Legislative Council, Thursday 23 March 2023

Ms FORREST asked the Leader of the Government in the Legislative Council, Mrs Hiscutt

With regard to Hydro Tasmania’s three Basslink contracts, the Basslink Services Agreement (BSA), the Floating Facility Fee Instrument (FFFI) and the Basslink Facility Fee Swap (BFFS):

Note 21 on page 68 of Hydro Tasmania’s 2022 Financial Statements states the BSA was terminated but neither the BFFS or FFFI were impacted.

Question (1):
With regard to the BSA:
(a) Does Hydro Tasmania have any rights or obligations from the BSA that have survived despite termination of the BSA; and
(b) if so what are they?

Background / overview.
The BSA included a floating interest rate related payment mechanism known as the Floating Interest Rate Delta (or FIRD).

The BFFS and associated financial contracts were entered into to hedge the exposure to Hydro Tasmania related to the FIRD.

On termination of the BSA, the FIRD obligations ceased, however the BFFS and FFFI were unaffected as they are separate contracts with a separate party.

To offset the interest rate exposure arising from the termination of the FIRD and continuation of the BFFS, Hydro Tasmania entered into a receive fixed/pay floating amortising interest rate swap with Tascorp in February 2022.

The liability for the BFFS and FFFI was reported in Hydro Tasmania’s Annual Reports up until FY2020/2021 under the line item Basslink Facility Fee Swap. In terms of materiality, the FFFI liability is less than 5 per cent of the total Basslink Facility Fee Swap financial liability. As the BSA was terminated in 2022, Hydro Tasmania consolidated its reporting of all interest rate swaps into the interest rate swap line item in its FY2021/2022 annual report.

Answer:
Both BPL and Hydro Tasmania’s rights and obligations under the BSA ended on 10 February 2022, however the contract and related matters remain confidential.

Question (2):
With regard to the FFFI:
(a) (i) Is Basslink P/L the other party to this contact; and
     (ii) if not, who is?
(b) What is the term of this contract?
(c) (i) Please outline the rights and obligations of the parties to this contract describing how any payments due are calculated; and
    (ii) who has been paying to whom under this arrangement?
(d) Although the FFFI is always noted in Hydro Tasmania’s Financial Statements as a financial instrument why isn’t it given a value and included in Hydro Tasmania’s balance sheet as was the BSA and the BFFS?
(e) As the FFFI is now treated as an interest rate swap since the BSA termination,
    (i) Does the future liability for FFFI payments have a value; and
   (ii) if so, what was that value at 30 June 2022?
(f) Now that the FFFI payments are treated as an interest rate swap since the BSA termination,
   (i) Do future FFFI payments and/or receipts have a value that needs to be recorded in Hydro Tasmania’s balance sheet; and
  (ii) if so, what was that value at 30 June 2022?

Answer:
The counterparty to the FFFI is a financial institution, not Basslink Pty Ltd. The party itself is confidential. The FFFI expires in December 2030.

In relation to the rights and obligations under this contract, the FFFI is a floating/floating swap. Hydro Tasmania pays a fixed margin/spread above the 3-month Bank Bill Swap Rate (BBSW) to the counterparty over the life of the contract based on an ‘amortising floating rate payer schedule’.

In relation to (d), as the FFFI relates closely to the BFFS, in FY2020-21 and prior, the value of FFFI was included in the balance sheet as part of Basslink Facility Fee Swap financial liability. In terms of materiality, the FFFI liability is less than 5 per cent of the total Basslink Facility Fee Swap financial liability. Upon termination of the BSA from FY2021-22 onwards the BFFS and FFFI liability will now be included under the Interest Rate Swap (IRS) liability.

The combined BFFS and FFFI liability included in the interest rate swap liability as at 30 June 2022 is $182m. The FFFI liability is less than 5 per cent of this combined liability.

Question (3):
With regard to the BFFS:
(a) Who is the other party to the contract?
(b) What is the term of the contract?
(c) Please outline the rights and obligations of the parties to this contract, describing how any payments due are calculated.
(d) What was the BFFS liability as at 30 June 2022 included in the interest rate swaps liability?
(e) Now that the BFFS is treated as an interest swap,
    (i) Where do BFFS payments since BSA termination appear in Hydro Tasmania’s financials;
   (ii) what was this amount for the 2022 year; and
  (iii) what was the amount paid pre BSA termination?

Answer:
The counterparty to the BFFS is a financial institution, the party itself is confidential. The BFFS expires in December 2030.

The BFFS hedged the interest rate and foreign exchange risk during construction of Basslink, which Hydro Tasmania was exposed to through a floating interest rate related payment mechanism in the BSA (the Floating Interest Rate Delta or FIRD). The inherent fixed interest rate is 7.83% and the payment is calculated based on an amortising schedule.

As noted above, the combined BFFS and FFFI liability included in the interest rate swap liability as at 30 June 2022 is $182m. The BFFS liability is more than 95 per cent of this combined liability.

BFFS payments are included in the direct expenses, in the Statement of Financial Performance. This has not changed with the consolidation of reporting of this contract’s liability into the interest rate swap liability line item.

Question (4):
What have been the amounts paid by Hydro Tasmania in each year from 2006 to 2022 for each of BSA, FFFI and BFFS?

Answer:
In response to Questions 3(e)(ii), 3(e)(iii) and Question 4, the specific amounts paid are confidential.