Question Tag: Grant of Right to Operator Model

i) Financial Liability Model:
The financial liability model is applied when the grantor (government or public sector entity) has an unconditional obligation to pay cash or another financial asset to the operator for the construction, development, acquisition, or upgrade of a service concession asset. This obligation may arise when the grantor guarantees to pay the operator specified or determinable amounts or the shortfall, if any, between amounts received by the operator from users of the public service and the specified or determinable amounts. Even if the payment is contingent on the operator ensuring that the service concession asset meets specified quality or efficiency requirements, the obligation to pay makes it a financial liability.

ii) Grant of Right to Operator Model:
Under the grant of right to operator model, the grantor recognizes the liability as the unearned portion of the revenue arising from the exchange of assets between the grantor and the operator. This model is applicable where the grantor does not have an unconditional obligation to pay cash or another financial asset to the operator. Instead, the grantor gives the operator the right to earn revenue from third-party users of the service concession asset, or from another revenue-generating asset. For example, if an operator constructs a road and is given the right to toll the road for a specified period to recoup the investment, the grantor accounts for this as a liability under the grant of right to operator model.