Which of the following would most likely offset demand/volume risks associated with infrastructure investments?
- Take-or-pay arrangements
- Fixed-price date-certain contracts
- Incentivized maintenance contracts
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please share answer. Is it option A?
The answer is A
Didn’t understand the explanation by the institute
A is correct. “Enter[ing] into take-or-pay arrangements, where payments are based upon the availability rather than the use of an asset” might offset demand/volume risks associated with infrastructure investments.
B is incorrect because “[e]nter[ing] into fixed-price date-certain contracts with reputable and experienced contractors to minimize construction cost overruns and delays” might offset construction risks associated with infrastructure investments.
C is incorrect because “[e]nter[ing] into operational and maintenance contracts with reputable and experienced operators who are incentivized to meet or exceed the minimum contractual performance standards through an appropriate regime” might offset operational risks associated with infrastructure investments.
It means that when the project get complete you get your amt whether it operate well or not, but if you contract the project for itself you have to also face the risk of performance i.e if you project is not operate as per you expectation you have to face huge loss