Risk Category

Description

Consequence

Mitigation

Preferred allocation

Market

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 will seek an availability payment element; otherwise the private party will ensure robust financial structure and sponsor/financier support/competition.

The private party, except to the extent that Government has committed to an availability payment element or agreed to provide redress for impact of government subsidised competition.

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.

The private party can manage this risk by reviewing likely competition for service and barriers to entry.

The private party, except to the extent that government has committed to an availability payment element or agreed to provide redress for impact of government subsidised competition.

Demographic change

The risk of a demographic/socio-economic change affecting demand for contracted service.

Revenue below projections.

The private party can manage this risk by reviewing likely competition for service and barriers to entry.

The private party, except to the extent that government has committed to an availability payment element.

Inflation risk

That value of payments received during the term is eroded by inflation.

The diminution in real returns of the private party.

The private party can mitigate this risk by seeking an appropriate mechanism to maintain real value, e.g. via linkage to CPI.

Government should undertake its own due diligence on the indexation procedure to ensure that its payments do not overcompensate for inflation and to avoid any double payment for cost adjustments, e.g. on changes in law.

The private party takes risk on the methodology adopted to maintain value. Government shares to the extent of agreed indexation.