Concession

2.20  When government grants a concession, it grants a private entity exclusive rights to build, operate and maintain a ring-fenced asset over a long period of time. The M6 Toll Road (see Example 2.2) is an example of a concession. Typically:

∙  concession projects can be financially free-standing (though a public sector subsidy may sometimes be involved), with the private sector undertaking the project on the basis that costs will be recovered through charges for services to the end user;

∙  public sector involvement is generally limited to enabling the project to go ahead, for example, by undertaking some of the initial planning, defining the terms and awarding the concession, regulating charges, providing ancillary works, or assisting with statutory procedures;

∙  the private entity has to operate to certain performance requirements set by the Government; and

∙  demand risk is fully or partly transferred to the private sector.

2.21     A concession may be suitable for projects:

∙  with a clearly defined scope and relative certainty over the requirements during the lifecycle of the project;

∙  that can be structured to be economically independent while interfacing simply and efficiently with the surrounding infrastructure;

∙  where there is a market for the service, for which consumers are willing to pay;

∙  where the private sector concessionaire is able to some degree to influence demand; and

∙  usage of the asset is measurable in a straightforward manner.