This report is available on the NSW Treasury

Office of Financial Management (OFM) web site:

www.treasury.nsw.gov.au

Total external costs associated with the

production of this annual report were $2,211.00 (GST included)

October 2007 ISSN: 1440-2181

Administration The Crown Asset and Liability Management Branch in the Budget and Financial Management Directorate of NSW Treasury is responsible for the administration of the Crown Entity.

Contact Details The Crown Asset and Liability Management Branch is located on: Level 15, Governor Macquarie Tower 1 Farrer Place, Sydney Reception Hours Monday to Friday 8.30 am to 5.30 pm Inquiries may be directed to: The Director, Crown Asset and Liability Management Telephone:(02) 9228 4396. Fax :(02) 9228 3210

Contents

Contact Details Inside cover

Administration Inside cover

Crown Entity Charter 1 Highlights of 2006-07 1 Liability Management 3 Financial Asset

Management 8

Crown Finance Entity Programs 10

Crown Entity Undertakings 11

Financial Statements

Crown Entity 13 Liability Management

Ministerial Corporation 113

Electricity Tariff Equalisation Ministerial Corporation

129

Crown Property Portfolio

145

Crown Lands Homesites Program

175

Land Development Working Account

193

Crown Leaseholds 215 NSW Self Insurance

Corporation 239

Crown Entity 2006-07 Annual Report

The year in review

This is the third volume of New South Wales Treasurys Annual Report for 2006-07.

This volume includes details of the agencies and the funds administered by New South Wales Treasury for the Crown Entity:

Consolidated financial statements for the Crown Entity which includes the Crown Finance Entity and the Consolidated Fund, and

Financial Statements of the Crown Entity's controlled activities, comprising the accounts of: NSW Self Insurance

Corporation Liability Management

Ministerial Corporation Electricity Tariff

Equalisation Ministerial Corporation

Crown Lands Homesites Program

Land Development Working Account

Crown Leasehold Entity Crown Property Portfolio.

The annual reports for the Office of Financial Management (OFM) and the Office of State Revenue (OSR) are included in separate volumes.

The NSW Self Insurance Corporation also issues its own annual report as required by its founding legislation.

Crown Entity Charter

The purpose of the Crown Entity is to manage and report on service-wide assets, liabilities and transactions that are the overall responsibility of the government rather than being the responsibility of individual departments and statutory bodies.

This ensures that financial statements of individual agencies only cover those matters over which they have direct control.

Highlights of 2006-07 The reduction in net liabilities between 30 June 2006 and 30 June 2007 is mainly explained by:

Superannuation

Unfunded superannuation liabilities reduced by $8,506 million mainly due to the transfer of the $7,175 million balance from the Liability Management Ministerial Corporation to State Super. The transfer amount will ensure that NSW fully uses its remaining Commonwealth pre July 1988 Funding Tax Credits after recent changes to the tax legislation.

The other major reason for the reduction was an increase in the discount rate from 5.9 % as at 30 June 2006 to 6.4 % as at 30 June 2007.

The international accounting standard AASB 119 requires the recalculation of superannuation liabilities each year using a discount rate equal to the actual long-term government bond rate as at 30 June.

Higher than forecast investment returns offset the increase in gross liabilities resulting from active members additional year of service.

Financial Assets

Financial asset decreased by $6,800 million mainly due to the transfer of the Liability Management Ministerial Corporation balance which was partly offset by higher than assumed investment returns.

State Rail Authority

Due to the Governments decision to wind up the State Rail Authority as an operational entity, the Crown Entity accepted several of its major liabilities as at 30 June 2007. These were $387 million superannuation, $170 million borrowings and $11 million workers compensation.

Other Liabilities

The balance of the movement in net liabilities mainly resulted from increases in payables and bank overdraft.

Statement of Financial Position ($m)

30 June 2007 30 June 2006

Total Liabilities 37,517 45,450

Total Assets 17,599 23,792

Net Liabilities 19,918 21,658

Liability Management Ministerial Corporation balance of $7,175 million transferred to State Super

Treasury Managed Fund Government self insurance scheme remains fully funded with net assets of $849 million

Crown Entity 2006-07 Annual Report - 1

Highlights of 2006-07 The Crown surplus was achieved after providing grant funding of $960 million to the Transport Infrastructure Corporation.

This was to repay project borrowings for the new Epping to Chatswood rail link.

There was a negative superannuation expense of $1,695 million for the year reflecting the fall in the liability.

The liability reduction is mainly due to an increase in the liability valuation discount rate from 5.9% to 6.4 % which reflects the higher Commonwealth ten year bond rate.

Crown provided grant funding of $960 million to the Transport Infrastructure Corporation to repay project borrowings for the new Epping to Chatswood rail link

Recurrent agency appropriations were $1,734 million higher than 2005-06 reflecting the Governments priorities in the ageing and disability, health and education sectors

Statement of Financial Performance ($m)

2006-07 2005-06

Total Revenues 41,467 39,769

Total Expenses 39,613 35,911

Loss on Disposal of Non-Current Assets (85) (61)

Surplus 1,769 3,797

In 2006 the discount rate also increased, from 5.2 % to 5.9 %, causing the liability and related expense to fall.

AASB 119 will result in reported superannuation liabilities, expenses changing significantly from year to year even if the underlying member benefit obligations do not change materially.

Recent advice from the schemes actuary, Mercer Human Resource Consulting, confirms that general government sector superannuation liabilities are expected to be fully funded by 2030.

This is based on current forecasts of Crown and other employers cash contributions to State Super.

2 - Crown Entity 2006-07 Annual Report

The year in review

Liability Management

NSW Self Insurance Corporation

Highlights of 2006-07 Treasury Managed Fund self insurance scheme Workers

Compensation and Public Liability obligations continue to fall for the year ended 30 June 2007

There are also separate long term contracts for risk management (Suncorp), reinsurance (Benfield) and actuarial services (PricewaterhouseCoopers and Taylor Fry).

The Treasury Managed Fund (TMF) self insurance scheme is a self insurance scheme owned and underwritten by the Government.

It covers workers compensation, public liability and other insurance liabilities for all general government sector Budget dependent agencies. Other public sector agencies may apply to join the TMF on a voluntary basis.

This new claims management model allows for more active in-house management and effectively reduces the systemic risk associated with a single provider. This in turn provides a more competitive environment.

TMF outstanding claims liabilities have continued to fall, in 2007 as shown below in Chart 1, due to the impact of the Governments tort reform legislation, success of the multi-provider claims management model and improved agency occupational health and safety outcomes.

The schemes overall purpose is to assist member agencies in reducing risk exposures and thereby maximise resources available to support their core business activities. The TMF provides incentive hindsight adjustments to member agency premiums to encourage best management practices.

Key SICorp functions are outsourced to the Crown Assets and Liabilities Management (CALM) branch of NSW Treasury.

Workers compensation claims management of the TMF is distributed between three claims managers, Employers Mutual Limited, Allianz Insurance Limited and GIO General Limited. The claims management for all other general insurance is provided by GIO.

Services provided by CALM are: administration cash management banking accounting; and budgeting

Chart 1: Outstanding Claims

Public Liability

0

500

1,000

1,500

2,000

2,500

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

Year

$MWorkers Compensation

0

500

1,000

1,500

2,000

2,500

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

Year

$M

Crown Entity 2006-07 Annual Report - 3

Reserve Funding Policy In March 2006, Treasury established an Insurance Reserve Policy dictating an appropriate level of reserves for the TMF. This policy sets TMFs reserve at 10 % above outstanding claims liabilities, plus the amount of reinsurance retention that the fund would retain for a single loss.