International Public Partnership Ld Full Year -17-
March 26 2015 - 3:01AM
UK Regulatory
jurisdictions in which the Company changes in tax requirements,
operates. its ability to do so is naturally
limited.
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Base Erosion and Profit Shifting The Company's Investment Adviser
The OECD's Action Plan on Base has responded to the OECD BEPS
Erosion and Profit Shifting consultation process but there
('BEPS'), published in 2013, can be no guarantee that any
seeks to address perceived flaws enactment of BEPS into national
in international tax rules. legislation within those countries
It sets out 15 actions to counter where the group operates will
BEPS in a comprehensive and not have a negative impact,
coordinated way. These actions whether direct or indirect,
may result in fundamental changes on the Company's performance.
to the international tax standards
and potentially have unintended
consequences for domestic tax
standards too. If widely drawn
they may have negative implications
for the Company.
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Risk Description Mitigation Approach
================ ===================================== =========================================
Macro-economic Risks continued
Accounting Accounting changes may have A significant portion of the
either a positive or adverse Company's income is received
effect on cash flows available in the form of shareholder
for distribution to the Company debt interest income i.e. from
and therefore the value of the pre-tax cash flows and therefore
investments. Accounting changes not constrained by distributable
that have the effect of reducing profits tests.
distributable profits in investment
entities and holding entities
may impact the Company's cash
flows and thus valuation adversely.
================ ===================================== =========================================
Market Risk
=========================================
Political The nature of the businesses The Company's existing investments
and Regulatory in which the Company invests benefit from long-term service
exposes the Company to potential and asset availability based
changes in policy and legal pricing contracts and the countries
requirements. All investments in which the Company operates
have a public sector infrastructure do not tend to have a tradition
service aspect. Some are subject of penal retrospective legislation.
to formal regulatory regimes. The countries where the Company
All are exposed to political operates tend to be long-term
scrutiny and the potential for supporters of PPP frameworks
adverse public sector or political and similar procurements and
criticism. Moreover all are recognise the risk of deterring
dependent ultimately on public future investment in the event
sector expenditure for most that penal or disproportionate
of their revenues. The Company steps are taken in respect
is therefore potentially highly of existing contractual engagements.
exposed to changes in policy,
law or regulations including
adverse or punitive changes
of law.
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Termination of Contracts The Company maintains strong
Typically contracts between and positive relationships
public sector bodies and the with its public sector clients
Company's investment entities where it can. The Company engages
contain rights for the public with its public sector clients
sector to voluntarily terminate in developing cost saving initiatives
contracts in certain situations. and acting as a 'good partner'
Whilst the contracts typically where it can. None of the Company's
provide for compensation in investments have been identified,
such cases, this could be less by any government audit or
than required to sustain the public sector report as being
Company's valuation causing poor value-for-money or not
loss of value to the Company. in the public interest.
There have been instances of The Investment Adviser is a
contracts being voluntarily signatory to the Code of Conduct
terminated in the UK health for Operational PFI/PPP contracts
sector recently (although not in the UK. The voluntary code
affecting the Company). of conduct sets out the basis
on which public and private
sector partners agree to work
together to make savings in
operational Public PPP contracts.
Compensation on termination
clauses within such contracts
serve to partially mitigate
the risk of voluntary termination.
Furthermore in the current
financial climate where voluntary
termination leads to a requirement
to pay compensation such compensation
is likely to represent an unattractive
immediate call on the public
finances for the public sector.
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Change in Law/Regulation Some investments maintain a
Changes in law or regulation reserve or contingency designed
may increase costs of operating to meet change in law costs
and maintaining facilities or and/or have a mechanism to
impose other costs or obligations allow some change in law costs
that indirectly adversely affect (typically building maintenance
the Company's cash flow from related) to be passed back
its investments and/or valuation to the public sector.
of them.
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Risk Description Mitigation Approach
Market Risk continued
Change in Political Policy Current policy trends in the
Political policy and financing UK and elsewhere continue to
decisions may also impact on support the use of private
the Company's ability to source sector capital to finance public
new investments at attractive infrastructure.
prices or at all.
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Change in Regulations The Company and its Investment
The Company is subject to changes Adviser monitor regulatory
in regulatory policy that relate developments and seek independent
to its business and that of professional advice in order
its Investment Adviser. The to manage compliance with changing
Company is supervised by the regulatory requirements.
Guernsey Financial Services
Commission and is required to
comply with the UK Listing Rules
applicable to 'Premium' listings.
The Investment Adviser is regulated
by the Financial Conduct Authority
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