Availability Payment Model

Definition¶

An availability payment model is a public-private partnership (PPP) structure in which the private concessionaire receives periodic payments from the contracting authority based on the availability of an asset at a defined performance standard, rather than on the volume of use or traffic generated by the asset.

Under an availability payment structure, the concessionaire's revenue is determined by whether the asset is available to the required standard during each measurement period, subject to deductions for unavailability or substandard performance. The demand risk — the risk that usage volumes may be lower than projected — is retained by the contracting authority.

Key Characteristics¶

Payment trigger. Payment is triggered by availability, not usage. The concessionaire is paid if the asset meets its defined availability standard (typically measured as a percentage of hours available during the payment period) regardless of how many people use it.

Deduction mechanism. Payments are subject to deductions for periods during which the asset is unavailable (for maintenance, unplanned outages, or performance failures). The deduction structure is defined in the concession agreement and is a key driver of the financial model's revenue line.

Demand risk retention. Because payment does not depend on usage, the contracting authority bears the risk that fewer users than expected rely on the asset. The private sector does not benefit from higher usage, nor does it suffer from lower usage.

Performance standards. Availability is measured against defined performance standards set out in the concession agreement. These may include asset condition standards, response time standards for maintenance, and minimum service levels.

How Availability Payments Are Modelled¶

In the financial model for an availability payment concession, the revenue calculation is structured as follows:

1. Base availability payment: the contractual periodic payment if the asset achieves 100% availability at the defined performance standard
2. Availability deductions: deductions calculated from the deduction mechanism in the concession agreement, based on assumed unavailability rates and performance failure frequencies
3. Net availability payment: base payment minus deductions, representing the expected periodic revenue

The financial model must correctly replicate the deduction mechanism from the concession agreement. Errors in the deduction calculation are a common audit finding in availability payment models.

Why It Matters in Financial Model Auditing¶

Availability payment models are lower-risk from a revenue perspective than demand-risk models (because revenue does not depend on unpredictable usage volumes), but they introduce specific modelling risks:

Deduction mechanism complexity. Concession agreements contain detailed and sometimes complex deduction formulas. A model that incorrectly implements the deduction mechanism will misstate the project's revenue and therefore its DSCR and debt serviceability.

Indexation. Availability payments are typically indexed to an inflation measure (CPI or RPI in the UK, for example). The indexation formula — whether it applies to the full payment or only to specific components, and when it is first applied — must be correctly implemented.

Payment period alignment. The frequency and timing of payments (monthly, quarterly, semi-annual) must align with the debt service schedule in the model. Misaligned payment and debt service periods are a source of cash flow timing errors.

Lifecycle maintenance provisions. Availability payment concessions typically include a lifecycle maintenance reserve requirement. The model must correctly calculate the reserve contribution and release mechanics.

Common Errors¶

• Applying the deduction mechanism to the wrong base payment amount
• Incorrectly indexing the payment (wrong base year, wrong index, wrong frequency)
• Misaligning the payment period with the cash waterfall period
• Omitting lifecycle reserve contributions from the operating cost line

Further Reading¶

• World Bank, PPP Reference Guide, World Bank Group
• IFC, Public-Private Partnerships Reference Guide, International Finance Corporation

Continue Reading¶

Prerequisites¶

• Project Finance Model Audit — the parent pillar

Related Glossary¶

• DSCR — the primary coverage metric in availability payment models
• Cash Waterfall — the payment priority structure receiving availability payments
• Concession Model — the broader category of concession-based project finance structures
• Demand Risk Model — the contrasting structure where revenue depends on usage
• Debt Service — the component of the cash waterfall against which availability payments are tested

Related Products¶

• Financial Model Audit Engine (FMAE) — deterministic structural auditing referenced throughout this guide