceaBoardapprovedTreasuryManagementPolicythathas beenformallynotedbytheDepartmentofTreasuryandFinance; (b) theorganisationhasinplaceacomplianceprocedurewhichincludes,asaminimum, anannualauditofthetreasuryoperationsthatreportstoeithertheAuditCommittee ortheBoardoftheorganisation.ThisreportatteststhattheBoardapprovedTreasury ManagementPolicyisbeingadheredtoandthattheinternalcontrolsofthe organisationareappropriateandhavenotbeenbreached;and (c) theBoardandtheChiefExecutiveOfficeroftheorganisationaresatisfiedtothebest oftheirknowledgethattheorganisationhascompliedwiththeTreasuryManagement PolicyasapprovedbytheBoardandformallynotedbytheDepartmentofTreasury andFinance. DATED:__________________________ Chairperson (NameofGBE) (NameofGBE) ChiefExecutiveOfficer

Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

35

ForGBEsoperatingunderrecommendedGuidelines TREASURYMANAGEMENTGUIDELINES ANNUALCERTIFICATIONOFCOMPLIANCE (NameofGBE) Forthefinancialyearended I,(NameofChairperson),theChairpersononbehalfoftheBoardandI,(NameofChief ExecutiveOfficer),theChiefExecutiveOfficerof(NameofGBE)(theorganisation)certifyas follows: (a) theorganisationhasinplaceacomplianceprocedurewhichincludes,asaminimum, anannualauditofthetreasuryoperationsthatreportstoeithertheAuditCommittee ortheBoardoftheorganisation.Thisreportatteststhattheorganisationisoperating withintheparametersoftheTreasuryManagementGuidelinesissuedbythe DepartmentofTreasuryandFinanceandthattheinternalcontrolsofthe organisationareappropriateandhavenotbeenbreached;and theBoardandChiefExecutiveOfficeroftheorganisationaresatisfiedtothebestof theirknowledgethattheorganisationhascompliedwiththeTreasuryManagement GuidelinesissuedbytheDepartmentofTreasuryandFinance.

(b)

DATED:__________________________ Chairperson (NameofGBE) (NameofGBE) ChiefExecutiveOfficer

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Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

www.dtf.vic.gov.au

Treasurymanagementguidelines BorrowingandInvestmentPowersAct2007,June2007

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