Risk Category

Description

Consequence

Mitigation

Preferred allocation

Legislative and Government

Approvals

The risk that additional approvals required during the course of the project cannot be obtained.

Further project development or change in business operation may be prevented.

The private party should manage this risk by using expert advice and by consulting with relevant planning authorities.

The private party unless government has initiated the change requiring approval.

Changes in law (1)

The risk of a change in law of the State Government only, which could not be anticipated at contract signing and which is directed specifically and exclusively at the project or the services 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 consequences on the project and via mechanisms in the contract allowing the sharing of some of the financial consequences of a change in law or, where appropriate, in a user pays model based on a regulatory regime which 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 (2)

In some cases, the risk of a change in law (at whatever level of government it occurs) which could not be anticipated at contract signing which is general (i.e. not project-specific) in its application and which causes a marked increase in capital costs during the operations phase and/or has substantial operating cost consequences for the private party.

The 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 its exposure to this risk by excluding compensation for changes in tax law or changes for which the private party is compensated under a CPI adjustment.

Government usually specifies a regime for sharing financial consequences of changes in law up to a specified threshold after which government meets any excess and, where appropriate, in a user pays model having in place a regulatory regime which 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.

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 impacts.

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

Private party