Historically, consortia bidding for Australian PPPs have been dominated by investment banks and/or contractors who are more interested in the income they can generate out of doing the deal or the construction work, than being a long-term 'owner' of the project. And when investment banks and contractors have taken equity interests in PPP projects, it has not been uncommon for them to sell their equity interests shortly after financial close or before the completion of construction. |
| "Government should encourage 'owner-led' bids." |
Governments at various times have responded by expressing a desire for more 'operator-led' consortia. It should be remembered that limited recourse financing will require the SPV to transfer most risks associated with the operation of the infrastructure facility to an operator with the expertise and balance sheet strength to manage such risks. Further, having accepted such risks, the interests of the operator will conflict with the interests of the equity investors from time to time. If the operator is performing poorly and is unable to lift its performance to an adequate level, the equity investors may wish to appoint a replacement operator.
Accordingly, government should instead be structuring its tender processes and evaluation criteria to encourage consortia that are led by those who will be the long-term 'owners' of the project. Of all the private sector participants in PPP, it is the long-term owners whose interests will be most aligned with those of government.