Risk

Description

Site risk

This includes the risk that the project land will be unavailable or unable to be used at the required time, or in the manner or at the cost anticipated, or the site will generate unanticipated liabilities.

Design, construction and commissioning risk

This is the risk that the design, construction or commissioning of the facility (or certain elements of those processes) is carried out in a way that results in adverse consequences for cost and/or service delivery.

Sponsor risk

In establishing a project consortium, the sponsor typically establishes the private party in the form of a special purpose vehicle ("SPV"), which contracts with government. The SPV is simply an entity created to act as the legal entity of a project consortium. Because the arrangement is financed through non - recourse or limited recourse debt, creditors have access to the project's cash flows but limited-recourse to the sponsors' balance sheets. Sponsor risk is the risk taken by government that the SPV, or its subcontractors, will not fulfill their contractual obligations.

Financial risk

This includes the risk that private finance will not be available, the project will not prove financially robust or changes in financial parameters will alter the bid price before financial close.

Hard and soft facility maintenance operations risk and the payment mechanism

This includes the risk that payments made for services during the service period are abated due to performance incidents and is typically reflected in both the contractual provisions and the payment mechanism.  The larger the size of hard and soft facility maintenance service packages, the more effective is the payment mechanism in influencing service performance.

Market risk

This includes the risk that demand or price for a service will vary from that initially projected so that the total revenue derived from the project over the project term will vary from initial expectations.

Network and interface risk

This arises where the contracted services or method of delivery of those services are linked to, rely on or are otherwise affected by certain infrastructure, inputs and other services or methods of delivering the contracted services. Interface risk is the risk that the contracted services will not be compatible with the delivery of Core Services.

Industrial relations risk

This is the risk that industrial action impacts on the performance under the contractual obligations.

Legislative and government policy risk

This is the risk that government will exercise its powers and immunities, including but not limited to the power to legislate and determine policy, in a way which disadvantages the project.

Force majeure risk

This refers to the risk that events may occur which will have a catastrophic effect on either party's ability to perform its obligations under the contract.

Asset ownership risk

This includes the risk of maintaining the asset to the requisite standard (including the risk that the cost of maintenance may increase during the term), the risk of premature obsolescence, or that the construction of competing facilities will occur.

Tax risk

This is the risk that changes in the taxation framework may impact on the financial assumptions of the project.

Interest rate risk

This is the risk of adverse interest rate movements.