Market risk

In an economic infrastructure model, market risk (price and demand risk) is usually transferred to the private sector operator. However, the price may be regulated either via the contract or by a government regulatory body.

Typically, this risk allocation is appropriate where the facility constructed has an open market use and where there is likely to be consistent demand. It is more difficult for the private party to take demand risk where the use of the facility is exclusively by the contracting Procuring Agency or depends on the actions of that Procuring Agency.

A government will generally share in any excess revenues above an agreed threshold that the private party may earn from user charges. For example, a sharing mechanism may be based on a sliding scale for revenues in excess of 100 per cent of the revenues anticipated in the base case financial model.