Risk category

Description

Consequence

Mitigation

Likely preferred allocation

Sponsor and financial - section 6

The risk that:

(c) where the sponsors are unable to fulfill their contractual obligations to government, government will be unable to enforce those obligations against the sponsors or recover some form of compensation or remedy from the sponsors for any loss sustained; or

(d) that the sponsors are for security or other probity reasons, inappropriate or unsuitable to be involved in, or connected with, the delivery of a project, and in so being may harm the project or bring it into disrepute.

Interest rates pre-completion

The risk that prior to completion interest rates may move adversely thereby undermining bid pricing.

Increased project cost.

Interest rate hedging

With private party from the date that it is reasonably likely that a partnership agreement will be entered into such that a hedging instrument can be used.

Sponsor risk

The risk that the private party is:

• unable to provide the required services or becomes insolvent;

• later found to be an improper person for involvement in the provision of these services; and

• subject to financial demands which exceeds its or its sponsors financial capacity causing corporate failure.

Cessation of service to government and possible loss of investment for equity providers.

• Ensure project is financially remote from externa financial liabilities, ensure adequacy of finances under loan facilities or sponsor commitments supported by performance guarantees;

• Use of non- financial evaluation criteria and due diligence on private parties (and their sponsors).

• Project models to be provided for review in all cases.

Government.

Financing unavailable

The risk that when debt and/or equity is required by the private party for the project it is not available then and in the amounts and on the conditions anticipated.

No funding to progress or complete construction.

Government requires all bids to have fully documented financial commitments with minimal and easily achievable conditionality.

private party.

Further finance due to changed requirements of government

The risk that the government imposes a requirement, by reason of a change in law, policy or other similar event, which is specifically directed at the project and results in additional funding being needed to rebuild, alter, re-equip etc the facility which cannot be obtained by the private party.

No funding available to complete further works required by government.

• private party must assume best endeavours obligation to fund at agreed rate of return with option on government to pay by way of uplift in the services charge over the balance of the term or by a separate capital expenditure payment;

• government to satisfy itself as to likelihood of this need arising, its likely criticality if it does arise, and a to financial capacity of private party to provide required funds and (if appropriate) budget allocation if government itself is required to fund it.

Government takes the risk that private finance is unavailable.

Change in ownership

The risk that a change in ownership or control of the private party results in a weakening in its financial standing or support or other detriment to the project

The financial robustness of the private party may be diminished and, depending on the type of project, probity and other non financial risks may arise from a change in ownership or control which may be unacceptable to government

Government requirement for its consent prior to any change in control. N.B. private party will seek to limit this control to circumstances where substantive issues are of concern such as financial capacity and probity.

Government risk as to the adverse consequence of a change if it occurs; private party risk that its commercial objectives may be inhibited by a restrictive requirement for government consent to a change.

Refinancing benefit

The risk (upside) that at completion or other stage in project development the project finances can be restructured to materially reduce the project's finance costs.

A beneficial change in the financing cost structure of the project.

Government to advise Bidders during the competitive bid process of the procedures for sharing in refinancing benefit. Formula to be agreed and documented in project agreements. Generally, the project agreements will provide for sharing once the project vehicles internal rate of return reaches an agreed level.

Shared.

Tax changes

The risk that before or after completion the tax impost on the private party, its assets or on the project, will change.

A negative effect on the private party's financial returns and in extreme cases, it may undermine the financial structure of the project so that it cannot proceed in that form.

The financial returns of the private party should be sufficient to withstand such change.

The private party should obtain a private tax ruling in relation to specific taxation structures.

private party.