1. 1 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 International Accounting Standards Board 30 Cannon Street, London EC4M 6XH, England Phone: +44 (20) 7246 6410, Fax: +44 (20) 7246 6411 Email: iasb@iasb.org.uk Website: http://www.iasb.org.uk Service Concession Arrangements IFRIC Project Updates are provided for the information and convenience of constituents who wish to follow the IFRIC’s deliberations. All conclusions reported are tentative and may be changed at future IFRIC or IASB meetings. Decisions become final only after formal approval by the IASB to issue an International Financial Reporting Interpretation.

2. 2 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Broadening D12-14  D12-14 concentrate on situations where existing IFRSs are unclear.  Many respondents believed that the draft Interpretations were complex or that they failed to deal with significant areas of the topic.  The following pages provide an outline of an approach to broaden D12-14 -Amendments may be required as the IFRIC’s discussions progress.

3. 3 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Concessions  Many different types of arrangements exist: – Service Contracts (specific tasks eg debt collection or routine repair and maintenance) – Leases (eg operator leases asset from public sector and has responsibility for operating and maintaining asset) – Concessions (maintenance and operation, build-operate- transfer and build-operate own) – Divestitures/privatisations/regulated industries under licence – Technical provisions of contracts vary by sector and legal framework varies by country Draft

4. 4 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Allocation of Key Responsibilities Under Main Options for Private Sector Participation in Public Services Draft Clear IFRIC Focus IFRSs Clear Arrangement Type Asset ownership Operations and maintenance Capital investment Commercial risk Typical Duration Residual Interest Examples of Applicable IFRSs Service Contract (eg specific tasks debt collection) PublicPrivate and or Public Public 1-5 yearsPublic IAS 18 (rendering of services) Lease (eg. lease of an asset) PublicPrivatePublicShared8-20 years Public IAS 17 Concession (eg build-operate- transfer) PublicPrivate Private and Public 25-30 years Public D12-14 Concession (eg build-own- operate) Private 25-30 years Private IAS 16, 23 (PPE) 100% Divestiture/ Regulated industries under licence Private Indefinite or (may be limited by licence Private IAS 16, 23 (PPE) Generally lines between the options are blurred

5. 5 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Draft Flowcharts Draft There are various ways to flowchart these complex arrangements. The following pages provide one example. Amendments may be required as IFRIC’s discussions progress.

6. 6 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Apply D12 – Operator has right to Access/Operate only – (Asset remains PPE Of Grantor) Is there a Sale Of Infrastructure to Operator? IAS 18.14 Test Is there a Sale Of Infrastructure to Operator? IAS 18.14 Test Infrastructure comprises/includes pre-existing assets of Grantor Is there a lease of the Infrastructure to the Op? Apply IAS 17 Substantially all R&R Op. = Fin Lse R&R Gr. = Op Lse Apply IAS 17 Substantially all R&R Op. = Fin Lse R&R Gr. = Op Lse Apply IAS 16 Treatment of Infrastructure – Books of Operator Determine whether Operator should recognise PPE Recognition /DeRecognition D13 – Financial Asset Model D14 – Intangible Asset Model Does Grantor have primary responsibility to pay Explanation: -grantor not the operator has ‘right of use’ - because the grantor : (a): controls or regulates services provided by the operator and (b) controls the significant residual interest in the infrastructure at the end of the concession Explanation: -grantor not the operator has ‘right of use’ - because the grantor : (a): controls or regulates services provided by the operator and (b) controls the significant residual interest in the infrastructure at the end of the concession Grantor has right of use Explanation: -conveys right of use; -transfers risks and rewards to operator; and -grantor has no managerial involvement Explanation: -conveys right of use; -transfers risks and rewards to operator; and -grantor has no managerial involvement Flowchart A No Draft Yes NoYes

7. 7 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Is there a Sale of Infrastructure to Grantor? Pre-existing Infrastructure of Operator (used exclusively for purposes concession) Apply IAS 17 R&R Gr. = Fin Lse R&R Op. = Op Lse Apply IAS 17 R&R Gr. = Fin Lse R&R Op. = Op Lse Apply IAS 18 Treatment of Infrastructure – Books of Operator Determine whether Operator should recognise PPE Derecognition IAS 16 Explanation: -conveys right of use and transfers risks and rewards to grantor; and -operator has no managerial involvement Explanation: -conveys right of use and transfers risks and rewards to grantor; and -operator has no managerial involvement Flowchart B Is there a lease of the infrastructure to Grantor? Apply IAS 16 (Asset remains PPE Of Operator) Apply IAS 16 (Asset remains PPE Of Operator) No Yes Draft

8. 8 Copyright © 2005 International Accounting Standards Committee Foundation. All rights reserved. May be distributed freely with appropriate attribution Project Summary – November 2005 Infrastructure is constructed or acquired* by the Operator Operator supplied construction services/acquires on grantors behalf Operator constructed/acquired own asset Treatment of Infrastructure – Books of Operator Determine whether Operator should recognise PPE` * From 3 rd Party Explanation: Whose asset? -Definition of an asset from Framework; -Definition of PPE from IAS 16 Explanation: Whose asset? -Definition of an asset from Framework; -Definition of PPE from IAS 16 Flowchart C See flowchart B Draft OperatorGrantor See flowchart A