18.2  Service Fee Adjustment Principles

(a)  Where compensation is by way of adjustment to the Service Fee and debt or equity is required to fund the Compensation Event, then the service fee will be adjusted in accordance with the following principles:

(i)  if the funding is provided by a third party financier, jurisdictions may choose to adjust the service fee to reflect the minimum amount required to amortise the new debt by the expiration of a specified repayment period taking into account interest and indexation; and

(ii)  if funding is provided by subscription of shares in the private party or new loans by shareholders, jurisdictions may choose for any necessary increase in the service fee to be the minimum amount required to give the new equity a return not greater than:

•  a reference rate at the time the new equity is subscribed plus a specified margin. The margin will be the difference between the reference rate at Financial Close and the Base Case Equity IRR identified in the Base Case Financial Model submitted with the tender; or

•  the prevailing market rate of return for projects of a similar risk profile over the remaining period of the project term (to be determined on a project-specific basis).

(b)  The Base Case Financial Model will be updated in accordance with the above principles and in accordance with section 14.5 of Chapter 14 (Payment provisions) to reflect any necessary changes as a result of the Compensation payable.