4  Principles of Adjustment

4.1  The following guidelines shall be followed in revising the Financial Model:

(a)  wherever possible the revision shall be carried out without altering the logic, formulae, inputs and assumptions incorporated in the Financial Model in any way whatsoever and only data such as costs incurred by the Service Provider and the timing and amounts of drawdowns of funding shall be changed;

(b)  where it is necessary to amend the logic, formulae, inputs and assumptions incorporated in the Financial Model to permit revisions to be made, this shall be carried out to the minimum extent necessary and in accordance with generally accepted accounting principles;

(c)  where any amendment is made to the logic, formulae, inputs and assumptions incorporated in the Financial Model, the Financial Model, as amended shall first be run with the data included in the Financial Model immediately prior to amendment to ensure that the outputs from the Financial Model as amended correspond to the outputs immediately prior to amendment; and

(d)  the parties may only agree changes or additions to the guidelines set out in this paragraph 4.1 these assumptions where they are required in relation to circumstances not dealt with by the assumptions in the Financial Model; and

(e)  unless otherwise agreed by the parties, the Service Provider shall not be permitted to backdate any increase in the Service Payment as a result of an Authority Change.

4.2  Any amendment to the logic, formulae, inputs and assumptions incorporated in the Financial Model shall be fully recorded so that the manner in which the revised Service Payment is calculated can be readily verified.  

4.3  Any reference in this Agreement to "no better and no worse" and to leaving the Service Provider being in a "no better and no worse position", shall be construed as to ensure that on comparing the output of the Financial Model (as at the Effective Date) before and after entering into the required Financial Model revisions, such comparison of the output from such Financial Model shows that:

(a)  [the Financial Model Equity IRR shall be unchanged;

(b)  the Service Provider shall be in a position which is unchanged in relation to the minimum and average Debt Service Cover Ratio, and the minimum and average Loan Life Cover Ratio; and

(c)  the Service Provider is left in a position which is unchanged in relation to inflation hedging of the Service Payment as set out in [paragraph 1.4 of Part B of the Payment Mechanism.]]1

4.4  If any material change in the risk profile of the Project arises from the revision, taking account of similar projects exposed to similar risks to those arising out of the circumstances giving rise to the revision, the parties may agree that the nominal [post-Service Provider tax pre-Shareholder tax Equity IRR]2 may be adjusted and such revision may only be an upwards adjustment.

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1 The Authority should seek financial advice on this paragraph which will reflect the project specific funding structure and defined terms.
2 The Authority should seek financial advice on this paragraph which will reflect the project specific funding structure and defined terms.