The loans we have taken out to fund our capital spend aren't due repayment until the end of the term. Each year we set aside MRP which reduces our Capital Financing Requirement. But our debt level doesn't change which leaves us over borrowed (debt greater than CFR). My understanding of the guidance is that we can't be over borrowed.
To counter this we "internally borrow" each year, despite having sufficient reserve/revenue funds for our capital programme, to bring the CFR back up to debt levels. This has the joyous impact of increasing our MRP in future years. Over the life of our loans we are going to set aside about £30m more MRP than our debt!
What are we doing wrong?!
If we could compare our CFR with our "net" debt (loans less previous MRP) we'd be fine but the guidance says gross debt.
I've asked our TM advisers and cannot get a satisfactory response. Can anyone shed any light for me please?