Risk category | Description | Consequence | Mitigation | Likely preferred allocation |
The risk that: (a) demand for a service will vary from that initially projected; or (b) price for a service will vary from that initially projected, so that the total revenue derived from the project for the project term varies from initial expectations. | ||||
General economic downturn | In a user pays model, the risk of a reduction in economic activity affecting demand for the contracted service. | Revenue below projections. | Where government is the primary off-taker the private party may seek an availability payment element; otherwise the private party will ensure robust financial structure and sponsor/financier support. | private party. |
Competition | In a user pays model the risk of alternate suppliers of the contracted service competing for customers. | Revenue below projections arising from a need to reduce the price and/or from a reduction in overall demand, because of increased competition. | private party to review likely competition for service and barriers to entry. The private party may seek an availability payment element and/or may seek compensation for the impact of government subsidised competition. | private party. |
Demographic change | The risk of a demographic/socio-economic change affecting demand for contracted service. | Revenue below projections. | private party to review likely competition for service, barriers to entry. private party may seek an availability payment element. | private party. |
Inflation | The risk that value of payments received during the term is eroded by inflation. | Diminution in real returns of the private party. | private party seeks an appropriate mechanism to maintain real value e.g. via linkage to CPI. Government concern to ensure its payments do not overcompensate for inflation and to avoid any double payment for after costs adjustments e.g. on changes in policy/law. | private party takes risk on the methodology adopted to maintain value. |