Content Headings

Key Issues

Example clauses

Notes and References

Payment and financial matters

Tariff structure is one of the most important issues in a project.  It determines the revenue of the project company (and therefore the stream of income against which the financing can be secured), but it is also a risk allocation tool.  Note that there is a trade off between how tariff is determined and the willingness of the project company to accept risks.  For example, if the project company were able to determine tariff, it would be less concerned about increases in operating costs because it would be able to pass this to the consumer.  There are a number of specific issues to be decided in relation to tariffs.

Regulation.  Should tariff be regulated, and if so how?  Tariff for infrastructure services may be determined by the market or controlled, either through legislation, an independent regulatory authority or by contract.  Often it is a mixture of all of these mechanisms, because there needs to be an appropriate balance between, on the one hand, the freedom of the project company to determine appropriate tariff, and on the other hand, the interest of the community against unjustified increases in the cost of infrastructure services.

Amount.  Usually tariffs are calculated on the basis of a formula rather than a fixed price.

Tariff structure.  Tariff may be charged on the basis of quantity used, on a one time fixed fees basis or a combination of these.

Access and discrimination.  Will differential rates apply to certain groups in the community, for instance, poorer households or frequent users?

Integration.  This refers to the integration of fees with other services.  For example in transport, local bus fares that may be integrated with train fares.

Administration.  The cost of metering and measurement of use and the cost (and probability) of collecting the tariffs.

See SOPC Section 10 and 14.