Assessing allocation

It is assumed here that the annual service payment to the Project Company may be indexed each period by reference to the Consumer Price Index ("CPI") from the previous period; and that proponents have been given the option to elect that the indexation is less than CPI.

The CPI is a weighted average of a 'basket' of goods and services in the Australian economy.  The categories that make up this 'basket' are as follows5:

-  Food;

-  Alcohol and tobacco;

-  Clothing and footwear;

-  Housing Household furnishings, supplies and services;

-  Health;

-  Transportation;

-  Communication;

-  Recreation;

-  Education; and

-  Miscellaneous.

The following discussion deals with two groups of services under the contract that might embody different allocations for inflation risk:

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5 See www.abs.gov.au for further details on the components of the CPI.