Resource or input risk

Heavy rail Heavy rail

Description (What is the Risk)

The risk that the supply of inputs or resources required for the operation of the project is interrupted or the cost increases.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

Network Rail takes the risk in relation to any required infrastructure upgrades.

The Manufacturer takes the entire risk of its own performance, subject to certain 'Permitted Delay' events under the MSA, relating to matters outside its control.

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

The ORR monitors performance by Network Rail and enforces its Network Licence. It can impose monetary penalties.

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

No direct Government support.

Comparison with Emerging Market

In the UK's developed market, Network Rail is best placed to manage this risk, given its experience and resources.

Private sector manufacturers would expect to take this risk in relation to the supply of rolling stock, and have the skills and experience to do so.

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Description (What is the Risk)

The risk that the supply of inputs or resources required for the operation of the project is interrupted or the cost increases.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner bears the principal responsibility to ensure an uninterrupted supply of inputs/resources for the project and to manage the costs of those inputs.

There may be specific instances where the Private Partner may need the share this risk with the Contracting Authority, such as availability of energy supply, or reliance on local source materials where these may be affected by labour disputes, embargos or other political risks.

Time and cost risk is normally passed on to contractors.

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

Some of the cost risk can be managed on demand-risk projects by passing the risk through to the user by way of tariff adjustments, but the ability to do this may be limited.

Lenders may look to sponsors for completion support.

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

The Contracting Authority may need to stand behind the cost risk for certain inputs, or at least underwrite the Private Partner's financing for these costs.

Comparison with Developed Market

Emerging markets are generally more susceptible to market volatility and major cost variations. See comment on exchange rate for an existing rail ROT project in emerging markets.

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