The agreement usually stands terminated upon expiry of the time period stipulated in the termination notice. Termination payments are to be made upon termination of the agreement. It is also observed that the quantum of termination payments to be made parties inter se, are also subjects for arbitration. The performance security which is available with the public entity is usually forfeited in the event of termination owing to the default committed by the private partner.
For instance when determining payments on termination, the agreement would need to address many issues including the following:
1. treatment of contractors' costs and profits forgone as a result of termination - who is responsible for such payments?
2. treatment of mezzanine or other subordinated debt - whether these be dealt with as senior debt or equity?
3. treatment of cash balances in reserve accounts;
4. treatmfent of insurance proceeds; and
5. choice of a discount rate for the present value calculation - whether nominal or real rate, pre-tax or post-tax or should it be weighted average cost of capital?
Upon termination owing to an event of default of the private partner, the public entity would need to have taken possession of the underlying asset, take possession and control of all materials, stores, equipment, etc.; be entitled to restrain the private partner and any person claiming through/ under the private partner from entering on the project site and require the private partner to comply with the divestment requirements.