Maintenance risk

Power transmission Power transmission

Description (What is the Risk)

The risk of maintaining the asset to the appropriate standards and specifications for the life of the project.
Increased maintenance costs due to increased volumes.
Incorrect estimates and cost overruns.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have principal responsibility for meeting the appropriate standards regarding maintenance as set out in the maintenance requirements defined by the Contracting Authority.

The Private Partner generally assumes the overall risk of periodic and preventative maintenance, emergency maintenance work, work stemming from design or construction errors and rehabilitation work.

That being said, the Contracting Authority may retain some maintenance risk where the load (e.g. on a transformer) materially exceeds the projections of the Contracting Authority.

The Private Partner will also retain the principal risk with regard to incorrect estimates and cost overruns.

The Contracting Authority should consider including appropriate KPIs to monitor the service levels and take effective enforcement action (e.g. through penalties or reduced availability payments).

The Contracting Authority will generally retain the risk associated with outages (and related maintenance) caused by other transmission facilities which are part of the same interconnected electric system.

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

The Contracting Authority should take time to ensure that the maintenance requirements properly define the maintenance obligations on the Private Partner to ensure that the system remains robust in the event of early termination or expiry of the agreement.

The primary role of the Contracting Authority is to properly define the maintenance requirements and level of services required of the Private Partner.

Adequate performance by the Private Partner can be further enforced by ensuring that the payment mechanism considers quality and service failures. The Contracting Authority will be allowed to adjust payment to the Private Partner based on meeting or failing to meet certain performance standards. There may also be other remedies such as warning notices and right to replace subcontractors.

The Private Partner can manage the maintenance risk by passing such risks to contractors through long term maintenance contracts which cover planned and unplanned maintenance, with adequate compensation regimes for underperformance / lack of availability of the asset.

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

Generally speaking, the Contracting Authority's undue interference with the Private Partner's provision of maintenance and rehabilitation services (with the exception of minor management services) reduces the benefits of the BOOT project model.

The Contracting Authority may be required to guarantee and manage the maintenance of the existing interconnected transmission system.

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Description (What is the Risk)

The risk of maintaining the asset to the appropriate standards and specifications for the life of the project.
Increased maintenance costs due to increased volumes.
Incorrect estimates and cost overruns.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have principal responsibility for meeting the appropriate standards regarding maintenance as set out in the maintenance requirements defined by the Contracting Authority.

The Private Partner generally assumes the overall risk of periodic and preventative maintenance, emergency maintenance work, work stemming from design or construction errors and rehabilitation work.

That being said, the Contracting Authority may retain some maintenance risk where the load (e.g. on a transformer) materially exceeds the projections of the Contracting Authority.

The Private Partner will also retain the principal risk with regard to incorrect estimates and cost overruns.

The Contracting Authority should consider including appropriate KPIs to monitor the service levels and take effective enforcement action (e.g. through penalties or reduced availability payments).

The Contracting Authority will generally retain the risk associated with outages (and related maintenance) caused by other transmission facilities which are part of the same interconnected electric system.

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

The Contracting Authority should take time to ensure that the maintenance requirements properly define the maintenance obligations on the Private Partner to ensure that the system remains robust in the event of early termination or expiry of the agreement.

The primary role of the Contracting Authority is to properly define the maintenance requirements and level of services required of the Private Partner.

Adequate performance by the Private Partner can be further enforced by ensuring that the payment mechanism considers quality and service failures. The Contracting Authority will be allowed to adjust payment to the Private Partner based on meeting or failing to meet certain performance standards. There may also be other remedies such as warning notices and right to replace subcontractors.

The Private Partner can manage the maintenance risk by passing such risks to contractors through long term maintenance contracts which cover planned and unplanned maintenance, with adequate compensation regimes for underperformance / lack of availability of the asset.

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

Generally speaking, the Contracting Authority's undue interference with the Private Partner's provision of maintenance and rehabilitation services (with the exception of minor management services) reduces the benefits of the BOOT project model.

The Contracting Authority may be required to guarantee and manage the maintenance of the existing interconnected transmission system.

Comparison with Developed Market

In developed markets, the involvement of the Private Partner in the operation, maintenance and rehabilitation of the project provides several benefits by incentivizing greater care and diligence by the Private Partner in the construction phase, and increasing the useful life of the infrastructure.

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