Demand risk

Water Distribution Water 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 water distribution projects in developed markets is that the Contracting Authority is a monopoly raw water 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 raw water and retain a minimum level of demand risk.

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

As it will be absorbing a minimum level of resource (supply) and demand risk, the Contracting Authority should do a full assessment of raw water supply and consumer demand as part of the project feasibility study to ensure that the concession agreement appropriately addresses and allocates risk for everything that will impact on raw water supply and consumer demand.

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

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

Comparison with Emerging Market

In developing markets, the Contracting Authority should have access to various data sources to develop accurate consumption forecasts, such that the Contracting Authority is well placed to manage potable water demand.

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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 water distribution projects in emerging markets is that the Contracting Authority is a monopoly raw water 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 raw water and retain a minimum level of demand risk.

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

The Contracting Authority should do a full assessment of raw water supply and consumer demand as part of the project feasibility study to ensure that the concession agreement appropriately addresses and allocates risk for everything that will impact on raw water supply and consumer demand.

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

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

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