The participant who asked about replacement cost of assets clarified that they are planning on setting aside 6 percent of the monthly estimated cost of the pump, which is not enough to buy the other pump after ten years.
Yeah I think, it’s sort of, sometimes when we look at replacements, we’re just pushing the problem off to the future.
You’re kicking the can on the road.
So you’re only want to put 6% away over ten years, you’re not going to have anywhere near the purchase price at the end of the ten-year period. So all you’ve done, say I’m going to have maybe, a third of the cost or a fourth of the cost, whatever it is at the end of the 10-year period.
And now I’m going to come up with the other three-fourth or 75 percent, whatever you have remaining, you’ve got to come up that in 10 years. And how is the situation is going to be better in 10 years’ time than it is today?
So if there aren’t some reasons to believe suddenly your income is going to go way up in 10 years, all you’ve done is kick the problem down the road and somebody else will have to come up with a big pile of cash.
Ten years is relatively short. So you can just do a time-cost of money calculation and then work it back and check that against your 6 percent. So, the key things with them is just an assumed what they call “a discount rate” that is basically just an interest rate that you are using, which is your treasury policy.
It’s a good discussion Heather, isn’t it? As to what you actually need to fund renewals in 10 years – consistent investment rather than leaving investment, your consistent putting money aside is actually a pretty good way to go.
Just to make sure that the renewal funding isn’t a major impost on the community at that time. Pumps don’t tend to be expensive in a big scheme of things – it is hugely expensive it’s when you get into pipe renewals that can just be huge in terms of the dollars and the community will just go – we can’t afford it.
Then you get into the questions on how you can actually fund that at that time. It’s not as cheap as the green fields generally if you’re doing replacements so…