IFRIC 12

10. IFRIC 12

10.1 In certain countries construction or maintenance of infrastructure for public services (roads, bridges, water distribution facilities) is contracted out to private-sector operators. The private- sector operators are usually paid for their services over the term of the arrangements. Such

arrangements are often described as “build-operate-transfer” (“BOT”) or “rehabilitate-operate- transfer” or a “public-to-private service concession arrangement.”

10.2 During November 2006, the IASB issued IFRIC 12, Service Concession Arrangements, which is effective for annual periods beginning on or after January 1, 2008. This IFRIC provides guidance on the accounting by private-sector operators for “public-to-private” service concession arrangements. It should be noted that this Interpretation does not specify the accounting by gran- tors of the concessions.

10.3 This Interpretation sets out general principles for recognizing and measuring the obligations and related rights in service concession arrangements (disclosure requirements about service concession arrangements are detailed in SIC-29).

This IFRIC addresses the following issues, and the consensus views on these issues are: (a) Treatment of the operator’s rights over the infrastructure—IFRIC 12 categorically states

that the operator’s right over the infrastructure shall not be recognized as property, plant, and equipment of the operator since the service arrangement does not convey the right to control the use of the public service infrastructure to the operator.

(b) Recognition and measurement of arrangement consideration—if the operator constructs or upgrades infrastructure (i.e., provides construction or upgrade services) used in providing a public service or operates and maintains it for a specified period of time, then the operator shall recognize and measure revenue in accordance with IASs 11 and 18 for the services it performs.

(c) Construction or upgrade services—the operator shall account for revenue and costs relating to construction or upgrade services in accordance with IAS 11. (d) Consideration given by the grantor to the operator—if the operator renders construction or upgrade services, the consideration received or receivable by the operator shall be recognized at its fair value. The consideration may be rights to a financial asset or an intangible asset.

(e) Recognizing a “financial asset”—the operator shall recognize a financial asset to the extent that it has an unconditional contractual right to receive cash or any other financial asset from or at the direction of the grantor for the construction services. Usually, the grantor has little, if any, discretion to avoid payment, because the agreement is enforceable by law (please refer to chapters on financial instruments for detailed discussion on financial assets).

(f) Recognizing an “intangible asset”—the operator shall recognize an intangible asset to the extent that it receives a right or a licence to charge users of the public service (for a detailed discussion on intangible assets please refer to the chapter on “intangible assets”).

A right to charge users of the public service is not an unconditional right to receive cash because the amounts are contingent and depend on the extent that the public uses the service. The operator shall account separately for the construction services paid partly by a financial asset and partly by an intangible asset. The consideration received or receivable for both components shall be recognized initially at the fair value of the consideration received or receivable.