Risk category

Description

Consequence

Mitigation

Likely preferred allocation

Legislative and government policy - section 11

The risk that government will exercise its powers and immunities, including but not limited to, the power to legislate and determine policy, in a way which negatively impacts on or disadvantages the project.

Changes in law/policy (1)

The risk of a change in law/policy of the state government only, which could not be anticipated at contract signing and which has adverse capital expenditure or operating cost consequences for the private party.

A material increase in the private party's operating costs and/or a requirement to carry out capital works to comply with the change.

•  Government may mitigate its liability for such change by monitoring and limiting (where appropriate) changes which may have these effects or consequence on the project and via mechanisms in the contract allowing compensation only above a pre-agreed 'Significant Amount'.

•  government may also requiring the private party to effect the change in such a manner that the financial effect on government is minimised and, if payment is required, that payment is made in a way and a time best suited to government (e.g., pay on a progressive scale).

•  In a user pays model, put in place a regulatory regime that allows pass through to end-users.

Government: although the parties may share the financial consequences of capital cost increases in an agreed way, for example by the private party meeting a percentage of the cost up to a specific limit and government meeting any excess.

Changes in law/policy (2)

In some cases, the risk of a change in law/policy (at other levels of government) which could not be anticipated at contract signing and which causes a marked increase in capital costs and/or has substantial operating cost consequences for the private party.

Requirement on the private party to fund and carry out capital works or meet a marked increase in operating costs to comply with the change.

Government mitigates by excluding changes such as tax changes or changes for which the private party is compensated under a CPI adjustment or similar.

private party.

Regulation

Where there is a statutory regulator involved there are pricing or other changes imposed on the private party which do not reflect its investment expectations.

Cost or revenue effects.

private party to assess regulatory system and may make appropriate representations.

private party.