There are several approaches to allocating change in law risk but the ability for a Contracting Authority to share change in law risk with the Private Partner will depend on the risk of legislative or regulatory volatility in the jurisdiction and sector concerned, as well as the maturity of the market. The extent to which any resulting increased costs can be passed on to third party users will also be relevant. See Section 3.2.3.4.
| EMERGING AND DEVELOPED MARKET DIFFERENCES In some emerging markets, the Private Partner may expect the Contracting Authority to bear all forms of change in law risk, while in others the Private Partner may accept a certain monetary threshold up to which it accepts any change in law risk. In more mature markets, the Private Partner is able to accept greater general change in law risk but is likely to expect the Contracting Authority to bear the risk of general changes requiring capital expenditure once the asset is built and operational, as well as the risk of changes which are discriminatory against the Private Partner or the PPP Project or the type of services being provided. Contracting Authorities will need to consider what approach will provide the optimum balance between affordability, bankability and risk transfer. |