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Arrangements that do not give rise to construction or upgrade services


IFRIC 12:7 envisages that under certain service concession arrangements the operator does not undertake construction or upgrade activities, but instead the grantor gives the operator access to existing infrastructure for the purpose of the service arrangement. [IFRIC 12:7(b)] However, IFRIC 12 does not deal specifically with situations in which a service concession arrangement consists only of an operation phase.


In such arrangements, the grantor may pay the operator directly for providing the service or give the operator a right to charge users at a regulated price and the operator may pay the grantor a fixed or variable amount for a license to provide those services. In the absence of specific guidance in IFRIC 12, it is necessary to apply the requirements of other relevant IFRS Standards, in particular IFRS 15 and IAS 37. Because no construction services have been supplied by the operator, it will generally not be appropriate to recognise a financial asset or an intangible asset at the outset of the contract.

However, if the operator pays the grantor to acquire a license to charge users for a public service, the operator should recognise an intangible asset at cost, including the present value of all future fixed payments to be made by the operator to the grantor, in accordance with IAS 38.


Payments made by an operator to a grantor
IFRIC 12:15 typically, the operator in a service concession arrangement receives consideration from the grantor, the accounting for which is addressed by IFRIC 12:15 to 20. However, there may be circumstances in which the operator is required to make payments to the grantor.

To determine the appropriate accounting for payments made to the grantor (assuming that such payments do not represent remittances of amounts collected on behalf of the grantor), the operator should determine whether the payment is separate from the construction or upgrade of infrastructure within the scope of IFRIC 12. Because the infrastructure in a service concession arrangement is considered the grantor’s asset, any payment to the grantor as part of the construction or upgrade services is considered a payment to a customer. Otherwise, the appropriate accounting depends on the substance of the transaction, as follows:

  • Amounts paid for the right to use an asset that is separate from the infrastructure: the operator should assess whether such arrangements contain a lease and, if so, account for the payments in accordance with IFRS 16 (or, for entities that have not yet adopted IFRS 16, IAS 17); and
  • Amounts paid for a right to a good or service that is separate from the service concession arrangement: the operator should account for such payments according to their nature and the applicable IFRS(s).

If payments to the grantor are not for the right to a separate good or service or a separate right-of-use that is a lease, the appropriate treatment depends on whether the service concession is accounted for under the financial asset, intangible asset or bifurcated model of IFRIC 12, as follows:

  • if the service concession arrangement results in the operator having only a contractual right to receive cash from the grantor, the operator accounts for those payments as a reduction of the transaction price, applying the requirements on consideration payable to a customer in paragraphs 70 to 72 of IFRS 15;
  • if the service concession arrangement results in the operator having only a right to charge users of the public service (i.e. the intangible asset model), the operator has received an intangible asset (i.e. the right to charge the users of the public service) in exchange for construction or upgrade services and the payments to be made to the grantor. Consequently, an entity accounts for those payments in accordance with IAS 38; and
  • if the operator has both a right to charge users of the public service and a contractual right to receive cash from the grantor (i.e. the bifurcated model applies), the operator considers whether those payments represent payments made for the intangible asset, or consideration payable to a customer, or both, and applies one or both of the approaches described above accordingly.

Private-to-private arrangements
A typical private-to-private arrangement may include an operator sub leasing its right to a third party. IFRIC 12 does not include within its scope private-to-private arrangements but it could be applied to such arrangements by analogy under the hierarchy set out in paragraphs 7 to 12 of IAS 8 .  Given that the operator only has a right to access and not a right to control the use of the infrastructure, the operator is faced with a challenge on the appropriate accounting standards that applies as a private to private arrangement is clearly out of the scope of IFRIC 12 and no other accounting standard specifically applies.  In such an instance, judgment is therefore required in order to assess whether such arrangement contains a lease in accordance with IFRS 16 or should be accounted in accordance with IFRS 15 Revenue from contracts with customers with regards to the contractual arrangement amongst the grantor, operator and the lessee. While taking into consideration the requirements set out in paragraphs 7–12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.


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