SERVICE CONCESSION

ARRANGEMENTS BY
GRANTOR
WARDIERE INC.

WHAT IS SERVICE CONCESSION

ARRANGEMENT???

Service Concession Arrangement - is a binding

arrangement between a grantor and an operator in which:

а. The operator uses the service concession asset to

provide a public service on behalf of the grantor for
a specified period of time; and

b. The operator is compensated for its services over

the period of the service concession arrangement.

2022
Company
DEFINITION OF TERMS:
Binding Arrangements - are contracts and other arrangements
that confer similar rights and obligations on the parties to it as if
they were in the form of a contract.

Grantor - is the public sector entity (government entity) that

grants the right to use the service concession asset to the
operator.

Operator - is the private entity that uses the service concession

asset to provide public services subject to the grantor's control of
the asset.
WARDIERE INC.

SERVICE Service Concession Asset - is an asset used to provide public services in a service concession
arrangement that:

CONCESSION 1. Is provided by the operator which:

i. the operator constructs, develops, or acquires from a third party; or

ASSET ii. is an existing asset of the operator; or

2. Is provided by the grantor which:

i. is an existing asset of the grantor; or
ii. is an upgrade to an existing asset of the grantor.
(PPSAS 32.8)
OTHER TERM FOR A SERVICE
CONCESSION ARRANGEMENTS

Other terms for service concession

arrangement are:

"build-operate-transfer" (BOT)
arrangements,

"rehabilitate-operate-transfer,"

"public-to-private service concession"

and "private-public partnership (PPP).
EXAMPLES OF CONCESSION ARRANGEMENTS UNDER R.A. NO. 7718
(AN ACT AMENDING CERTAIN SECTIONS OF R.A. NO. 6957, ENTITLED "AN ACT AUTHORIZING THE FINANCING, CONSTRUCTION, OPERATION AND
MAINTENANCE OF INFRASTRUCTURE PROJECTS BY THE PRIVATE SECTOR, AND FOR OTHER PURPOSES"):

Build-operate-and-transfer (BOT) Build-transfer-and-operate (BTO) Rehabilitate-operate-and-transfer (ROT)

Build-operate-and-transfer (BOT) - the private entity
awarded with the contract undertakes to finance
the construction of an infrastructure facility and
operate it for a fixed term not to exceed 50 years..
At the end of the term, the facility is transferred to
the government. If the interest of the Government
so requires, the transfer of the facility includes the
transfer of process technology and training of.
Filipino nationals.
Build-transfer-and-operate (BTO) - the private
entity awarded with the contract undertakes to
complete the construction of a facility, assuming
cost overruns, delays, and specified
performance risks. Upon completion, the facility
immediately transferred to the government.
However, the private entity operates the facility
on behalf of the government under an
agreement.
Rehabilitate-operate-and-transfer (ROT) - the
private entity awarded with the contract
undertakes to rehabilitate or refurbish an
existing facility of the government then
operate if for a certain period. At the end of
that period, the facility is reverted back to the
government.
EXAMPLES OF CONCESSION ARRANGEMENTS UNDER R.A. NO. 7718
(AN ACT AMENDING CERTAIN SECTIONS OF R.A. NO. 6957, ENTITLED "AN ACT AUTHORIZING THE FINANCING, CONSTRUCTION, OPERATION AND
MAINTENANCE OF INFRASTRUCTURE PROJECTS BY THE PRIVATE SECTOR, AND FOR OTHER PURPOSES"):

Develop-operate-and-transfer (DOT) Contract-add-and-operate (CAO)

Develop-operate-and-transfer (DOT) - a
private entity awarded with an
infrastructure project is also given the
right to develop an adjoining property,
thereby enjoying some benefits in this
form of higher property or rent values
brought about by this government
infrastructure project.
Contract-add-and-operate (CAO) - the private
entity adds to an existing infrastructure facility,
which it is renting from the government, then
operates the added facility over an agreed
period. Ownership over the added facility may or
may not be transferred to the government. If
there is a transfer of ownership, the contract is
accounted for as a service concession
arrangement
 RECOGNITION AND MEASUREMENT OF ASSET

The grantor recognizes a service concession asset if:

a. The grantor controls or regulates what services the operator must provide with the asset, to whom it must provide them and at what price; and

b. The grantor controls, through ownership, beneficial entitlement or otherwise, any significant residual interest in the asset at the end of the term of the arrangement.
(PPSAS 32.9)

Complete control of the price is not necessary. It is sufficient that the price is regulated.

If the operator has freedom to set prices, the grantor controls the price if any excess profit is returned to the grantor (i.e., the operator's return is capped).

Control shall be distinguished from management. If the grantor retains both the degree of control described in (a) and (b) above, the operator is only managing the asset on
the grantor's behalf, even though the operator may have wide managerial discretion.

A grantor recognizes even a "whole-of-life" asset (i.e., an asset used in a service concession arrangement for its entire useful life) if the conditions in (a) and (b) above are met.
 MEASUREMENT OF SERVICE CONCESSION ASSET

Initial measurement Subsequent measurement

A service concession asset is initially measured at: A service concession asset is
a. Fair value, if the asset is provided by the
subsequently accounted for as
operator in accordance with the recognition service concession tangible asset (a
criteria in (a) and (b). separate class of PPE) or as service
b. Cost, in accordance with the measurement
concession intangible asset (a
principles for PPE or Intangible Assets, as separate class of intangible assets),
appropriate, if the asset is reclassified from the as appropriate.
existing assets of the grantor, e.g., an existing
asset is transferred to the operator for
refurbishing.
RECOGNITION AND MEASUREMENT OF LIABILITY

When the grantor recognizes a service concession asset, the related liability is measured at the same amount, adjusted for any
other consideration (e.g., cash) received from or paid to the operator.

No liability is recognized when an existing asset of the grantor is reclassified as a service concession asset, except when the
operator provides additional consideration.

In exchange for the service concession asset, the grantor may compensate the operator by one or a combination of the following:

1. Making payments to the operator ('financial liability model)

2. Granting the operator the:

a. Right to collect fees from users of the service concession asset; or
b. Right to access another revenue-generating asset for the operator's use (e.g., a private wing of a hospital where the remainder
of the hospital is used by the grantor to treat public patients or a private parking facility adjacent to a public facility). (PPSAS 32.17)
WARDIERE INC.

The grantor recognizes a financial liability if it incurs an unconditional obligation to pay

FINANCIAL cash or another financial asset to the operator in exchange for the service concession
asset.

LIABILITY The payments shall be allocated as a reduction in the liability, a finance charge, and
charges for services provided by the operator.
MODEL Where the asset and service components of a service concession arrangement are
separately identifiable, the payments are allocated based on the relative fair values of
the components, If the components are not separately identifiable, the grantor shall
estimate the service component of the payments.
ILLUSTRATIVE ACCOUNTING ENTRIES
FINANCIAL LIABILITY MODEL
WARDIERE INC.

If the operator is compensated by a grant of right to earn revenue from third-party

GRANT OF users or another revenue-generating asset, the grantor recognizes a liability for the
unearned portion of the revenue arising from the exchange of assets between the

RIGHT TO THE grantor and. the operator.

The grantor then recognizes revenue for the earned portion over the contract term
OPERATOR according to the economic substance of the service concession arrangement.

MODEL
ILLUSTRATIVE ACCOUNTING ENTRIES
GRANT OF RIGHT TO THE OPERATOR MODEL
 DIVIDING THE ARRANGEMENT
If the operator is compensated partly by payments and partly by
grant of right, the grantor shall allocate the total liability to these
elements and account for them separately.

The amount initially recognized for the total liability shall be the
same amount as the service concession asset adjusted for any
other consideration (e.g., cash) received from or paid to the
operator.

IMPAIRMENT AND DERECOGNITION

The grantor uses the same principles used for PPE and
intangible assets to account for the impairment or
derecognition of service concession assets.
THANK YOU
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