Accounting for Service Concession Arrangement (1 of 3)
IFRIC 12 applies to public-to-private service concession arrangements in which the public sector body (the grantor) controls and/or regulates the services provided with the infrastructure by the private sector entity (the operator).
There is no specific IFRS that applies to public-to-private service concession arrangements for the delivery of public services. IFRIC 12, “Service concession arrangements” interprets various standards in setting out the accounting requirements for service concession arrangements while SIC 29, “Services concession arrangements: Disclosures” contains disclosure requirements.
Also, there is no specific IFRS that applies to an instance where an operator in a service concession arrangement sub-leases its right to access the infrastructure to a third party. However, this article will help in the analysis of the relevant IFRS that applies in line with the requirement of the standard.
A typical ‘public-to-private’ arrangement that falls within the scope of IFRIC 12 is a ‘build-operate-transfer’ arrangement. Under this type of arrangement, an operator constructs the infrastructure to be used to provide a public service, and it operates and maintains that infrastructure for a specified period.
The operator is paid for its services over the period of the arrangement or receives the right to charge users for services provided. A contract between the grantor and the operator sets out performance standards, pricing mechanisms, and arrangements for arbitrating disputes. [IFRIC 12:2] In some cases, the operator may upgrade the existing infrastructure and maintain and operate the upgraded infrastructure. This second type of arrangement is sometimes referred to as a ‘rehabilitate-operate- transfer’ arrangement.