1.2.2.6 Tariff increases -

Where the PPP Contract has a "user pays" model (see Section G, PPP Contracts in Context), the Contracting Authority may allow the Private Partner to be compensated for increased costs and lost revenues by increasing the relevant toll payments or tariffs (for example the tariffs in a concession for a water or waste water network) if the PPP Contract resumes. The Contracting Authority will need to consider any social and political ramifications of this approach in particular in emerging markets where the economic situation may not be stable, as well as if it is legally possible to increase the relevant toll payments or tariffs.24 The PPP Contract may provide upfront that any restrictions on the Private Partner's ability to set the relevant tolls or tariffs are to be lifted as necessary to take account of relevant costs arising from Force Majeure events. However, where tariff increases are subject to an overarching regulatory regime or where such measures would imply a high political risk, it may not always be possible to achieve an increase even if justifiable under the PPP Contract. In this instance the Contracting Authority would have to effect the compensation due by some other means. It should also be noted that Lenders may consider any compensation mechanism involving increased tariffs as increasing the overall risk profile (e.g. if user demand may then decrease) and may accordingly prefer upfront payment by the Contracting Authority.

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24 Higher user fees may be commercially viable, but discriminatory under international agreements to which the Contracting Authority/government is party (e.g. International Covenant on Economic, Social and Cultural Rights, Convention on the Elimination of Discrimination Against Women, and the Convention on the Rights of the Child).