26.1.1  Determination of Compensation by Tendering115

(a)  If there is a liquid market, government will be entitled to sell (i.e., re-tender) the unexpired term of the project agreement on the same terms and will, subject to section (d), pay the proceeds of the sale to the private party. If, despite a liquid market, government receives no bids, or no bids compliant with the terms of the project agreement, the 'proceeds' received from the tender will be deemed to be zero.

(b)  A liquid market will exist if there is a sufficient number of contractors (e.g. in Victoria the minimum number of required market participants will be determined on a project-specific basis, but will be at least two) in the prevailing market (or markets for similar contracts to PPP contracts) to ensure that the price that is likely to be achieved through a tender will be a reliable indicator of fair value.

(c)  Any dispute as to the existence of a liquid market will be referred for resolution to the dispute resolution procedure.

(d)  In jurisdictions which give priority to the step-in rights of senior lenders, government will not be entitled to re-tender the unexpired terms of the project agreement if the senior lenders have exercised their right to step-in under their direct deed with government and have not procured the transfer of the private party's rights and liabilities under the project agreement to a suitable substitute private party (provided they have used all reasonable efforts to do so).116

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115  The re-tendering mechanism and associated tests for a liquid market will be developed and refined by government on a project-by project basis.

116  The senior lenders must take the risk of the private party's performance (this risk is mitigated by their right to step-in and cure or to transfer the project).  Where government elects to terminate the project agreement for poor performance, senior lenders are encouraged to exercise their step-in rights and use their reasonable efforts to transfer the project (which may include accepting offers which do not fully pay out senior debt).  If the senior lenders have used their reasonable efforts to transfer the project and have been unable to do so (for reasons other than not achieving full pay-out of senior debt), then government considers that a liquid market is unlikely to exist.