State Tolling Corporation financial statements

Comprehensive operating statement
Balance sheet
Cash flow statement
Statement of changes in equity

1. About this report - The basis on which the financial statements have been prepared and compliance with reporting regulations.

2. Funding delivery of our services

2.1 Other income

3. The cost of delivering services

3.1 Expenses incurred in delivery of services

3.2 Employee benefits in the comprehensive operating statement

3.3 Other operating expenses

4. Key assets available for output delivery

4.1 Service concession assets - road assets

5. Other assets and liabilities

5.1 Receivables

5.2 Payables

5.3 Accrued expenses

5.4 Other provisions

6. Financing our operations

6.1 Borrowings

6.2 Cash flow information and balances

6.3 Commitments for expenditure

7. Risks, contingencies and valuation judgements

7.1 Financial instruments and specific disclosures

7.2 Fair value determination

8. Contingent assets and contingent liabilities

8.1 Contingent assets and contingent liabilities

9. Other disclosures

9.1 Equity disclosures

9.2 Responsible persons

9.3 Remuneration

9.4 Related parties

9.5 Remuneration of auditors

9.6 Subsequent events

9.7 Other accounting policies

The attached financial statements for the North East Link State Tolling Corporation have been prepared in accordance with Standing Direction 5.2 by the Assistant Treasurer under the Financial Management Act 1994, applicable Financial Reporting Directions, Australian Accounting Standards, including interpretations, and other mandatory professional reporting requirements.

We further state that, in our opinion, the information set out in the comprehensive operating statement, balance sheet, cash flow statement, statement of changes in equity, and accompanying notes, presents fairly the financial transactions during the year ended 30 June 2023 and financial position of the North East Link State Tolling Corporation at 30 June 2023.

At the time of signing, we are not aware of any circumstance which would render any particulars included in the financial statements to be misleading or inaccurate.

We authorise the attached financial statements for issue on 7 September 2023.

Chief Executive Officer

An Nguyen

North East Link State Tolling Corporation

7 September 2023

Chair

Brad Vann

North East Link State Tolling Corporation

7 September 2023

To the Board of Directors of North East Link State Tolling Corporation:

Opinion

I have audited the financial report of North East Link State Tolling Corporation (the corporation) which comprises the:

• balance sheet as at 30 June 2023
• comprehensive operating statement for the year then ended
• statement of changes in equity for the year then ended
• cash flow statement for the year then ended
• notes to the financial statements, including significant accounting policies
• accountable officer’s and chairperson’s declaration.

In my opinion the financial report presents fairly, in all material respects, the financial position of the corporation as at 30 June 2023 and its financial performance and cash flows for the year then ended in accordance with the financial reporting requirements of part 7 of the Financial Management Act 1994 and applicable Australian Accounting Standards.

Basis for opinion

I have conducted my audit in accordance with the Audit Act 1994 which incorporates the Australian Auditing Standards. I further describe my responsibilities under that Act and those standards in the Auditor’s Responsibilities for the Audit of the Financial Report section of my report.

My independence is established by the Constitution Act 1975. My staff and I are independent of the corporation in accordance with the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to my audit of the financial report in Victoria. My staff and I have also fulfilled our other ethical responsibilities in accordance with the Code.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Other information

The Board of Directors of the corporation are responsible for the Other Information, which comprises the information in the Annual Report for the year ended 30 June 2023, but does not include the financial report and my auditor’s report thereon.

My opinion on the financial report does not cover the Other Information and accordingly, I do not express any form of assurance conclusion on the Other Information. However, in connection with my audit of the financial report, my responsibility is to read the Other Information and in doing so, consider whether it is materially inconsistent with the financial report or the knowledge I obtained during the audit, or otherwise appears to be materially misstated. If, based on the work I have performed, I conclude there is a material misstatement of the Other Information, I am required to report that fact. I have nothing to report in this regard.

Board of Director’s responsibilities for the financial report

The Board of Directors of the corporation is responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards and the Financial Management Act 1994, and for such internal control as the Board of Directors determines is necessary to enable the preparation and fair presentation of a financial report that is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the Board of Directors is responsible for assessing the corporation’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless it is inappropriate to do so.

Auditor’s responsibilities for the audit of the financial report

As required by the Audit Act 1994, my responsibility is to express an opinion on the financial report based on the audit. My objectives for the audit are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.

As part of an audit in accordance with the Australian Auditing Standards, I exercise professional judgement and maintain professional scepticism throughout the audit. I also:

• identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the corporation’s internal control
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors
• conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the corporation’s ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor’s report. However, future events or conditions may cause the corporation to cease to continue as a going concern.
• evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.

I communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

Melbourne

7 September 2023

Simone Bohan

As delegate for the Auditor-General of Victoria

For the year ended 30 June 2023

The accompanying notes form part of these financial statements.

As at 30 June 2023

The accompanying notes form part of these financial statements.

For the year ended 30 June 2023

The accompanying notes form part of these financial statements.

For the year ended 30 June 2023

The accompanying notes form part of these financial statement.

The North East Link State Tolling Corporation (STC) is a public entity but does not represent the Crown. Its principal address is:

Level 10, 80 Collins Street, Melbourne VIC 3000

ABN: 86 585 150 837

Basis of preparation

These financial statements are in Australian dollars and the historical cost convention is used unless a different measurement basis is specifically disclosed in the note associated with the item measured on a different basis.

The accrual basis of accounting has been applied in preparing these financial statements, whereby assets, liabilities, equity, income and expenses are recognised in the reporting period to which they relate, regardless of when cash is received or paid.

Consistent with the requirements of AASB 1004 Contributions, contributions by owners (that is, contributed capital and its repayment) are treated as equity transactions and, therefore, do not form part of the income and expenses of STC.

Additions to net assets which have been designated as contributions by owners are recognised as contributed capital. Other transfers that are in the nature of contributions to or distributions by owners have also been designated as contributions by owners.

Judgements, estimates and assumptions are required to be made about financial information being presented. The significant judgements made in the preparation of these financial statements are disclosed in the notes where amounts affected by those judgements are disclosed. Estimates and associated assumptions are based on professional judgements derived from historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Revisions to accounting estimates are recognised in the period in which the estimate is revised and also in future periods that are affected by the revision.

These financial statements cover STC as an individual reporting entity. STC is a for-profit organisation. Prior year covered a 16-month period from 1 March 2021 to 30 June 2023.

All amounts in the financial statements have been rounded to the nearest $1,000 unless otherwise stated.

Going concern

The financial statements have been prepared on a going concern basis, which assumes the continuity of normal operations, in particular over the next 12 months from the financial statements release date.

The Central Package of the North East Link (NEL) project will be delivered as an availability Public-Private Partnership (PPP) under an Incentivised Target Cost (ITC) model with STC as the asset owner, assuming all payment obligations under the contract, and the North East Link Program (NELP), a division of the Major Transport Infrastructure Authority, acting as STC’s agent, being the delivery agency.

As part of the arrangement, the Treasurer provided a guarantee to the PPP contractor (Project Co) and STC to cover the risk of additional funding requirements during the construction and operation, and maintenance phases of the project respectively.

Compliance information

These general-purpose financial statements have been prepared in accordance with the Financial Management Act 1994 (FMA) and applicable Australian Accounting Standards (AASs), which include Interpretations issued by the Australian Accounting Standards Board (AASB). In particular, they are presented in a manner consistent with the requirements of AASB 1049 Whole of Government and General Government Sector Financial Reporting. Accounting policies selected and applied in these financial statements ensure that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

This section provides an account of the income recognised by STC.

2.1 Interest income

Interest income is the interest received on cash held with the bank. Interest income is recognised using the effective interest method, which allocates the interest over the relevant period.

This section provides an account of the expenses incurred by STC in delivering services.

3.1 Expenses incurred in delivery of services

3.2 Employee benefit expenses

Employee expenses include all costs related to employment including wages and salaries, fringe benefits tax, leave entitlements, termination payments and WorkCover premiums.

STC currently utilises DTP to directly manage all aspects of STC resource engagements for both secondments and directly contracted staff. These costs therefore include the costs for both directly contracted and seconded staff.

The amount recognised in the comprehensive operating statement in relation to superannuation is employer contributions for members of both defined benefit and defined contribution superannuation plans that are paid or payable during the reporting period. STC does not recognise any defined benefit liabilities because it has no legal or constructive obligation to pay future benefits relating to its employees. Instead, the Department of Treasury and Finance (DTF) discloses in its annual financial statements the net defined benefit cost related to the members of these plans as an administered liability (on behalf of the Victorian Government as the sponsoring employer).

3.3 Other operating expenses

Other operating expenses generally represent the day-to-day running costs incurred in normal operations. Supplies and services are recognised as an expense in the reporting period in which they are incurred. Professional services relate to those services provided by professional service firms. Insurance refunds relate to historic premium overpayments which were refunded by the insurer.

STC controls infrastructure and other investments that are utilised in fulfilling its objectives and conducting its activities. They represent the resources that have been entrusted to STC for delivery of those services.

4.1 Service concession assets (SCA) – road assets

A service concession asset (SCA) under AASB 1059 Service Concession Assets: Grantors (AASB 1059) is an asset to which a private operator has right of access to provide public services on behalf of the Grantor (STC) in a service concession arrangement.

Initial recognition

STC initially recognises a SCA at the commencement of construction at current replacement cost (CRC), calculated in accordance with the 'cost approach' to fair value measurement. The CRC reflects the amount that would be required currently to replace the service capacity of the asset. The assets recognised at the commencement of construction are reported as assets under construction until the project reaches commercial acceptance.

The CRC for the SCA includes the costs that are directly attributable to the design and construction of the SCA by the operator. AASB 116 Property, Plant and Equipment (AASB 116) is applied, which provides guidance on the elements of costs including: the purchase price and costs directly attributable to bringing the asset to its location or condition necessary.

Fair value proxy for SCA construction in progress (significant judgement)

The financing cost to STC implied in the SCA contract during the construction of an SCA is used as a proxy of the financing cost incurred by the private sector constructing the asset. This financing cost is capitalised as part of the asset with the aim of achieving representation of the CRC.

Subsequent measurement

Once the asset is operational, STC will depreciate the SCA over its useful life using the principles in AASB 116. SCAs are subject to revaluation as required by Financial Reporting Direction 103 Non-Financial Physical Assets (FRD 103).

Impairment

Non-financial assets, including items of property, plant and equipment, are tested for impairment whenever there is an indication that the asset may be impaired.

4.1.1 Reconciliation of movements in carrying amount of SCA – road assets

Introduction

This section sets out those assets and liabilities that arose from STC’s operations.

5.1 Receivables

Contractual receivables are classified as financial instruments and categorised as ‘financial assets at amortised cost’. They are initially recognised at fair value plus any directly attributable transaction costs. STC holds the contractual receivables with the objective to collect the contractual cash flows and therefore subsequently measured at amortised cost using the effective interest method, less any impairment.

Statutory receivables do not arise from contracts and are recognised and measured similarly to contractual receivables (except for impairment) but are not classified as financial instruments for disclosure purposes. STC applies AASB 9 Financial Instruments for initial measurement of the statutory receivables and, as a result, statutory receivables are initially recognised at fair value plus any directly attributable transaction cost. Amounts recognised from the Victorian Government represent funding for all commitments incurred and are drawn from the Consolidated Fund as the commitments fall due.

5.2 Payables

Contractual payables: Are classified as financial instruments and measured at amortised cost. Accounts payable represent liabilities for goods and services provided to STC prior to the end of the financial year that are unpaid.

Payables for supplies and services have an average credit period of 30 days. No interest is charged on payables for the first 30 days from the date of the invoice.

The terms and conditions of amounts payable to the Government and agencies vary according to the particular agreements and as they are not legislative payables, they are not classified as financial instruments.

5.3 Accrued expenses

Accruals are recognised when STC has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the accrual can be measured reliably. The amount recognised as an accrual is the best estimate of the consideration required to settle the present obligation at reporting date, considering the risks and uncertainties surrounding the obligation.

Where an accrual is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows, using a discount rate that reflects the time value of money and risks specific to the accrual.

5.4 Other provisions

Other provisions are recognised when STC has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation.

Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows, using a discount rate that reflects the time value of money and risks specific to the provision.

KRA is a performance regime to monitor and measure the Project Co’s performance in relation to specified Key Performance Indicators (KPIs). The provision recognised is in relation to anticipated payments to Project Co in lieu of achieving the predetermined project KPIs.

Introduction

This section provides information on the sources of finance utilised by STC during its operations, along with interest expenses (the cost of borrowings) and other information related to financing activities of STC.

6.1 Borrowings

The State loan is provided by the Minister for Transport and Infrastructure for and on behalf of the Crown in right of the State of Victoria and has a term of 39 years following Financial Close of the Central Package PPP on 27 October 2021. The loan is subject to a fixed interest of 4.25 per cent per annum.

Borrowings are classified as financial instruments. Interest bearing liabilities are recognised at amortised cost unless STC elects to irrevocably designate them at fair value through profit or loss at initial recognition. The election depends on the nature and purpose of the interest-bearing liabilities.

All interest-bearing borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method.

For financial liabilities designated at fair value through net result, all transaction costs are expensed as incurred. They are subsequently measured at fair value with changes in fair value relating to STC’s own credit risk recognised in other comprehensive income and the remaining amount of changes in fair value recognised in net result. Amounts in other comprehensive income related to credit risk are not subject to recycling in profit and loss but are transferred to retained earnings when realised.

The service concession financial liability relates to the service concession arrangements recognised when applying AASB 1059. Interest is charged on the liability and capitalised within Road Assets. The liability is reduced over the term of the arrangement through cash payments to the operator.

Defaults and breaches: During the current period, there were no defaults and breaches of any of the loans.

Service concession arrangement liability

As outlined in Note 4.1 Service concession assets – road assets, the accumulation of costs incurred during construction results in a progressive build-up of the service concession asset (SCA). A corresponding liability is progressively recognised in line with the fair value of the SCA. The nature of the liability and the subsequent accounting depends on the consideration exchanged in reference to the contract arrangements between STC (on behalf of the Victorian Government) and the operator. An exception to this principle occurs when the grantor reclassifies an existing asset to a SCA.

Initial recognition

STC recognises a service concession liability (SCL) commensurate with the SCA, adjusted by the amount of any other consideration from STC to the operator, or from the operator to STC. Therefore, any Victorian Government contributions made prior to the recognition of the liability will reduce this amount.

Where STC reclassifies an existing asset as a service concession asset, it is measured at current replacement cost in accordance with the cost approach to fair value in AASB 13 Fair Value Measurement as at the date of reclassification. STC will not recognise a liability when an existing asset is reclassified as a service concession asset, except in circumstances where additional consideration is provided by the operator.

Subsequent measurement

After initial recognition, STC will determine if the liability represents a financial liability, where STC has a contractual obligation to pay the operator for providing the SCA, it is measured as a liability in accordance with AASB 9 Financial Instruments. The liability will be increased by interest charges, based on the interest rate implicit in the arrangement.

Where the interest rate is not specified in the arrangement, the prevailing market rate of interest for a similar instrument with similar credit ratings is used. Subsequently, the liability will also be reduced by any payments made by the Victorian Government to the operator if required by the contract.

STC has determined that the service concession liability represents a financial liability.

6.1.1 Maturity analysis of borrowings

6.1.2 Interest capitalised

Interest capitalised includes costs incurred in connection with the borrowing of funds and includes interest on the State loan and the service concession financial liability.

Interest capitalised is recognised in the period in which it is incurred and is capitalised to the Service concession asset - road assets.

6.2 Cash flow information and balances

Cash and deposits, including cash equivalents, comprise cash on hand and cash at bank, deposits at call and those highly liquid investments with an original maturity of three months or less that are held for the purpose of meeting short- term cash commitments rather than for investment purposes, and are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

For cash flow statement presentation purposes, cash and cash equivalents include cash-on-hand and in bank. Cash at the end of the financial year, as shown in the cash flow statement, is reconciled to the related items in the Balance sheet as follows:

The non-cash movements relate to payments made by DTP on behalf STC which were subsequently recharged against STC’s loan balance.

6.3 Commitments for expenditure

Commitments for future expenditure include operating and capital commitments arising from contracts. These commitments are recorded below at their nominal value and inclusive of GST. Where it is considered appropriate and provides additional relevant information to users, the net present values of significant individual projects are stated.
These future expenditures cease to be disclosed as commitments once the related liabilities are recognised in the balance sheet.

Service concession arrangements

STC has entered into arrangements with an operator which give the operator (Project Co) the rights to provide public services to users for a specified ‘concession period’ using the relevant service concession assets (SCA).

The operator, based on the terms and conditions specified in the agreements, is:

• responsible for the design, construction, partial financing, operation and maintenance of the SCA during the concession period
• subject to KPIs and/or annual works programs which ensure a level of service delivery for users. The operator has the opportunity to rectify any performance issues where relevant.

STC has the contractual obligation to provide the operator access to the SCA for the performance of the required services.

STC has control over the services the operator provides with the SCA over the concession period. It is responsible for monitoring that the services are performed to specified standards (i.e. frequency, quality, etc.) and other contractual obligations are met. STC will intervene as required to ensure safety for users of the assets as appropriate and to protect public interest.

At the end of the concession period, the rights and obligations provided to the operator during the concession period cease, and the SCA will be returned to STC.

Terminations are subject to standard commercial practices or under specified circumstances.

STC has recognised these arrangements in accordance with AASB 1059.

AASB 1059 Service Concession Arrangements: Grantors

A financial liability is recognised where STC has a contractual obligation to pay the operator under the service concession arrangement for the provision of SCAs and/or services. It is recognised as a borrowing (Note 6.1). The liability is increased by interest charges (Note 6.1.2), based on the interest rate implicit in the arrangement. The liability is reduced by any payments made by STC to the operator as required by the contract. These payments take the form of capital contributions, usually during the construction phase of the SCA and other periodic payments during the operation phase of the SCA (referred to as ‘Service Payments’). The periodic payments compensate the operator for delivery of services that are subject to the operator meeting KPIs. Service payments may be quarterly (QSP), or other periodic intervals.

These payments comprise a capital component associated with the design, construction and financing of the service concession asset, and components relating to ongoing operation, maintenance and other costs. Payments may be impacted by failure to meet KPIs.

An exception to this principle occurs when an existing asset of STC is reclassified as a result of becoming part of a service concession arrangement. When this occurs, the asset is revalued to CRC with a corresponding adjustment to the asset revaluation reserve. A liability is not recognised unless additional consideration is provided by the operator. If the assets included in an SCA are upgraded or expanded, STC recognises a corresponding liability (either financial or Grant of a Right to the Operator (GORTO)) for the amounts spent on the upgrade/expansion work.

After initial recognition, SCAs are measured by applying the revaluation model for STC’s Service concession assets – road assets (Note 4.1).

The following material SCA’s existed at 30 June 2023. Unless noted in the arrangement specific disclosures below, no material changes have occurred during the period:

Arrangement specific details

Operator: Spark North East Link Pty Ltd as trustee of the Spark North East Link Trust Concession period: 25 years

Operational funding: Monthly Service Payments (MSPs)

On 28 October 2021, the Victorian Government and STC entered into a PPP (Project Deed) with Spark North East Link Pty Ltd (Project Co or Spark) to deliver the North East Link Central Package (Project).

The Project was procured and is being delivered as an ‘availability-based’ PPP with an Incentivised Target Cost (ITC) regime that applies in respect of costs incurred during the design and construction phase of the Project.

STC’s monthly payments to Project Co for the delivery of operating and maintenance services are subject to abatement in accordance with the terms and conditions of the Project Deed.

Introduction

STC is exposed to risk from its activities and outside factors. In addition, it is often necessary to make judgements and estimates associated with recognition and measurement of items in the financial statements. This section sets out financial instrument specific information, (including exposures to financial risks) as well as those items that are contingent in nature or require a higher level of judgement to be applied, which for STC related mainly to fair value determination.

7.1 Financial instruments specific disclosures

Introduction

Financial instruments arise out of contractual agreements that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Due to the nature of STC’s activities, certain financial assets and financial liabilities arise under statute rather than a contract (for example taxes, fines, and penalties). Such assets and liabilities do not meet the definition of financial instruments in AASB 132 Financial Instruments: Presentation.

Categories of financial assets

Financial assets at amortised cost

Financial assets are measured at amortised cost if both of the following criteria are met, and the assets are not designated as fair value through net result:

• the assets are held by STC to collect the contractual cash flows
• the assets’ contractual terms give rise to cash flows that are solely payments of principal and interest.

These assets are initially recognised at fair value plus any directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method less any impairment.

STC recognises the following assets in this category:

• receivables (excluding statutory receivables)
• cash and deposits.

Financial liabilities at amortised cost

Financial liabilities are initially recognised on the date they are originated. They are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial instruments are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the interest-bearing liability, using the effective interest rate method. STC recognises the following liabilities in this category:

• payables
• borrowings.

Note:

1. Receivables and payables disclosed above exclude statutory receivables (i.e. GST recoverable) and statutory payables (i.e. taxes payable).

Financial risk management objectives and policies

As a whole, STC’s financial risk management program seeks to manage these risks and the associated volatility of its financial performance.

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement, and the basis on which income and expenses are recognised, with respect to each class of financial asset, financial liability, and equity instrument above are disclosed in Note 1 to the financial statements.

The main purpose in holding financial instruments is to prudentially manage STC’s financial risks within the government policy parameters.

STC’s main financial risks include credit risk, liquidity risk and interest rate risk. STC manages these financial risks in accordance with its Treasury Management Policy.

STC uses different methods to measure and manage the different risks to which it is exposed. Primary responsibility for the identification and management of financial risks rests with the Chief Executive Officer (CEO) of STC.

Financial instruments: Credit risk

Credit risk refers to the possibility that a borrower will default on its financial obligations as and when they fall due. Credit risk is measured at fair value and is monitored on a regular basis. STC is not exposed to credit risk as it has no borrowers to whom it has provided loans.

Financial instruments: Liquidity risk

Liquidity risk arises from being unable to meet financial obligations as they fall due. STC operates under the Government fair payments policy of settling financial obligations within 30 days and in the event of a dispute, making payments within 30 days from the date of resolution.

STC’s exposure to liquidity risk is deemed insignificant based on current assessment of risk.

Financial instruments: Market risk

STC’s exposures to market risk is primarily through interest rate risk. Objectives, policies, and processes used to manage each of these risks are disclosed below.

Interest rate risk

Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate because of changes in market interest rates. STC does not hold any interest-bearing financial instruments that are measured at fair value, and therefore has no exposure to fair value interest rate risk.

The State loan and the service concession financial liability are both subject to fixed interest rate. Therefore, STC’s exposure to interest rate risk is minimal.

7.2 Fair value determination

This section sets out information on how STC determined fair value for financial reporting purposes. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

How this section is structured

For those assets and liabilities for which fair values are determined, the following disclosures are provided:

• carrying amount and the fair value (which would be the same for those assets measured at fair value)
• which level of the fair value hierarchy was used to determine the fair value in respect of those assets and liabilities subject to fair value determination using Level 3 inputs
• a reconciliation of the movements in fair values from the beginning of the year to the end
• details of significant unobservable inputs used in the fair value determination.

This section is divided between disclosures in connection with fair value determination for financial instruments and nonfinancial physical assets.

Fair value determination of financial assets and liabilities

The fair values and net fair values of financial assets and liabilities are determined as follows:

• Level 1 – the fair value of financial instruments with standard terms and conditions and traded in active liquid markets are determined with reference to quoted market prices
• Level 2 – the fair value is determined using inputs other than quoted prices that are observable for the financial asset or liability, either directly or indirectly
• Level 3 – the fair value is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using unobservable market inputs.

STC currently holds some financial instruments that are recorded in the financial statements where the carrying amounts approximate to fair value, due to their short-term nature or with the expectation that they will be paid in full by the end of the reporting period.

These financial instruments include:

Where the fair value of the financial instruments is different from the carrying amounts, the following information has been included to disclose the difference.

8.1 Contingent assets and contingent liabilities

Contingent assets and contingent liabilities are not recognised in the balance sheet but are disclosed and, if quantifiable, are measured at nominal value.

STC held no contingent assets or contingent liabilities as of 30 June 2023 (30 June 2022: none).

Introduction

This section includes additional material disclosures required by accounting standards or otherwise, for the understanding of this financial report.

9.1 Equity Disclosures

9.2 Responsible Persons

In accordance with the Ministerial Directions issued by the Assistant Treasurer under the Financial Management Act 1994 (FMA), the following disclosures are made regarding responsible persons for the reporting period.

Names

The persons who held the positions of Ministers and Accountable Officers in STC are as follows:

The Acting Managing Director performed her duties on a secondment basis from the Department of Treasury and Finance where her salary has been reported as part of the employee related disclosures. Remuneration received or receivable by the Acting Managing Director in connection with the management of STC during the reporting period was nil for the period 1 July 2022 to 16 June 2023.

The Acting Managing Director was appointed to the office of CEO on 19 June 2023 and performed her duties as an employee of STC from 19 June 2023 to 30 June 2023. Her total remuneration during this period is shown in the table below.

Amounts relating to the Portfolio Ministers. The Minister’s remuneration and allowances is set by the Parliamentary Salaries and Superannuation Act 1968 and is reported within the State's Annual Financial Report.

9.2.1 Remuneration of Responsible Persons

9.3 Remuneration of executive officers

During the period 1 July 2022 ending 30 June 2023, STC engaged four executive officers either via direct contract or via secondment from the Department of Treasury and Finance and the Department of Transport and Planning.

Short-term employee benefits include amounts such as wages, salaries, annual leave or sick leave that are usually paid or payable on a regular basis, as well as non-monetary benefits such as allowances and free or subsidised goods or services.

Post-employment benefits include pensions and other retirement benefits paid or payable on a discrete basis when employment has ceased.

Other long-term benefits include long service leave, other long service benefits or deferred compensation.

9.4 Related parties

STC is a wholly owned and controlled entity of the Victorian Government.

Related parties of STC include:

• all key management personnel and their close family members and personal business interests (controlled entities, joint ventures, and entities they have significant influence over)
• all Cabinet Ministers and their close family members
• all public sector entities that are controlled and consolidated into the whole of State consolidated financial statements.

All related party transactions have been entered into on an arm’s length basis.

Significant transactions with government-related entities

During the financial year, the following aggregate transactions were undertaken, and balances held with other Victorian Government controlled entities. These transactions were undertaken in the ordinary course of operations.

Key management personnel of STC include the named responsible persons as disclosed in note 9.2 and members of the senior executive team as disclosed in note 9.3.

Remuneration of key management personnel

Key Management Personnel of STC include the named Responsible Persons as disclosed in Note 9.2, and members of the Senior Executive Team, which includes:

The compensation detailed below excludes the salaries and benefits the Portfolio Ministers receives. The Minister’s remuneration and allowances is set by the Parliamentary Salaries and Superannuation Act 1968 and is reported within the State's Annual Financial Report.

Transactions and balances with key management personnel and other related parties

Given the breadth and depth of the Victorian Government activities, related parties transact with the Victorian public sector in a manner consistent with other members of the public, e.g., stamp duty and other government fees and charges. Further employment of processes within the Victorian public sector occurs on terms and conditions consistent with the Public Administration Act 2004 and Codes of Conduct and Standards issued by the Victorian Public Sector Commission. Procurement processes occur on terms and conditions consistent with the Victorian Government Purchasing Board requirements.

Outside of normal citizen type transactions with STC, there were no related party transactions that involved key management personnel, their close family members, and their personal business interests. No provision has been required, nor any expense recognised, for impairment of receivables from related parties.

No provision has been required, nor any expense recognised, for impairment of receivables from related parties.

9.5 Remuneration of auditors

9.6 Subsequent events

The policy in connection with recognising subsequent events that are for events that occur between the end of the reporting period and the date when the financial statements are authorised for issue is as follows:

• adjustments are made to amounts recognised in the financial statements where those events provide information about conditions that existed at the reporting date
• disclosure is made where the events relate to conditions that arose after the end of the reporting period that are of material interest.

No event has arisen since 30 June 2023 that have significantly affected or may significantly affect the operations, or results, or state of affairs of STC.

9.7 Other accounting policies

Contributions by owners

Consistent with the requirements of AASB 1004 Contributions, contributions by owners (that is, contributed capital and its repayment) are treated as equity transactions and, therefore, do not form part of the income and expenses of STC.

Additions to net assets that have been designated as contributions by owners are recognised as contributed capital. Other transfers that are contributions to or distributions by owners have also been designated as contributions by owners.

Transfers of net assets arising from administrative restructurings are treated as distributions to or contributions by owners. Transfers of net liabilities arising from administrative restructurings are treated as distributions to owners.

Accounting for the goods and services tax (GST)

Income, expenses and assets are recognised net of the amount of associated GST, except where GST incurred is not recoverable from the taxation authority. In this case, the GST payable is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from or payable to the Australian Taxation Office (ATO) is included with other receivables or payables in the balance sheet.

Cash flows are presented on a gross basis.

Commitments are also stated inclusive of GST.

Australian Accounting Standards issued that are not yet effective

Certain new and revised accounting standards have been issued but are not effective for the 2023-24 reporting period. These accounting standards have not been applied to the STC Financial Statements. The Victorian Government is reviewing its existing policies and assessing the potential implications of these accounting standards which includes:

AASB 2020-1 amended AASB 101 Presentation of Financial Statements to clarify requirements for the presentation of liabilities in the statement of financial position as current or non-current and was applicable to annual reporting periods beginning on or after 1 January 2022.

AASB 2020-6 subsequently amended AASB 2020-1, deferring the mandatory effective date of AASB 2020-1 from 1 January 2022 to 1 January 2023. AASB 2022-6 was applicable for annual reporting periods beginning on or after 1 January 2022.

AASB 2022-6 amends and clarifies the requirements contained in AASB 2020-1. Among other things, it:

• clarifies that only those covenants that an entity must comply with at or before the reporting date affect a liability’s classification as current or non-current
• requires additional disclosures for non-current liabilities that are subject to an entity complying with covenants within twelve months after the reporting date.

AASB 2022-6 applies to annual reporting periods beginning on or after 1 January 2023.

STC is currently in the process of assessing the potential impact of these standards and amendments.

A number of other standards and amendments have also been issued that apply to future reporting periods, however they are not expected to have any significant impact on the financial statements in the period of initial application.

Ex-gratia expenses

Ex gratia expenses are the voluntary payment of money or other non-monetary benefit - for example, a write off - that is not made either to acquire goods, services, or other benefits for the entity or to meet a legal liability, or to settle or resolve a possible legal liability or claim against the entity. STC had no ex-gratia expenses in the financial year ended 30 June 2023.