9. Use of modified financing structures
Modified financing structures should be considered for specific projects where project outcomes can be improved.
Typically, unless there are financial market capacity constraints, construction of PPPs is fully privately financed and effectively repaid by Government over the concession life. An alternative to full private finance is part public finance either during construction or by substantial repayments at or soon after construction completion.
In consultation with DTF, Procuring Agencies should consider government capital contributions where there are liquidity constraints or where there are opportunities to reduce project costs by reducing the level of private capital at risk during the operations period. It is important to maintain sufficient private sector capital 'at risk' to absorb the remaining risks the private party is taking and to incentivise desired performance.
Assessment criteria will be used to determine if a modified finance structure could deliver value for a specific PPP project either for liquidity or broader value for money reasons. The criteria to assess modified structures against a standard PPP approach are:
a. risk allocation;
b. cost and complexity;
c. preservation of the benefits of private finance;
d. competitive tension;
e. alignment of the tenor of finance with the project's risk profile; and
A partial capital contribution can be made by Government in two ways:
- as milestone payments during construction (e.g. for mega projects where the full private capital to fully finance construction cannot be raised); and/or
- as a lump sum payment once construction is complete to achieve greater value.
Government approval is required for the use of modified financing structures as part of the RFP approval process on a project specific basis. In consultation with Procuring Agencies, DTF will evaluate modified finance options against the above criteria.
The Government will also consider other structures as appropriate on a specific project basis.