A number of Australian PPPs have failed because, amongst other reasons such as over-optimistic revenue forecasts, the SPV's financing structure was too aggressive (i.e. too highly leveraged) and consequently could not absorb unexpected costs or revenue shortfalls.
Although the financial consequences of these failures have generally been borne by the equity investors and, in some cases, the debt financiers, government has suffered political damage from being associated with the failure.
The risk of such failures can be reduced by government encouraging bidders to adopt less aggressive financing structures. This can be done by making 'the robustness of the financing structure' one of the evaluation criteria against which bids are assessed, and by giving more weight to this criterion. Government would, however, need to be prepared to pay for the additional financing costs associated with a more robust financing structure, which would manifest in a higher service payment or government capital contribution.
More robust financing structures will also improve the credit rating of PPP projects and, consequently, their attractiveness as an equity investment opportunity.