Market risk is the risk that:
• demand for a service will vary from that initially projected; and
• the price for a service will vary from that initially projected,
so that the total revenue derived from the project over the project term will vary from initial expectations.
Generally demand risk is to be borne by the private party. In the case of economic infrastructure, both demand and price risk is borne by the private party. However, the price may be regulated either via the contract or by regulatory means.
With respect to social infrastructure projects, Government generally takes demand risk by making payments based on availability rather than use. Price risk is generally borne by the private sector, but limited price risk is accepted by Government through indexing the service fee and benchmarking certain services (see Chapter 20 (Benchmarking/Market Testing) of the Risk Allocation and Commercial Principles for PFPs).