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TreasurymanagementguidelinesBorrowingandInvestmentPowersAct2007June2007
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Treasurymanagementguidelines
BorrowingandInvestmentPowersAct2007,June2007 i
Contents
ExecutiveSummary......................................................................................................1
1. Purpose.............................................................................................................3
2. AdministrativeFramework................................................................................4
2.1 BorrowingandInvestmentPowersAct........................................................................................42.2 BorrowingPowers........................................................................................................................4
2.3 InvestmentandFinancialArrangement(Derivative)Powers......................................................5
3. PublicSector
Debt
Management
Objectives
.....................................................
7
4. 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
Guidelinesfor
GBEs
without
Board
approved
treasury
management
policies
.........................16
6. ManagementofInvestments..........................................................................19
7. ComplianceMonitoringFramework...............................................................20
Schedules...................................................................................................................21
Schedule1: GBEsundertheBorrowingandInvestmentPowers(BIPAct)1987.............................21Schedule2: ProFormaAnnualBorrowingApprovalRequest.........................................................23
Schedule3: ProFormaBorrowingPowers......................................................................................25
Schedule4: ProFormaFinancialArrangement(Derivative)Powers...............................................29
Schedule5:
Pro
Forma
Investment
Powers
....................................................................................30
Schedule6: PublicSectorDebtManagementObjectives................................................................32
Schedule7: RecommendedInterestRateandRefinancingRiskLimitsforGBEs
DevelopingTheirOwnTreasuryPolicies...................................................................................34
Schedule8: ProFormaAnnualCertificationofCompliance............................................................35
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ExecutiveSummary
ThepurposeoftheTreasuryManagementGuidelines(theGuidelines)istosetaframework
toguideGovernmentBusinessEnterprises(GBEs)inthedevelopmentandmanagementof
theirtreasuryfunction.Theframeworkisdesignedtoensureconsistencywith:
thedebtandfinancialmanagementobjectivesandrisktoleranceoftheState; theinstitutionalandadministrativestructureforpublicsectortreasurymanagement;and theaccountabilityframeworkthathasbeenestablishedundertheGBEreformprogram.Section2oftheseGuidelinesoutlinesthelegislativeframeworkthatgovernstheborrowing
andinvestmentpowersofGBEs.Statutoryauthoritiesobtaintheirpowertoborrowand
investunder
the
provisions
of
the
BorrowingandInvestmentPowersAct1987(BIPAct).
ThesepowersaregrantedbytheTreasurersubjecttotheauthorityobservingthe
Guidelines.Specialarrangementsapplytocorporationslawcompaniesestablishedaspartof
theGBEreformprogram,whichrequirethemtoobservetheseGuidelines.
Section3outlinestheGovernmentsoverallpublicsectordebtmanagementobjectives
whichare:
toensuretheStatesnetdebtismaintainedataprudentlevel; toensureaccesstofinancialmarkets; tominimiseborrowingcosts;and
to
ensure
effective
management
of
the
States
financial
risks.
TherolesandresponsibilitiesoftheDepartmentofTreasuryandFinance(DTF),Treasury
CorporationofVictoria(TCV)andGBEsinachievingtheseobjectivesareexplainedin
Section4.DTFisprimarilyresponsibleforensuringthattheGovernmentsobjectivesare
achievedbysettingguidelinesandrecommendingborrowingandinvestmentpowersto
applytoGBEs.TCVisresponsibleforensuringthattheStatesfundingandotherfinancial
marketrequirementsareachievedandtoprovidefinancialproductsandotherservices
whichmeetthefundingandriskmanagementneedsofitsclients.TheBoardsofGBEsare
responsiblefordeterminingtheirownfundingneedsandmanagingtherisksassociatedwith
theirbusiness.BydealingthroughTCV,funding,financialtransactionsandmarketrisksfaced
byGBEsarereduced,allowingGBEstofocusontheircorebusinessrisks.
InSection
5,
the
Guidelines
are
outlined.
The
objective
of
the
Guidelines
is
to
ensure
that
theBoardsofGBEsareadoptingtreasurypoliciesthatareconsistentwiththeGovernments
objectivesandwhichensurethatfinancialrisksoftheGBEsareeffectivelymanaged.Under
theGuidelines,DTFformallynotestreasurypoliciesthatareapprovedbyGBEBoards.
Section5.1providesanoutlineastowhatshouldbecontainedinatreasurypolicyforthose
GBEsthatchoosetodeveloptheirownbusinessspecificpolicydocument.Section5.2
containstherecommendedapproachforthoseGBEsthathavenotdevelopedabusiness
specifictreasurymanagementpolicyandalsotosmallerGBEsthatdonothavesufficiently
sophisticatedtreasuryoperationstowarrantthedevelopmentofabusinessspecificpolicy.
OncetreasurymanagementpoliciesareapprovedbytheGBEBoard,itisessentialthatthe
Board
is
satisfied
that
the
organisation
is
in
fact
operating
within
the
approved
limits
and
policiescontainedinthepolicydocument.Section7outlinesacompliancemonitoring
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frameworkincludingtherequirementthatGBEscertifytoDTFonanannualbasisthatthe
organisationisoperatingwithintheapprovedtreasurypolicyparameters.
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1. Purpose
ThepurposeoftheseGuidelinesistosetaframeworktoguideGBEsinthedevelopment
andmanagementoftheirtreasuryfunction.Byworkingwithintheframework,theTreasurer
canbeassuredthatGBEtreasuryoperationsareconsistentwith:
theoveralldebtandfinancialmanagementobjectivesoftheState; theinstitutionalandadministrativestructureforthetreasurymanagementofborrowings
andinvestmentsinVictoria;
theaccountabilitiesandmanagementframeworkundertheGBEreformprogramimplementedbytheGovernment;and
theidentification,
measurement
and
prudent
management
of
the
GBEs
financial
risks.
Theissueoftreasuryriskmanagementisoneofgreatimportanceinthewiderfinancial
community.TheAustralianSocietyofCertifiedPractisingAccountantshasissueda
handbookentitledUnderstandingandManagingFinancialRiskwhichoutlinestherelevant
issuesintreasuryriskmanagement.Thishandbookisapracticalguidethatcanbeusedin
thedevelopmentofatreasurypolicydocumentandtheprinciplesandconceptscontained
inthehandbookhavebeenincorporatedintotheseGuidelines.
TheseGuidelinesapplytoPublicTradingEnterpriseswhosepowertoborroworinvestis
governedbytheBIPAct.TheseGuidelinesdonotapplytoPublicFinancialEnterprises
operatingundertheBIPActwhicharesubjecttoseparateprudentialframeworks.State
owned
corporations
law
companies
established
during
the
recent
industry
reform
are
coveredbytheseGuidelines.AlthoughtheBIPActdoesnotdirectlyapplytothese
companies,theTreasurerhasdirectedthattheyobserveaframeworksimilartotheBIPAct
includingobservanceoftheseGuidelines.Schedule1providesdetailsofthesourceof
borrowingandinvestmentpowersforindividualGBEs.
TheseGuidelinesreplacetheTreasuryManagementGuidelinesissuedbyDTFinMarch
2000.OverthepastdecadetherehavebeensignificantdevelopmentsintheGovernments
approachtotreasurymanagementissues,particularlythroughthecentralisationofthe
StatesexposuretofinancialmarketsbytheestablishmentandpromotionoftheTreasury
CorporationofVictoria(TCV)astheStatescentralisedtreasuryoperation.
ForthepurposeoftheseGuidelines,adistinctionhasbeenmadebetweenmajorand
smallerGBEs.
Major
GBEs
are
defined
as
those
GBEs
with
gross
debt
or
investments
equal
to
orgreaterthan$20million,andsmallerGBEsaredefinedasthoseGBEshavinggrossdebtor
investmentsbelow$20million.TherequirementsinrelationtotheseGuidelineswilldiffer
dependingupontheclassificationoftheGBEandarefurtherexplainedinSection5.
MajorGBEsareexpectedtodevelopabusinessspecifictreasurypolicydocumentwhich
addressesthefinancialrisksoutlinedinSection4.3oftheseGuidelines.SmallerGBEsare
givenanoptiontoeitheradopttheirownbusinessspecifictreasurypoliciesapprovedby
theirBoard,oralternatively,tooperatewithintherecommendedlimitsspecifiedinthese
Guidelines(Section5.2).
Oncedeveloped,thepolicydocumentisrequiredtobesubmittedtoDTFforcommentprior
toobtaining
Board
approval.
Following
Board
approval,
the
treasury
policy
document
should
beforwardedtoDTFforformalnoting,togetherwithacopyoftheBoardminute
documentingtheBoardapproval.
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2. AdministrativeFramework
2.1 BorrowingandInvestmentPowersActThepurposeoftheBIPActistoprovidestatutoryauthoritieswiththepowertoborrowand
investinawiderangeoffinancialproductsandtoaccessthefinancialarrangements
requiredtoeffectivelymanagetheirdebtandinvestmentportfolios.
TherearearangeofpowersavailableundertheBIPActincluding:
Section5 OverdraftinAustralia;
Section8 FinancialaccommodationinAustralia;
Section
9
Financial
accommodation
within
or
outside
Australia;
Section10 Financialleases;
Section11 Financialarrangements(derivatives)and;
Section20 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 BorrowingPowersTheBIPActframeworkoperatesonanannualcycle.EachyearinJune,theTreasurer
approvestheborrowingrequirementsandtheborrowingpowersforeachGBEoperating
undertheBIPActforthefollowingfinancialyear.Theborrowingrequirementsshouldbe
consistentwithbusinessandcorporateplansapprovedbytheGovernmentwhichinturn
willensurethatthelevelofborrowingsforeachGBEisconsistentwiththeState'saggregate
financialplanningandobligationstotheAustralianLoanCouncil.
InordertoobtaintheTreasurersapprovalfortheannualborrowingprogramand
borrowingpowersofGBEs,DTFwillsurveyGBEsborrowingrequirementsfortheupcoming
financialyearinaformatconsistentwithSchedule2,inApril/Mayeachyear.The
Treasurersapprovalwillbeinthefollowingform:
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NewFinancialAccommodation; RefinancingofFinancialAccommodation(maturingandnonmaturing); TemporaryPurposeBorrowings;and Overdraftrequirements.Approvalfortheoverdraftwillbegivenonanongoingbasisuptoanapprovedlimit.
Approvalfortherefinancingofdebtwillalsobeonanongoingbasisasrequired.Borrowing
approvalswillbegivenontheunderstandingthatanydebtrepaymentsspecifiedinthe
borrowingapprovalrequestwillbeachieved.ThiswillensureconsistencywiththeStates
LoanCouncilAllocation.
BorrowingpowersgrantedtoGBEsundertheBIPActareadministeredbytheCommercial&
InfrastructureRiskManagement(CIRM)GroupofDTF.Schedule3providesaproformaof
thestandardborrowingapprovalsthataregrantedtoGBEs
Queriesinrelationtoborrowingpowersandapprovalsshouldbeaddressedto:
AssistantDirector,
Commercial
&
Infrastructure
Risk
Management
Group
DepartmentofTreasuryandFinance
Level5,1TreasuryPlace
MelbourneVIC3002
Tel: 96510923
Fax: 96515211
2.3 InvestmentandFinancialArrangement(Derivative)PowersIn
order
for
GBEs
to
manage
surplus
funds
and
financial
risks,
investment
powers
and
financialarrangement(derivative)powersaregrantedbytheTreasurer.Investmentpowers
whichareapprovedbytheGovernorInCouncilandtheTreasurerprovideGBEswithalistof
instrumentsinwhichtheGBEsareauthorisedtoinvestin.Thelistofapprovedinstruments
willdependuponthenatureoftheorganisationandthelevelofinvestmentscurrentlyheld
andanticipatedinthefuture.
GBEsareencouragedtoapplysurplusfundstotherepaymentofdebtratherthanholding
surplusfundsasinvestmentstoensureGBEsachievelowerborrowingcostsandminimise
interestraterisk.SuchapolicymayalsoassistGBEsinachievingoptimalgearingandtarget
capitalstructures.
Financialarrangement(derivative)powersapprovedbytheTreasureraregrantedtoGBEsto
ensurethat
the
assets
and
liabilities
of
an
organisation
are
effectively
managed
and
protectedagainstfinancialrisks.Thefinancialarrangements(derivative)powersgrantedto
aGBEaredependantuponthenatureoftheorganisation,theexistingassetsandliabilities,
expectedassetsandliabilitiesandthetypeofexposurestobemanaged.DTFspreferenceis
forGBEstotransactusingthephysicalmarketratherthanderivativesasitallowsforgreater
transparency,lessongoingmanagementeffortandremainsconsistentwiththeconservative
riskphilosophyoftheState.Schedule4providesaproformaofthestandardfinancial
arrangement(derivative)powersthataregrantedtoGBEs.
Investmentpowersandfinancialarrangement(derivatives)powersareadministeredbythe
CIRMGroupinDTF.YourorganisationwillneedtoprovideinformationtoCIRMonthetype
of
powers
you
wish
to
be
granted
including
a
business
case
with
supporting
information
suchassizeandmaturityprofileofyourdebtandinvestmentportfolios.Schedule5provides
aproformaoftheinvestmentpowerswhichDTFwillberecommendingtotheTreasureras
thestandardinvestmentpowerstobegrantedtoallGBEs.
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Requestsforspecificpowersshouldbeaddressedto:
AssistantDirector,Commercial&InfrastructureRiskManagementGroup
DepartmentofTreasuryandFinance
Level5,1TreasuryPlace
MelbourneVIC
3002
Tel: 96510923
Fax: 96515211
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3. PublicSectorDebtManagementObjectives
TheGovernmentsoveralldebtmanagementobjectivesfortheStateareasfollows:
a) EnsuretheStatesnetdebtismaintainedataprudentlevel;b) Ensureaccesstofinancialmarkets;c) Minimiseborrowingcosts;andd) ManageeffectivelytheStatesfinancialrisks.
Schedule6providesamoredetaileddescriptionofthegovernmentsdebtmanagement
objectives.
ThebroadapproachtothemanagementoftheStatesfinancialrisksunderlyingthese
Guidelines
is
firstly
to
minimise
and
control
financial
risks
by
managing
funding
and
financial
marketriskscentrallyandsecondlytoensurethateffectivepoliciesandproceduresarein
placetohedgeormanagethoserisksthatremaininindividualGBEs.
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RequestsforfurtherinformationonTCVsproducts,services,rolesandresponsibilities,in
relationtotheseGuidelines,shouldbedirectedto:
TreasuryClientServices
TreasuryCorporationofVictoria
Level12,
1Collins
Street
MelbourneVIC3000
Tel: 96514800
Fax: 96514880
4.3 GovernmentBusinessEnterprises(GBEs)SubjecttotheseGuidelinesandanyotherconstraints,theresponsibilityforthe
managementoftheborrowings,investmentsandfinancialriskofGBEslieswithitsBoard.As
thebusinessofeachauthority/companyisdifferent,theBoardisinthebestpositionto
understandthenatureoftheirbusinessandtheresultingfinancialrisks.Inordertoensure
thatthese
risks
are
effectively
managed,
it
is
essential
that
the
GBE
Boards
approve
treasury
policiesandprocedureswhichensurethatfinancialrisksareprudentlymanaged.
ThenatureofthemajorfinancialrisksfacedbyGBEsareasfollows:
(a) InterestRateRisk
WhileTCVisresponsibleformanagingthefundingandfinancialmarketriskoftheState,
GBEsareresponsibleforthemanagementofinterestrateriskontheirborrowings.Interest
rateriskistherisktoearningsorcapitalarisingfrommovementsininterestrates.Interest
rateriskfacedbyGBEsarisesfrom:
Differencesbetweenthetimingofinterestratechangesandthetimingofcashflows(repricing
risk);
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.
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Transactionriskistheriskthatlosseswillarisefrombeingexposedtoanilliquidmarket.Thistiesverycloselytomarketrisk.Ifmarketratesbecomemorevolatile,transaction
riskincreasesfortheGBEifittriestosellorbuyinthemarket.
Underthe
Governments
centralised
treasury
model,
GBEs
are
responsible
for
managing
the
fundsrisk.TCVisresponsibleformanagingthetransactionriskandensuringthatfunding
linesarealwaysavailabletotheirparticipatingauthorities.Consequently,GBEsshouldfocus
onmanagingliquidityriskthroughcarefulcashflowforecastinganddevelopingan
appropriatematurityprofiletomanagerefinancing.
(c) ForeignExchangeRisk
Foreignexchangeriskistherisktoprofitorcapitalfromachangeinaninvestmentsvalue
duetoachangeinforeignexchangerates.Foreignexchangeexposuresfallintothreetypes:
Transactionexposures,resultingfromnormaloperationalbusinessactivities(tradepurchasesandsales,shorttermborrowings,etc);
TranslationexposuresresultingfromconversionoflongtermforeigncurrencyassetsandliabilitiesintoAustraliancurrency(capitalitems,etc);and
Competitiveexposuresthatmayresultfromadoptingadifferentapproachtomanagingforeignexchangeexposuresfromthattakenbytheorganisationscompetitors.
Underthecentralisedtreasurymodel,GBEsarenotexpectedtoexperiencetranslation
exposuresasTCVonlylendsoracceptsdepositsinAustraliandollars.Competitiveexposures
arealsolikelytoberelativelyminorbecausemostGBEsarenotsubjecttodirect
competitionwiththeprivatesector.
ThemostsignificantcurrencyexposuresfacedbyGBEsarecashflowexposures.TCVoffersa
varietyof
specific
market
instruments
to
manage
these
exposures,
including
forward
foreign
exchange,currencyswaps,currencyfuturesandoptions,whichlendthemselvesreadilyto
transactionexposures.
TheBoardsofGBEsareresponsiblefordevelopingpoliciesandproceduresinrelationto
foreignexchangeriskwhichidentifytheforeignexchangeexposureandrecognisethe
Treasurersrequirementthattheseexposuresbefullyhedged. Policiesshouldtherefore
specificallyaddresshowanyexposurearisingfromtradetransactions(payables/receivables)
istobemanagedsoastoeliminateforeignexchangerisk.
(d) CommodityPriceRisk
Commoditypriceriskistheriskthatachangeinthepriceofacommoditythatisakeyinput
oroutput
of
abusiness
will
adversely
affect
its
financial
performance.
It
should
be
noted
thatmanycommoditieshaveaforeignexchangecomponentintheir$Apriceforexample
oil,goldandsugar.
Commoditypriceriskmaybecontrolledandmanagedbyarangeoffinancialinstruments
thatincludeforwardsalesandpurchases,futures,swaps,andoptions,whichcanbe
arrangedthroughTCV.
TheBoardsofGBEsareresponsiblefordevelopingappropriatepoliciesandproceduresfor
managingexposuretospecificcommodityriskwheretheBoardconsiderstheseriskscould
haveamaterialimpactonthebusiness.
(e) CreditRisk
Creditriskistheriskthatanotherpartyinatransactionwillfailtomeetitsfinancial
obligations. Creditriskmayinclude:
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Counterpartyrisk,whichistheriskthattheotherpartytoatransactionwillnotmeetitsobligationsastotimingoramountofsettlement;
Country/political/soverignriskassociatedwithgovernmentdirectivesandpoliciesthatmayaffectthecontractualperformanceofeitherpartytothetransaction,andthatare
generallybeyond
the
direct
control
of
the
counterparty;
and
Settlementordeliveryriskthatmayexistifthereisadefaultinasinglesettlementordelivery,inwhichcaseallotherexposuresorpositionswiththatcounterpartywillbe
closedout,thusestablishingclaimsfortransactioncosts.
CreditriskarisesfromdirectfinancialmarketactivitiesandarelargelycarriedbyTCV.
PoliciesinrelationtocreditriskshouldthereforebefocusedonnonTCVinvestmentsand
nonfinancialmarkettransactions.
(f) OperationalRisk
Operationalriskistheriskoflosingmoneyasaresultoffailuresinsystems,peopleor
proceduresin
agiven
market.
The
focus
of
operational
risk
management
within
atreasury
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
maynot
want
to
develop
their
own
business
specific
treasury
policy.
TheGuidelinesseektoprovideageneralframeworkforwhichGBEsaretoworkwithin.
ThereareinstanceswhereGBEsmaywishtodiscusstheirindividualcircumstancesor
particularissueswithDTF.Suchinstancesmayinclude:
DiscussionofinitialborrowingprogramwithDTFtoensurethereisastrategyinplacetoachievethedesiredspreadofmaturitiesacrossthetermstructure.
Discussionoftheimpactthatanyregulatoryregimemayhaveontheirborrowingrequirements.
DiscussiononforeseeablebreachestotheTreasuryPolicy.GBEs
are
encouraged
to
develop
treasury
management
policies
that
best
address
the
financialrisksoftheGBEsbusiness.TheStatehasaconservativeriskphilosophyforthe
managementoffinancialrisksandisthestakeholderandguarantorofGBEs.Itis
appropriatethereforeforBoardstodeveloptreasurypoliciesthatareconsistentwithboth
theunderlyingbusinessandtheconservativeriskphilosophyoftheState.Inordertoensure
thattheStatestreasuryrisksarebeingproperlymanaged,powersgrantedtoGBEsbythe
TreasurerundertheBIPACTaresubjecttotheGBEobservingtheGuidelines.
DTFisresponsibleforensuringthattheGovernmentsobjectivesinrelationtotreasury
managementarebeingachieved.InthisroleDTFreviewsGBEtreasurypoliciesandadvises
onanyareaswherethepolicymaybeinadequateorinconsistentwiththeStatesoverall
objectives.GBEsarerequiredtoforwarddraftpoliciestoDTFforcommentpriortoseeking
Boardapproval.
Following
Board
approval,
the
treasury
policy
document
should
be
forwardedtoDTFforformalnoting,togetherwithacopyoftheBoardminutedocumenting
theBoardapproval.
PolicydocumentsthathavebeenformallynotedbyDTFwillbeforwardedtoTCV.GBEsare
encouragedtoconsultTCVinthedevelopmentorreviewoftheirpolicies.Thisensuresthat
TCVisawareofGBEstreasuryobjectivesandneeds.GBEsarerequestedtoadviseDTF
whensubmittingtheirpoliciesiftheydonotwishtheirpolicydocumenttobeautomatically
forwardedtoTCV.
ItislikelythatGBEswillneedtoupdatetheirtreasurypoliciesfromtimetotime.Any
revisionofthetreasurypolicydocumentwillneedtoberesubmittedtoDTFforformal
comment
prior
to
obtaining
Board
approval.
This
ensures
that
DTF
is
provided
with
the
latesttreasurypolicydocumentandisinkeepingwiththecompliancecertification
framework.
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Draftpoliciesforcommentandpoliciesbeingsubmittedforformalnoting,includingany
queriesinrelationtotheseGuidelines,shouldbedirectedto:
AssistantDirector,FinancialAnalysisandSuperannuation
DepartmentofTreasuryandFinance
Level9,
1Macarthur
Street
MelbourneVIC3002
Tel: 96515305
Fax: 96512321
5.1 Guidelinesforthedevelopmentofbusinessspecifictreasurymanagementpolicies
InnotingGBEtreasurymanagementpolicies,DTFwillgiveconsiderationtothefollowing:
consistencywiththeGBEsfinancialaccommodation,financialarrangementandinvestmentpowersapprovedbytheTreasurerundertheBIPAct;
appropriatenessoftheGBEspolicyandrisklimitstoitsunderlyingfinancialrisks; consistencywiththeStatesoverallriskphilosophyandfinancialmanagementobjectives; consistencywiththeGBEsbusinessandcorporateplansapprovedbytheGovernment; themaximumacceptableriskexposureoftheState; and theabilityofTCVtoaccommodatethetransactionsimplicitinGBEsstrategy.TheGuidelinesprovideaframeworkforGBEstofollowwhendevelopingtheirowntreasury
managementpolicies.TheGuidelinesdrawontheAustralianSocietyofCertifiedPractising
Accountantspublication
Understanding
and
Managing
Financial
Risk.
As
the
framework
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
shouldbe
reflected
in
the
treasurys
objectives
and
strategies.
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(c) RolesandResponsibilityStructureofTreasury
Thepolicydocumentshouldcontaininformationregardingtherolesandresponsibilitiesof
thepartiesinvolvedinthemanagement,controlandreportingoftheorganisationsfinancial
risks.Typicallytheinvolvedpartieswillbesomeorallofthefollowing:
Board; ChiefExecutiveOfficer; ChiefFinancialOfficer; TreasuryCommittee;and TreasuryManager.(d) DelegationofAuthority
ThedelegationofauthorityfromtheBoardleveldownthroughtheorganisationtothe
treasury,andalsowithinthetreasury,formsavitalpartofbothanorganisationsstructure
andthe
treasury
policy.
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
The
treasury
policy
should
include
only
those
instruments
which
have
been
approved
by
the
BoardandtheTreasurerofVictoria(undertheBIPAct).Foreachcategoryofapproved
financialinstrument,thepolicydocumentshouldcoverthefollowing:
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maximummaturityforwhichinstrumentsmaybeenteredinto; maximumamountpertransaction;and listofapprovedcounterparties.(g)
Use
of
Derivatives
Thetreasurypolicyshouldincludeguidelinesfortheuseofderivatives,inparticular:
itemswhichexposetheorganisationtoriskandneedtobehedged; approvedinstrumentswhichareeffectiveinreducingtheexposures;and managementreportstomeasure,monitorandcontrolderivativeactivityincludingmark
tomarketinformationonallopenpositionsbyinstrumentcategory.
Thetreasurypolicyshouldalsoincludestatementsthat:
theinstrumentmustbedesignedasahedgeatthetimeofenteringintotheinstrument; theitemmustnotalreadybeeffectivelyhedgedbyanoffsettingrisk; leveragingoftransactionsisnotpermitted;and tradingactivitiesinthecontextoftransactingtocreateneworadditionalexposuresare
notpermitted.
(h) InternalControlsandSystems
Thetreasurypolicyshoulddetailproceduresregarding:
i. theroleofInternalAudit,includingwhocarriesouttheinternalaudit,frequencyofauditsandtowhomtheresultsareconveyed.
ii. adequateoperationalpoliciesthatreasonablyensurethat: treasurymanagementguidelinesarenotbreached; computersystemsareappropriateanderrorfree; risksarebeingregularlyidentified,measuredandevaluated; appropriatesegregationofduties;and managementpoliciesanddirectivesarebeingadheredto.iii.reportingofbreaches, including proceduresto ensurethat breaches are
reportedappropriatelyandinternalcontrolsamendedifrequired.Thepolicy
shouldalsorecordthatDTFmustbecontactedverbally,andinwriting,ofany
breachesofapprovedpolicy.
(i)
Reportingto
Board
and
Management
Thepolicyshoulddetailthefrequencyandcontentsofreportstomanagementandthe
Boardincludingthereportingoftreasuryactivitiesandadherencetodealinglimits.
(j) AnnualCertificationofCompliance
ThepolicyshouldprovidedetailsontheannualcertificationofcompliancerequiredbyDTF.
Thecertificate(seeSection7andSchedule8foraproforma)istobesignedbythe
ChairmanoftheBoardandChiefExecutiveOfficerandstatesthattheorganisationhasbeen
operatingwithintheparametersspecifiedinthetreasurypolicydocument.
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5.2 GuidelinesforGBEswithoutBoardapprovedtreasurymanagementpolicies
GBEsthathavenotdevelopedabusinessspecifictreasurymanagementpolicyapprovedby
the
Board
and
formally
noted
by
DTF
are
expected
to
operate
within
the
treasury
risk
limits
outlinedinthissection.Iftherearespecificbusinessneedstooperateoutsidethelimitsin
thissection,theGBEisrequiredtoliaisewithDTF.
TheserecommendedGuidelinesaremoreappropriateforsmallerGBEs(thoseGBEswith
grossdebtorinvestmentsbelow$20million),whobelievetheirtreasuryoperationsdonot
warrantacomprehensivetreasurymanagementframeworktobedeveloped.Iftheselimits
andpoliciesaredeemedappropriate,theBoardsofGBEsarerequiredtoacknowledgeand
approvetheselimitsandprovideanannualcompliancecertificatetoDTFasdetailedin
Section7.
(a) InterestRateandRefinancingRiskProfile
Volatilityin
interest
expense
will
arise
predominantly
from
floating
rate
loans
therefore
the
proportionoftotaldebtintheformoffloatingrateloansshouldbelimitedunlessthereare
offsettingsensitivitiesinrevenue.Inaddition,interestexpensevolatilitycanbefurther
reducedbyspreadingmaturitiesacrossthetermstructure.ItisrecommendedthatGBEs
maintainadebtportfoliocompositionasfollows:
Termtomaturity Target% Limits
0 1year* 20% 1030%
1 4years 35% 2050%
4
8years
35%
20
50%
8yearsandover 10% 020%
*Loansmaturingwithin12monthsandtermloanswithfloatingrateresetsshouldbeincludedinthe
0to1yearperiod.
ForGBEswithasmalltreasuryfunction,interestrateriskshouldbemanagedprimarilyin
thephysicalmarketbyobservingthetargetportfoliocomposition.Itisexpectedthatthe
useoffinancialarrangements(derivatives)forinterestrateriskmanagementwillbelimited.
Anexceptionismadeforthemanagementoflargefixedrateloansastheyapproach
maturity.Inthiscase,TCVshouldberequestedtoprovideappropriatefinancial
arrangements
(derivatives)
to
ensure
that
the
refinancing
risk
remains
within
acceptable
bounds.
Thefinancialarrangements(derivatives)thatcanbeusedbyaGBEformanaginginterest
rateriskareidentifiedinthefinancialarrangementspowersapprovedbytheTreasurerfor
eachGBE(seeSection2.3).
Financialarrangements(derivatives)usedtohedgeinterestrateexposuresmustbethose
identifiedintheTreasurersapproval.Itisexpectedthatfinancialarrangements(derivatives)
areonlyundertakenbythosepeopleauthorisedtotransactsuchinstruments.Interestrate
limitcompliancereportingtotheBoardshouldbeundertakenonaregularbasis.
(b) LiquidityRisk
GBEswill
need
to
maintain
funding
sources
or
have
access
to
credit
lines
to
be
able
to
meet
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,
therefore
the
major
credit
risk
exposure
of
a
GBE
is
to
TCV
which
carries
a
credit
rating
equivalenttotheStateofVictoria.
Counterpartylimitssettingoutthemaximumexposureleveltothirdpartiesshouldbe
establishedforallcounterpartiesoftheGBE.Anycreditpolicyinrelationtoinvestments
mustbeconsistentwiththatoftheinvestmentapprovalgrantedundertheBIPAct(see
Section2.3).Theselimitsshouldstatethemaximumexposureleveltoeachcounterparty
andthemaximummaturityperiodforeachfinancialinstrument.
(e) OperationalRisk
Thelownumbersofstaffinvolvedinasmalltreasuryoperationgivesrisetoriskoferroror
fraudresultingfrominadequatesegregationofduties.Inthissituation,internalorexternal
auditorsshould
be
requested
to
report
on
this
matter
and
if
it
is
found
that
there
is
inadequatesegregationofduties,compensatingchecksshouldbeundertakenby
managementtominimisetheriskoferrororfraud.
Inordertoachieveoperationalefficienciesandeffectivesegregationofduties,DTF
encouragestheoutsourcingoftreasuryoperations,suchasriskmanagementadvice,
treasuryaccountingandsystems.TCVisDTFspreferredprovideroftheseservices.
(f) CommodityPriceRisk
Commoditypriceriskistheriskthatachangeinthepriceofacommoditythatisakeyinput
oroutputofabusinesswilladverselyaffectitsfinancialperformance.Giventhatcommodity
riskmayplayasmallifnotnegligibleroleintherisksofmanyoftheGBEs,theBoardmay
notneed
to
set
any
guidelines.
If
at
any
time,
the
GBE
becomes
exposed
to
commodity
risk
it
shouldbeimmediatelyrecognisedandamanagementstrategydeveloped.
(g) AnnualCertificationofCompliance
AnannualcertificatewillneedtobeprovidedtoDTFstatingthattheorganisationis
complyingwiththerecommendedrisklimitsoutlinedabove.SeeSection7forfurther
detailsregardingtheannualcertificationofcompliance.
(h) ReportingPolicyBreaches
ShouldGBEsfindthemselvesoperatingoutsidetheBoardapprovedtreasurypolicyorthe
recommendedlimits,itisrequiredthatDTFbenotifiedimmediatelyverballyandinwriting
ofthe
breach.
The
notification
should
outline
an
explanation
of
the
breach
including
a
strategytocorrectthebreach.NoncompliancewiththeGuidelinesmayresultinGBEs
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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.
Thecompliance
reporting
to
the
Board
should
include:
asummaryoftreasuryactivitiesovertheperiodincludingreportingagainstapprovedlimitsanddetailsofunrealisedprofits/lossesonoutstandingderivativepositions;
certificationthatallpolicieshavebeenadheredto; detailsofareas,ifany,wherestatedpolicieshavebeenbreached;and identificationofthereasonsfortheoccurrenceofanybreachesandwhatactions,ifany,
havebeentakentorectifythebreachedsituation.
Underthetreasurymanagementframework,theChairmanandCEOofGBEsaretocertifyto
DTFonanannualbasisthattheBoardissatisfiedthattheorganisationisoperatingwithin
theBoard
approved
treasury
management
policies.
Before
this
certification
is
given
to
DTF,
theBoarditselfmustbesatisfiedthattheorganisationisoperatingwithintheBoard
approvedpolicies.TheabovecompliancereportingframeworkallowstheBoardtomake
thisjudgementbeforeitprovidesacertificationofcompliancetoDTF.
Schedule8includesproformasoftheannualcompliancecertificatesapplicabletoGBEs
operatingunderbusinessspecificpoliciesandGBEsoperatingundertherecommended
limitscontainedintheseGuidelines(Section5.2).
ShouldGBEsfindthemselvesoperatingoutsidetheBoardapprovedtreasurypolicyorthe
recommendedlimits,itisrequiredthatDTFbenotifiedimmediatelyverballyandinwriting
ofthebreach.Thenotificationshouldoutlineanexplanationofthebreachincludinga
strategy
to
correct
the
breach.
Non
compliance
with
the
Guidelines
may
result
in
the
GBEs
havingtheirborrowingandinvestmentpowersrevokedandtheGBEmaybeplacedona
moreonerousborrowingandinvestmentapprovalprocess.
TheAnnualCertificateofComplianceisdueonemonthaftertheendofthefinancialyear
andshouldbeforwardedto:
AssistantDirector,FinancialAnalysisandSuperannuation
DepartmentofTreasuryandFinance
Level9, 1MacarthurStreet
MelbourneVIC3002
Tel: 96515305
Fax:
9651
2321
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Schedules
Schedule1: GBEsundertheBorrowingandInvestmentPowers(BIPAct)1987
PUBLICTRADINGENTERPRISES
Authority
MetropolitanUrbanWaterBusinessesCityWestWaterMelbourneWaterSouthEastWater
YarraValley
Water
RegionalWaterBusinesses
BarwonWaterCentralHighlandsWaterColibanWaterEastGippslandWaterGippslandWaterGoulburnValleyWaterGrampiansWimmeraMalleeWaterLowerMurrayWater
SouthGippsland
Water
WannonWaterWesternWaterWesternportWater
RuralWaterBusinesses
FirstMilduraIrrigationTrustGoulburnMurrayWaterSouthernRuralWater
PublicFinancialCorporations
RuralFinanceCorporationofVictoriaTransportAccidentCommissionTreasuryCorporationofVictoriaVictorianFundsManagementCorporationVictorianManagedInsuranceAuthorityVictorianWorkcoverAuthority
EnergyBusinesses
StateElectricity
Commission
of
Victoria
VENCorp
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AlpineResortBusinesses
FallsCreekAlpineResortManagementBoardLakeMountainAlpineResortManagementBoardMtBawBawAlpineResortManagementBoardMt
Buller
Alpine
Resort
Management
Board
MtHothamAlpineReportManagementBoard
OtherBusinesses
AustralianGrandPrixCorporationCountryFireAuthorityDairyFoodSafetyVictoriaDirectorofHousingFedSquarePtyLtdMelbourneandOlympicParksTrust
MelbourneMarket
Authority
PortofMelbourneCorporationQueenVictoriaWomensCentreTrustStateSportCentresTrustV/LinePassengerCorporationVicForestsVictorianRegionalChannelsAuthorityVictorianRailTrackVictorianUrbanDevelopmentAuthority(VicUrban)ZoologicalParksandGardensBoardofVictoria
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Schedule2: ProFormaAnnualBorrowingApprovalRequest
ANNUALBORROWINGPROGRAM20XXXX
OF: (participatingauthorityname)
ASAT: (preparationdate)
CONTACTNAME: (nameofpersonnel)
CONTACTNUMBER: (phonenumberofpersonnel)
TABLEA ANNUALBORROWINGAPPROVALREQUEST
TypeofFinancialAccommodation CapitalProceed
($million)s
(a) NewFinancialAccommodation
(b) RefinancingofMaturingFinancialAccommodation
(d) TemporaryPurposeFinancialAccommodation
(e) BankOverdraft
TOTAL
TABLEB INVESTMENTS
Investments Estimated30June2007 Estimated30June2008
($million)
TCV
Other
TOTAL
TABLEC DEBTMATURITYPROFILE
TermtoMaturity(years) Estimated30June2007
($million)
Estimated30June2008
($million)
0to1
1to2
2to3
3to4
4to5
5to6
6to7
7to8
8to9
9to10
Beyond10
TOTAL
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ANNUALBORROWINGPROGRAM20XXX
OF: (participatingauthorityname)
TABLED MONTHLYCASHFLOWESTIMATE
PLUS LESS LESS
NetCashflowexcept
Financeflows
InflowfromBorrowings InterestExpense Outflowfr
Repay
($million)
Jul07
Aug07
Sep07
Oct07
Nov07
Dec07
Jan08
Feb08
Mar08
Apr08
May08
Jun08
TOTAL
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Schedule3: ProFormaBorrowingPowers
BorrowingandInvestmentPowersAct1987APPROVALOFTHETREASUREROFTHESTATEOFVICTORIA
FORAUTHORITY
NEWFINANCIALACCOMMODATIONANDTEMPORARY
PURPOSEFINANCIALACCOMMODATION
I,JOHNBRUMBYMP,TreasurerofVictoria,
(1) approvetheAuthority,obtainingfinancialaccommodationpursuanttosection8of
theBorrowingandInvestmentPowersAct1987(theAct)bywayoffinancialaccommodationfromtheTreasuryCorporationofVictoriasubjecttothetermsand
conditionssetoutintheSchedulewhichisattachedtothisapproval.
(2) confirmthatthefinancialaccommodationobtainedbytheAuthorityunderthis
approvalhasthebenefitoftheguaranteecontainedinsection13(2)oftheAct.
Dated:
JOHNBRUMBYMP
Treasurer
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SCHEDULETOAPPROVALFORAUTHORITY
FOR
NEWFINANCIALACCOMMODATIONANDTEMPORARY
PURPOSEFINANCIALACCOMMODATION
TermsandConditions
Application
1. Thisapprovalappliesto:
newfinancialaccommodationwhichisobtainedbytheAuthority; temporarypurposefinancialaccommodationtoberepaidpriorto30June20XX.
Effect
2. Thisapprovalhaseffectfortheperiodfrom1July20XXto30June20XX(inclusive).
ApprovalLimit
3. TheAuthoritymustnotobtainfinancialaccommodationunderthisapprovalifatthat
timethetotalliabilityoftheAuthorityinrespectoffinancialaccommodationobtained
underthisapproval,wouldthenexceed(inamountsequivalenttoAustraliandollars):
a) withrespecttonewfinancialaccommodation,$Xmillion;b) withrespecttotemporarypurposefinancialaccommodation$Xmillion.
4.
The
Authority,
in
determining
its
liability
in
respect
of
financial
accommodation
obtained
underthisapproval,mustincludethefollowingamounts:
a) thediscountedprincipalproceedsofeachbillofexchangedrawnandeachpromissorynoteandsecurityissuedbyitunderthisapprovalwhichhasnotmatured;and
b) thediscountedprincipalproceeds(capitalproceeds)*fromanydiscountorpremiumloanwhichhasnotmaturedunderthisapprovalandtheprincipalamount
outstandingoneachotherloan.
EvidenceofCompliance
5. ItwillbesufficientforTreasuryCorporationofVictoriatobesatisfiedastocompliance
withthis
approval
ifthe
Treasurer
of
the
Authority
provides
acertificate
confirming
that
alltermsandconditionsofthisapprovalhavebeencompliedwith.
*Capitalproceedsisequivalenttomarketvaluelessaccruedinterest.
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BorrowingandInvestmentPowersAct1987APPROVALOFTHETREASUREROFTHESTATEOFVICTORIA
FORAUTHORITY
OVERDRAFTANDREFINANCINGFINANCIALACCOMMODATION
I,JOHNBRUMBYMP,TreasurerofVictoria,
1. approvetheAuthority,obtainingfinancialaccommodation: pursuanttosection5oftheBorrowingandInvestmentPowersAct1987(the
Act)byobtainingafinancialbenefitorassistancetoobtainafinancialbenefit
bywayofoverdraftofaccountatanybankoranyotherfinancialinstitutionin
Australia;
pursuanttosection8oftheActbywayoffinancialaccommodationfromtheTreasuryCorporationofVictoriaforthepurposesofrefinancingmaturing
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
timethe
total
liability
of
the
Authority
in
respect
of
financial
accommodation
obtained
underthisapproval,wouldthenexceed(inamountsequivalenttoAustraliandollars):
a) withrespecttofinancialaccommodationobtainedbywayofoverdraftondomesticbankswithinoroutsideAustralia,$X;
b) withrespecttofinancialaccommodationobtainedtorefinancefinancialaccommodation,withoutlimitation.
3. TheAuthority,indeterminingitsliabilityinrespectoffinancialaccommodationobtained
underthisapproval,mustincludethefollowingamounts:
a) theamountdrawndownundereachoverdraftfacility.b) thediscountedprincipalproceedsofeachbillofexchangedrawnandeachpromissory
noteandsecurityissuedbyitunderthisapprovalwhichhasnotmatured;andc) thediscountedprincipalproceeds(capitalproceeds)*fromanydiscountorpremium
loanwhichhasnotmaturedunderthisapprovalandtheprincipalamount
outstandingoneachotherloan.
EvidenceofCompliance
4. Itwillbesufficientforalendertobesatisfiedastocompliancewiththisconditionifthe
TreasureroftheAuthorityprovidesacertificateconfirmingthatalltermsandconditions
ofthisapprovalhavebeencompliedwith.
*Capitalproceedsisequivalenttomarketvaluelessaccruedinterest.
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Schedule4: ProFormaFinancialArrangement(Derivative)Powers
BorrowingAndInvestmentPowersAct1987APPROVALOFTHETREASUREROFVICTORIA
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.
tohedge
or
protect
the
value
of
the
Authoritys
assets
or
liabilities,
or
prospective
assets
or
liabilitiesinrespectofanunderlyingexposuretomovementsincurrencyratesinaccordance
withtheAuthoritysTreasuryPolicyStatement.
Thisapprovalhaseffectandappliestoallfinancialarrangementsenteredintobythe
Authorityasfromthedateofthisapproval.
Dated:
JOHNBRUMBYMP
Treasurer
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Schedule5: ProFormaInvestmentPowers
BorrowingAndInvestmentPowersAct1987INVESTMENTPOWERS
ORDERINCOUNCIL
TheGovernorinCouncilundersection20oftheBorrowingandInvestmentPowersAct1987,ontherecommendationoftheTreasurer,herebyapprovestheAuthorityinvestingits
moniesinthefollowingmanner:
1. Ondepositwith:a) abank;b) amoneymarketcorporation,inAustralia,whichdepositissecuredbyamortgageof
approvedsecuritiesofamarketvalueatthetimeofthedepositofnotlessthanthe
amountofthedeposit;
c) theTreasuryCorporationofVictoria.2. Inthepurchaseof,orsubscriptionfor:
a) anysecuritiesof,orguaranteedby:(i) theCommonwealth;
(ii) aStateorTerritoryoftheCommonwealth;
b) anysecuritiesofapublicbodyconstitutedbyorunderalawoftheCommonwealth,or
of
aState
or
Territory
of
the
Commonwealth;
c) anycertificateofdepositissuedbyabankwhethernegotiable,convertibleorotherwise;
d) anybillofexchangethathasbeenacceptedorendorsedbyabank;Unlessacontraryintentionappears:
Approvedsecuritiesmeans:
a) securitiesof,orguaranteesby,theCommonwealthofaStateorTerritoryoftheCommonwealth;
b) securitiesofapublicbody,constitutedbyorunderalawoftheCommonwealth,orofaStateorTerritoryoftheCommonwealth;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
Clerkof
the
Executive
Council
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potentialforlossresultingfromthestructureandtimingoftheStatesborrowing
requirements.Themajorrisksinthiscategoryareliquidityandrefinancingrisk.Financial
marketrisksariseprimarilyfromtheprocessoftransactingdirectlywithfinancialmarkets.
Theserisksincludeforeigncurrencyriskassociatedwithborrowings,creditriskand
operationalrisk.
Business
related
risks
arise
from
the
operations
of
the
business
and
are
uniquetothatbusiness.Businessrelatedrisksincludeinterestraterisk,foreigncurrencyrisk
arisingfromcontractsandcommoditypricerisk.
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Schedule7: RecommendedInterestRateandRefinancingRiskLimitsforGBEsDevelopingTheirOwnTreasuryPolicies
DTFhasdevelopedasetofrecommendedinterestratelimitswhicharebasedonthelimits
usedfortheBudgetSectorDebtPortfolioandincorporatetheconservativeriskphilosophy
oftheTreasurer.
Theselimitsincludeanevenspreadofmaturities,providingrelativecertaintyinborrowing
costsandensuringthatasmallproportionofdebtissubjecttorepricinginanyoneperiod.
Thelimits(shownbelow)maybeausefulguidetomajorGBEsinthedevelopmentoftheir
treasurypolicies.
Section5.2outlinesbroaderlimitsapplicableforsmallerGBEs,giventheirlowerlevelsof
debt.
Interestraterisklimits
Termtomaturity Target% Limits
0to1year* 10% 020%
1to3years 16% 721%
3to5years 16% 721%
5to7years 16% 721%
7to9years 16% 721%
9to
11
years
16%
721%
11yearsandover 10% 020%
*Loansmaturingwithin12monthsandtermloanswithfloatingrateresetsshouldbeincludedinthe
0to1yearperiod.
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Schedule8: ProFormaAnnualCertificationofCompliance
ForGBEswithbusinessspecificpolicies
TREASURYMANAGEMENTGUIDELINES
ANNUALCERTIFICATIONOFCOMPLIANCE
(NameofGBE)
Forthefinancialyearended
I,(NameofChairperson),theChairpersononbehalfoftheBoardandI,(NameofChief
ExecutiveOfficer),
the
Chief
Executive
Officer
of
(Name
of
GBE)
(the
organisation)
certify
as
follows:
(a) theorganisationhasinplaceaBoardapprovedTreasuryManagementPolicythathas
beenformallynotedbytheDepartmentofTreasuryandFinance;
(b) theorganisationhasinplaceacomplianceprocedurewhichincludes,asaminimum,
anannualauditofthetreasuryoperationsthatreportstoeithertheAuditCommittee
ortheBoardoftheorganisation.ThisreportatteststhattheBoardapprovedTreasury
ManagementPolicyisbeingadheredtoandthattheinternalcontrolsofthe
organisationareappropriateandhavenotbeenbreached;and
(c) theBoardandtheChiefExecutiveOfficeroftheorganisationaresatisfiedtothebest
oftheir
knowledge
that
the
organisation
has
complied
with
the
Treasury
Management
PolicyasapprovedbytheBoardandformallynotedbytheDepartmentofTreasury
andFinance.
DATED:__________________________
Chairperson
(NameofGBE) ChiefExecutiveOfficer
(NameofGBE)
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ForGBEsoperatingunderrecommendedGuidelines
TREASURYMANAGEMENTGUIDELINES
ANNUALCERTIFICATION
OF
COMPLIANCE
(NameofGBE)
Forthefinancialyearended
I,(NameofChairperson),theChairpersononbehalfoftheBoardandI,(NameofChief
ExecutiveOfficer),theChiefExecutiveOfficerof(NameofGBE)(theorganisation)certifyas
follows:
(a) theorganisationhasinplaceacomplianceprocedurewhichincludes,asaminimum,
anannualauditofthetreasuryoperationsthatreportstoeithertheAuditCommittee
ortheBoardoftheorganisation.Thisreportatteststhattheorganisationisoperating
withintheparametersoftheTreasuryManagementGuidelinesissuedbythe
DepartmentofTreasuryandFinanceandthattheinternalcontrolsofthe
organisationareappropriateandhavenotbeenbreached;and
(b) theBoardandChiefExecutiveOfficeroftheorganisationaresatisfiedtothebestof
theirknowledgethattheorganisationhascompliedwiththeTreasuryManagement
GuidelinesissuedbytheDepartmentofTreasuryandFinance.
DATED:__________________________
Chairperson
(NameofGBE) ChiefExecutiveOfficer
(NameofGBE)
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www.dtf.vic.gov.au