As a general rule, government does not seek to obstruct changes in ownership, but nevertheless requires the opportunity to minimise the risk of sponsor unsuitability. The project agreeements should therefore include guidance on the types of parties acceptable as transferees (for example, suitable credit ratings and proven expertise). It should also require government consent to any ownership change, and ensure consent is not unreasonably withheld.
Changes in passive equity ownership should only be restricted in exceptional circumstances, such as when security or probity issues arise as a result of a change in control of the service provider. Sponsors and equity owners should clearly understand that changes in ownership (whether passive or otherwise) might be subject to probity and other requirements.
Equity transfers may be of particular concern where a party within the consortium has not fulfilled key obligations under its sub-contract, such as where the change affects the construction sub-contractor and construction is incomplete. In this circumstance, the transferor should provide security (such as a letter of credit) to underwrite the outstanding obligations, and the intended transferee should expressly agree to assume those obligations on terms that closely parallel those in the sub-contract.
In appropriate cases, it may be a desirable feature of a public private partnership project for parties with a long-term interest in the project, (including major sub-contractors such as the operator), to be required to hold an equity interest in the private party, and therefore an ownership interest in the project. Where this is the case, and it was assessed as an important factor during bid assessment, government consent would be required for any sale or transfer of that equity interest.
It is recognised that imposing restrictions on the transfer of equity (in whatever form) comes at a cost. The benefits of imposing restrictions must justify their cost, to ensure value for money is achieved.