Resource or input risk

Natural gas distribution Natural gas distribution

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 principal input or resource required for a gas distribution project is gas. This is usually within the ownership or control of the Contracting Authority and/or system operators and users. Accordingly responsibility for the quantity and quality of the gas supplied at the delivery point sits with the Contracting Authority. 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 supplied through the network.

In some circumstances a gas distribution network may require a material power supply for gas compression and pumping stations. The Private Partner typically bears the responsibility to supply power to the facility. The Private Partner will generally bear the risk of all other resources to operate the project, such as labour supply.

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

The Private Partner may be incentivised to increase efficiencies in energy consumption throughout the term by a mechanism to share the savings.

Tariffs may include mechanisms to incentivise reductions in operation costs, such as indexation at CPI-X.

Comparison with Emerging Market

In some developed markets gas volumes through pipeline systems have been declining in recent years, for example, due to falling gas demand due to low coal prices or declining domestic gas sources. This puts pressure on the tariffs paid to the network owners as the costs are spread over reduced volumes.

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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 principal input or resource required for a gas distribution project is gas. This is usually within the ownership or control of the Contracting Authority and/or systems operators and users. Accordingly, responsibility for the quantity and quality of the gas supplied at the delivery point sits with the Contracting Authority. 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 supplied through the network.

In some circumstances a gas distribution network may require a material power supply for gas compression and pumping stations. The Private Partner may bear the principal responsibility to supply power to the facility.

The Private Partner will generally bear the risk of all other resources to operate the project, such as labour supply.

The Contracting Authority is usually responsible for ensuring there is sufficient quantity of line-pack gas within the system.

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

The Private Partner may be incentivised to increase efficiencies in energy consumption throughout the term by a mechanism to share the savings.

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

Where the Contracting Authority is unable to meet its contracted thresholds for the quantity and/or quality of gas, or is unable to secure the supply of the resources it is responsible for (such as a continuous energy supply) the Private Partner may be eligible to seek relief and/or compensation. The tariffs will usually be structured on a ship or pay basis.

Comparison with Developed Market

Gas markets in emerging markets are often undeveloped and networks may not be fully functional. This increases the risks of physical curtailment in gas supply. There is also greater risk of political intervention to divert available supplies of gas to meet national requirements for example, gas may be directed towards power generation or household heating rather than export.

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