Concession rights
The rights a government grants to build or run an infrastructure asset and collect its revenue for a set term, after which the asset is usually handed back. Value ends with the term, so there is no perpetual terminal value.
Where you will meet it
Concession rights appears in 3 learning outcomes on the CFA syllabus. A few of them:
- Explain the defining features of infrastructure investments
“The main hazards are regulatory and political: a tariff formula or concession term can be changed by the same authority that granted it.”
- Explain the key characteristics of infrastructure as an investment
“Infrastructure assets provide essential services, last for decades, and face high barriers to entry through natural monopoly, regulation or concession rights.”
- Explain how infrastructure assets are investigated and valued
“Diligence covers the regulatory regime and concession terms (tariffs, duration, termination), the credit quality of offtakers or government counterparties, technical condition, demand studies such as traffic forecasts, construction contracts, environmental and ESG issues, political risk and the financing structure.”
See also
Practise it
Practise concession rights until it is automatic: questions that explain every wrong option.
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