Demand risk

Natural gas distribution Natural gas distribution

Description (What is the Risk)

The availability by both volume and quality along with transportation of resource or inputs to a project or the demand for the product of service of a project by consumers/users

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The default position for gas distribution projects in developed markets is that the Contracting Authority is a monopoly gas supplier, and has been the monopoly distributor through the assets the subject of the project, and will guarantee minimum quality, volumes and availability for supplied gas and retain a minimum level of demand risk.

In most cases, the tariff will be set to allow the Private Partner to recover capital costs and make a reasonable return without reference to the volumes of gas shipped through the network.

Mitigation Measures (What can be done to minimize the risk)

A ROT project usually relies upon existing gas suppliers and customer demand.

Government Support Arrangements (What other government measures may be needed to be taken)

As the Contracting Authority will be retaining gas supply and consumer demand risk, it will need to ensure that it is comfortable (both politically and economically) with gas supply and consumer demand forecasts.

Back to Natural gas distribution

Description (What is the Risk)

The availability by both volume and quality along with transportation of resource or inputs to a project or the demand for the product of service of a project by consumers/users

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

In emerging markets the Contracting Authority is likely to be the monopoly gas supplier, and has been the monopoly distributor through the assets the subject of the project, and will guarantee minimum quality, volumes and availability for supplied gas and retain a minimum level of demand risk.

Mitigation Measures (What can be done to minimize the risk)

A ROT project usually relies on existing gas suppliers and customer demand.

Government Support Arrangements (What other government measures may be needed to be taken)

As the Contracting Authority will be retaining raw gas supply and consumer demand risk, it will need to ensure that it is comfortable (both politically and economically) with gas supply and consumer demand forecasts.



Comparison with Developed Market

For emerging markets, particularly in the case of market first projects, the preparation of demand profiles by the Contracting Authority is complicated by the lack of relevant and/or historical market data.

The high incidence of delayed project execution in emerging markets means that demand forecasts are often out-dated by project completion. Regimes for network expansion are often drafted into the concession agreement in order to facilitate quick and efficient project expansion.

Back to Natural gas distribution