Prior to the GFC, Australia experienced favourable financial conditions for the financing of PPP projects, with readily available long-term debt for the term of the project, at a relatively low cost. Furthermore, the base interest rate for PPP projects prior to the GFC was generally fixed for the life of the project. Refinancing for these projects is therefore not necessary, but can be undertaken opportunistically if market conditions allow the private party to replace its initial financing with lower-cost financing. It should be noted that there may be financial break costs associated with amending an existing fixed hedging profile.
Many pre-Partnerships Victoria PPP projects did not contain detailed provisions concerning refinancing. Since the original Partnerships Victoria guidance material in 2001, the government party adopted a consistent policy position to ensure all refinancing required government party consent, and ensure that the government party would share in any gains that could be generated by certain types of refinancing.
Early toll road projects were generally financed with shorter-term debt, and this debt would be refinanced as required as the project is de-risked following construction and traffic ramp-up. A practice developed whereby some refinancing was 'assumed' or 'scheduled' in the initial bid for the project. As the benefit of these refinancing activities was reflected in the bid price, the government party would not share in the gains generated by these refinancing activities. However, these project deeds provided that the government party would share in 'windfall' gains generated by non-scheduled refinancing.