Most of the so-called 'failed PPPs' in Australia have been user-charge PPPs, where the revenue generated by the project was well below that forecast by the consortium's investors, leading to the insolvency of the SPV. Very few service-payment PPPs in Australia have resulted in an insolvent SPV.
But does the insolvency of the SPV really mean that the PPP has failed? The answer can depend on whose perspective one takes.
Consider, for example, the case of the Cross City Tunnel, where:
• the receiver appointed by the lenders was able to sell the project to new equity investors for a price which enabled the lenders to be repaid in full, and for a partial return of equity to the original equity investors;
• the government did not have to bail out the project via additional government funding;
• the road remained open to users at all times during the insolvency, for tolls no higher than those originally contemplated. In fact, there were periods when toll levels were reduced by the SPV below the maximum permitted under the contract, to entice more motorists to use the road;
• the insolvency did not affect any payments under the D&C or O&M contracts; and
• a significant piece of infrastructure was delivered at a cost to taxpayers far less than would have been the case had government procured it under a publicly funded delivery model.
Similar outcomes have been achieved on other so-called failed PPPs, such as the Lane Cove Tunnel and Adelaide-Darwin railway projects (although the sale proceeds on both were insufficient to fully repay the outstanding senior debt).
While these projects failed to achieve their revenue forecasts, the consequences of this risk were borne as intended, i.e. firstly by the equity investors and then by the lenders. From their perspective, these projects failed. However, the objectives of government and the SPV's contractors were achieved, and from their perspective these projects can be considered successes.
The downside for government was that equity investors and debt financiers lost their appetite for demand risk on greenfield transport projects. This has forced government to use contractual delivery models under which government bears much more demand risk.
Despite this, recent projects such as NorthConnex in Sydney and the Western Distributor in Melbourne have begun to allocate demand risk to the private sector again. We expect this trend will continue, but with the private sector taking a more cautious approach to aggressive demand and revenue forecasts for greenfield transport projects.