In 1999, the state government of Victoria, Australia awarded five franchises (which are similar to concessions) for the operation of trams and commuter rail in Melbourne, as well as regional trains in Victoria. According to the government's estimation, this would lead to a total savings of A$1.8 billion over the life of the contract. However, the total equity contribution from the sponsors was only $135 million, or 8% of the total investment.
The payment structure of the PPP heavily relied on expected growth in patronage and a reduction in costs. In fact, neither the growth nor cost reductions were realized. Consequently, the franchisees experienced losses. Because the project was highly leveraged and the equity at stake was thus relatively low, the operators had little to lose in quitting the projects. Therefore, they could credibly threaten the government with walking away from the franchises rather than to endure the losses or striving for improvements. This weakened the government's position vis-à-vis the existing operators. Eventually, the government was induced to renegotiate the contractual terms with those operators (Ehrhardt and Irwin 2004).