The National PPP guidelines provide that 'Government will be entitled to a 50 per cent share of any Refinancing Gain where the projected equity return at the time of the Refinancing (taking into account any Refinancing) is above that reflected in the original Base Case Financial Model'15. Typically the projected equity return is improved where a refinancing involves lower margins and fees than originally forecast. And the government party also benefits from refinancing by sharing in the financial gain that is generated.
Where the State elects to take refinancing gain over the project term, rather than as a lump sum, the resultant reduction in service payments to the private party will need to be agreed following financial close of the refinancing. Project deeds generally allow the private party to recover prior refinancing losses before sharing in refinancing gains.
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15 Infrastructure Australia 2008, National PPP guidelines: commercial principles for social infrastructure, section 32.4.