Design risk

Natural gas distribution Natural gas distribution

Description (What is the Risk)

The risk that the project has not been designed adequately for the purpose required.
Feasibility study.
Approval of designs.
Changes to design.
Access to necessary historic information (such as existing plans or data)

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have principal responsibility for the adequacy of the design of the rehabilitation works and its compliance with the functional / performance specification provided by the Contracting Authority.

The Contracting Authority will retain the design risk to the extent that the design is dependent on interconnections for which the Contracting Authority retains responsibility, such as the connection points and gas quantity and quality. In some cases, the Contracting Authority will retain the risks associated with the condition of the existing assets as at the commencement of the term and in other cases this risk will be allocated to the Private Partner.

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

The Contracting Authority will generally provide minimum functional / performance specifications and require compliance with applicable legal requirements and good industry practice standards. This allows for private sector innovation and efficiency gains in the detailed design. In the context of a gas distribution project in an existing network it is critical that the design complies with the Gas Code, local and international quality standards as to equipment and in particular pipeline. It must also be fully compatible with the other parts of the network.

The Contracting Authority should take time to ensure that the minimum functional / performance specifications will provide a facility that will meet the Contracting Authority's expectations on transfer of the facility to the Contracting Authority at the end of the term.

A design review process will allow for the Contracting Authority to review and comment on the Private Partner's detailed design; however, the review process should not be construed as a reduction or limitation of the Private Partner's overall liability (for example, by way of approval by the Contracting Authority) or its general freedom provided that the minimum functional / performance specifications are met.

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

The Contracting Authority's role may be limited to review of the design to ensure that the minimum functional / performance specifications will be able to be met. This review will not be an approval, however, and will not limit the liability of the Private Partner.

Comparison with Emerging Market

Developed market gas distribution projects benefit from stable resource availability, robust regulatory regimes and defined design standards which allow for increased innovation and efficiency gains.

It is common for such projects to attract high levels of competition from private sector investors seeking to invest in regulated assets. Private Partners and lenders will generally regard the risks associated with a ROT project as low compared to greenfield projects.

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Description (What is the Risk)

The risk that the project has not been designed adequately for the purpose required.
Feasibility study.
Approval of designs.
Changes to design.
Access to necessary historic information (such as existing plans or data)

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have principal responsibility for the adequacy of the design of the rehabilitation works and its compliance with the functional / performance specification provided by the Contracting Authority.

The Contracting Authority will retain the design risk to the extent that the design is dependent on interconnections for which the Contracting Authority retains responsibility, such as the connection points and gas quantity and quality. In some cases, the Contracting Authority will retain the risks associated with the condition of the existing assets as at the commencement of the term.

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

The Contracting Authority will generally provide minimum functional / performance specifications and require compliance with applicable legal requirements and good industry practice standards. This allows for private sector innovation and efficiency gains in the detailed design. In the context of a gas distribution project in an existing network it is critical that the design complies with the Gas Code, local and international quality standards as to equipment and in particular pipeline. It must also be fully compatible with the other parts of the network.

The Contracting Authority should take time to ensure that the minimum functional / performance specifications will provide a facility that will meet the Contracting Authority's expectations on transfer of the facility to the Contracting Authority at the end of the term.

A design review process will allow for the Contracting Authority to review and comment on the Private Partner's detailed design; however, the review process should not be construed as a reduction or limitation of the Private Partner's overall liability (for example, by way of approval by the Contracting Authority) or its general freedom provided that the minimum functional / performance specifications are met.

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

The Contracting Authority's role will be limited to review of the design to ensure that the minimum functional / performance specifications will be able to be met.

Comparison with Developed Market

The quality of information provided by the Contracting Authority and limited ability to verify that data may hinder the Private Partner's ability to assume risks which would be applicable in developed markets.

It is common for such projects to attract high levels of competition from private sector investors seeking to invest in regulated assets. Private Partners and lenders will generally regard the risks associated with a ROT project as low compared to greenfield projects.

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