they are divestitures or privatisations where it is more appropriate to treat the
infrastructure as the property, plant and equipment of the operator. This is indicated in
Service concession arrangements 1813
the table included as Information Note 2 to IFRIC 12 (reproduced at 2.3 above). It is
usually the case in a privatisation that the infrastructure only reverts to the grantor in
the event of a major breach of the conditions of the regulatory framework as otherwise
the right of the operator to provide the regulated services may roll over indefinitely into
a new term. In other cases it may require legislative change to bring the assets back into
the control of the public sector. This means that the grantor does not control the
residual interest in the property as required by IFRIC 12.
ENGIE discloses that some of its concessions are not considered to be within scope of
IFRIC 12 as the grantor has no rights over the infrastructure at the end of the contract.
These assets (for gas distribution) are likely to have an economic life in excess of the
contract term.
Extract 26.1: ENGIE SA (2017)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS [extract]
NOTE 1
ACCOUNTING STANDARDS AND METHODS [extract]
1.4. Accounting
methods [extract]
1.4.7 Concession
arrangements [extract]
For a concession arrangement to fall within the scope of IFRIC 12, usage of the infrastructure must be controlled by
the concession grantor. This requirement is met when the following two conditions are met:
•
the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it
must provide them, and at what price; and
•
the grantor controls the infrastructure, i.e. retains the right to take back the infrastructure at the end of the concession.
Concessions outside the scope of IFRIC 12
Concession infrastructures that do not meet the requirements of IFRIC 12 are presented as property, plant and equipment.
This is the case of the distribution of gas in France. The related assets are recognized in accordance with IAS 16,
since GRDF operates its network under long-term concession arrangements, most of which are mandatorily renewed
upon expiration pursuant to French law No. 46-628 of April 8, 1946.
3.3
Assets within scope
There are two groups of assets within scope of IFRIC 12:
(a) the infrastructure that the operator constructs or acquires from a third party for
the purpose of the concession; and
(b) existing infrastructure to which the grantor gives the operator access for the
purpose of the concession. [IFRIC 12.7].
Generally, ‘infrastructure’ is interpreted broadly and it is accepted that ‘the
infrastructure’ used to provide services can include moveable assets. Although IFRIC 12
uses the word ‘infrastructure’ and includes examples traditionally regarded as such,
including roads, bridges, hospitals and airports, [IFRIC 12.1], the Interpretation is based on
the definition of an asset under IFRS. An asset is ‘a resource controlled by the entity as
a result of past events and from which future economic benefits are expected to flow to
the entity’, [CF(2010) 4.4], and is therefore considered to apply to all assets, including items
such as buses or rolling stock that are made available by the grantor to the operator of
the public service.
1814 Chapter 26
It is usually relatively straightforward to apply (a) above, infrastructure that the operator
constructs or acquires from a third party for the purpose of the concession. The
accounting for service concession arrangements in which infrastructure is leased from
a party other than the grantor is discussed at 3.3.3 below.
However, there are some issues of interpretation relating to infrastructure to which the
grantor has given access to the operator for the purpose of the SCA. Infrastructure under (b)
above could include other arrangements in the form of leases from the grantor over assets.
As part of a SCA, in addition to receiving payments for the construction and/or operation of
the infrastructure, an operator may make lease payments to a grantor, e.g. it may lease the
land on which a facility is to be built. These issues are discussed at 3.3.1 below.
A third group of assets comprises property, plant and equipment previously held by the
operator and then used in connection with the provision of services under the SCA. The
Interpretations Committee’s view is that accounting for these types of assets is already
covered by existing accounting standards, principally IAS 16, and therefore it does not specify
how the operator should account for its previously existing assets that now form part of the
infrastructure. [IFRIC 12.8]. The treatment of existing assets is discussed further at 3.3.2 below.
3.3.1
Periodic payments to the grantor for the right to use assets
Assets within the scope of IFRIC 12 include infrastructure that the operator constructs
or acquires from a third party for the purpose of the service arrangement and existing
infrastructure to which the grantor gives the operator access for the purpose of the
service arrangement. [IFRIC 12.7]. IFRIC 12 contains no explicit guidance regarding
periodic payments made to the grantor in connection with the right to use assets. The
issue is whether these costs should be treated as lease costs in accordance with IFRS 16,
treated as executory in nature with costs expensed as incurred or otherwise recognised
as a liability. If they are considered to be within scope of IFRIC 12, what are the
accounting consequences? Are they part of the overall consideration paid by the grantor
or recognised as an asset and, if an asset, did they form part of the ‘concession asset’ at
the start of the concession, with an obligation to make the related payments?
This has been discussed by the Interpretations Committee on a number of occasions.
The Committee decided in March 2016 that the treatment of variable payments for asset
purchases, including payments that vary in relation to future activity by the purchaser,
was too broad an issue for it to address, and consequently decided not to add the issue
to its agenda.4
For fixed payments made by the operator to the grantor, the Committee observed in
July 2016 that IFRIC 12 would apply, unless:
(a) they are payments for the right to a good or service that is separate from the service
concession arrangement, which should be accounted for under other applicable
IFRSs; or
(b) they are payments for the right to use an asset that is separate from the
infrastructure within the scope of IFRIC 12, in which case the operator should
assess whether the arrangement contains a lease. If the arrangement contains a
lease, the operator should account for those payments by applying IFRS 16.5
Service concession arrangements 1815
This approach is consistent with the requirements in IFRS 15 to determine
whether consideration payable to a customer gives rise to goods or services
distinct from the customer contract (see Chapter 28 at 6.7). [IFRS 15.70-72]. Payments
that are part of the overall concession agreement but do not fall within these two
exceptions will be accounted for as part of the SCA. In this case the accounting
treatment will depend on whether the SCA falls within the financial asset model,
the intangible asset model or is a hybrid. If the financial asset model applies,
payments would be treated as reductions to the overall consideration received and
therefore be offset against the financial asset receivable under the SCA. In
contrast, under the intangible asset model the payments to the grantor should be
recognised as a liability that increases the cost of the concession right asset. This
is discussed further at 4.7 below.
3.3.2
Previously held assets used for the concession
IFRIC 12 does not apply to infrastructure held and recognised as property, plant and
equipment by the operator before entering into the SCA. If such assets of the
operator become part of the infrastructure in the SCA, then it implies that control
over those assets has transferred to the grantor. Accordingly, the operator must apply
the derecognition requirements of IAS 16 to determine whether it should derecognise
those previously held assets. [IFRIC 12.8]. The Interpretations Committee’s view is that
accounting for assets is already covered by existing accounting standards, principally
IAS 16, and therefore it is not necessary to specify how the operator should account
for its previously existing assets that now form part of the infrastructure.
[IFRIC 12.BC16].
The implication is that losing control of a previously held asset by contractually
giving control of its use to the grantor may be a disposal of the asset under IAS 16.
The existing asset would be derecognised and any consideration on the disposal
established in accordance with the requirements for determining the transaction
price in IFRS 15. [IAS 16.72]. This means that the total consideration received under
the contract would be allocated between an amount receivable for construction
and upgrade services and an amount to reflect the transfer of the asset to the
control of the grantor. What was previously recorded by the operator as property,
plant and equipment would be replaced by an element of either an intangible asset
or a financial asset, depending on the accounting model determined to be
appropriate to the particular SCA (see 4.1.2 below). Gains and losses must be
calculated as the difference between any net disposal proceeds and the carrying
value of the item of property, plant and equipment, [IAS 16.71], and recognised in
profit or loss. Derecognition of assets within scope of IAS 16 in general is discussed
in Chapter 18 at 7.
The operator may use some of its existing assets for the purpose of the concession
without transferring control to the grantor. These are out of scope.
Therefore, an entity may already control assets, which might include assets regarded
as infrastructure that it has constructed and used for its operations before it enters
into a concession arrangement. Unless the contract transfers the residual interest in
these pre-existing assets to the grantor (and thereby both of the control criteria laid
1816 Chapter 26
out at 3 above are met), these assets are out of scope of IFRIC 12. If an infrastructure
asset is itself out of scope, the SCA might include, for example, extensions to that
asset, upgrades to it and a contractual period of using the infrastructure asset to
provide services. In this case, the total consideration payable under the concession
will be allocated between the extension, upgrade and operating services within
scope of IFRIC 12. Accordingly, construction revenue would be recognised at the
time of the extension or upgrade work, with an additional financial asset or
intangible asset recognised as appropriate.
3.3.3
Accounting for service concession arrangements for which the
infrastructure is leased from a party other than the grantor
As noted at 3.3 above, assets within the scope of IFRIC 12 include infrastructure
that the operator constructs or acquires from a third party for the purpose of the
service arrangement and existing infrastructure to which the grantor gives the
operator access for the purpose of the service arrangement. [IFRIC 12.7]. In some
cases, an operator may enter into an arrangement with the grantor to provide a
public service using infrastructure that is leased. For example, an operator may
lease trains in order to provide rail transportation services to the public. The
accounting for arrangements in which infrastructure is leased from the grantor are
addressed at 3.3.1 above. Where the lessor and grantor are controlled by the same
governmental body and are related parties (see 2.1.2 above), lease payments made
by the operator to the lessor are, in substance, payments made to a grantor in a
service concession arrangement6 which are covered at
3.3.1 above. For
arrangements in which infrastructure is leased from a third party, the first question
that arises is whether such arrangements are in scope of IFRIC 12. If so, how should
the operator account for any assets and liabilities arising from the arrangement with
the lessor?
The Interpretations Committee has discussed these questions in respect of an
arrangement where infrastructure is leased from a third party lessor, unrelated to
the grantor, and the operator is not required to provide any construction or upgrade
services with respect to the infrastructure. In the fact pattern discussed, the
operator is contractually required to pay the lessor for the lease of the
infrastructure, and has an unconditional contractual right to receive cash from the
grantor to reimburse those payments. In September 2016, the Interpretations
Committee observed that:
(a) Assessing whether an arrangement is in scope of IFRIC 12 requires consideration
of all facts and circumstances, in particular whether the control conditions in
paragraph 5 of IFRIC 12 are met (see 3 above), and whether the infrastructure falls
within one the groups of assets set out in paragraph 7 of IFRIC 12 as in scope of
IFRIC 12 (see 3.3 above). However, an operator is not required to provide
construction or upgrade services with respect to the infrastructure for the
arrangement to be in scope of IFRIC 12.
(b) If the arrangement is in scope of IFRIC 12, then it is the grantor, not the operator,
that controls the right to use the infrastructure. Accordingly, the operator should
Service concession arrangements 1817
assess whether it has the obligation to make payments to the lessor for the lease,
or whether the grantor has this obligation.
(i) If the grantor has the obligation to make payments to the lessor, the
operator is collecting cash from the grantor that it remits to the lessor on
behalf of the grantor.
(ii) If the operator has the obligation to make payments to the lessor as part of
the service concession arrangement, the operator should recognise a
liability for this obligation when it is committed to the service concession
arrangement and the infrastructure is made available by the lessor. At the
time the operator recognises the liability, it should also recognise a financial
asset because the operator has a contractual
right to receive cash from the
grantor to reimburse those payments. The operator should offset the
liability to make payments to the lessor against the corresponding receivable
from the grantor only when the criteria for offsetting a financial asset and
financial liability in IAS 32 are met.7 The offsetting criteria in IAS 32 are
discussed at Chapter 50 at 7.4.
3.4
Partially regulated assets
IFRIC 12 notes that it is not uncommon for the use of infrastructure to be partly
regulated and partly unregulated and gives examples while noting that these activities
take a variety of forms:
‘(a) any infrastructure that is physically separable and capable of being operated
independently and meets the definition of a cash generating unit as defined in
IAS 36 shall be analysed separately if it is used wholly for unregulated purposes.
For example this might apply to a private wing of a hospital, where the remainder
of the hospital is used by the grantor to treat public patients.
(b) where purely ancillary activities (such as a hospital shop) are unregulated, the
control tests shall be applied as if those services did not exist, because in cases in
which the grantor controls the services described in paragraph 5, the existence of
ancillary activities does not detract from the grantor’s control of the relevant
infrastructure.’ [IFRIC 12.AG7].
In both of these cases, the grantor may have given to the operator a right to use
the unregulated asset in question. This right may be in substance a lease from the
grantor to the operator; if so, this is to be accounted for in accordance with
IFRS 16. This would be likely to involve using the principles in IFRS 16 (see
Chapter 24 at 3.2). [IFRIC 12.AG8]. The interaction of IFRIC 12 and IFRS 16 is
discussed at 2.4 above.
The Interpretation gives no further guidance on how an entity might interpret the term
‘purely ancillary’ in evaluating whether an unregulated activity is ignored for the
purposes of determining if the control criteria are met or considered to detract from the
grantor’s control of the asset. The hospital shop is clearly insignificant by virtue of its
size relative to the whole hospital, the proportion of cash flows attributable to it and the
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