Clarifying the PPP value proposition
Australia’s privately financed Public–Private Partnership (PPP) market is in decline. In 2024, the total value of PPPs reaching financial close was less than half the average between 2014 and 2019. The reasons are clear:
The risk-transfer advantages once touted over publicly financed models have largely vanished.
Whole-of-life benefits once unique to PPPs are now being delivered through Design–Build–Operate–Maintain (DBOM) contracts, without the added cost of private finance.
Even the funding benefits of user-charge PPPs are being replicated by applying tolls and user charges to publicly funded projects.
As a result, governments are increasingly sceptical. They question whether private finance really delivers value once its costs, rigidity, and complexity are accounted for.
This article cuts through the noise. It strips away benefits that can be achieved without private finance and focuses only on the unique sources of value that PPPs actually provide.
Governments no longer need PPPs for access to finance
Debt financing for infrastructure makes sense: it allows governments to deliver projects now while spreading the cost across future users. But state and territory governments now enjoy far cheaper and more reliable access to debt than they did when modern PPPs emerged in the late 1980s and 1990s.
Why should a government rely on a PPP special-purpose vehicle (SPV) raising expensive debt when the government itself can borrow more cheaply? The only rational reason is if private finance brings genuine benefits that outweigh the costs.
The usual PPP selling points — and why they’re overstated
PPP proponents typically cite a familiar list of benefits:
More risk transfer
Lower whole-of-life cost
Greater innovation
Access to private sector expertise
Stronger financial rigour
Long-term cost and time certainty
Maintenance discipline
Better asset utilisation
But almost all of these benefits can be replicated under a publicly financed DBOM contract. Both DBFOM (PPP) and DBOM models:
bundle design, build, operate and maintain into one contract,
transfer design, construction, and O&M risks,
incentivise whole-of-life cost optimisation, and
use performance-linked payment mechanisms.
The one material difference? The “F”. Under DBFOM, the contractor finances design and construction until operations begin; under DBOM, the government pays progressively for the design and construction. With direct access to low-cost debt, governments can mimic the payment profile of a PPP without the added cost and rigidity of private finance.
Where PPPs really add value
When we cut away the rhetoric, the true sources of additional value from private finance narrow to three things:
Project finance expertise
Additional financial rigour from capital at risk
A limited buffer of extra risk transfer
1. Project finance expertise
For most Australian projects, this adds little. Governments already know how to raise debt. The expertise becomes valuable only where the government wants to offload risks that the PPP company’s subcontractors won’t accept, such as demand risk.
2. Financial rigour from capital at risk
Here, PPPs do make a difference. Lenders and equity investors scrutinise costs, revenues, and risks with their own capital on the line. Oversight during construction (through cost-to-complete tests, draw-stop provisions, and monitoring by investors and lenders) and operations (via reserve accounts, distribution locks, and lender step-in rights) creates real discipline and early problem detection.
Governments can hire consultants to simulate this rigour, but without skin in the game, scrutiny is softer. Political realities also make government step-ins harder than lender step-ins.
3. A limited risk buffer
Equity and debt in the PPP SPV provide a cushion against risks that fall through the cracks — such as subcontractor insolvency or subcontractor liability caps. This buffer is real, but finite.
Experience shows governments may still have to intervene if the SPV itself tips into insolvency — as seen at Ararat Prison in Victoria and, more dramatically, with Carillion in the UK.
Demand Risk — The one stand-out case
Where PPPs undeniably deliver unique value is in user-charge projects. Here, governments can shift demand/revenue risk to investors and project financiers who are genuinely exposed.
But in Australia, such deals have virtually disappeared. The last greenfield demand-risk PPP was Brisbane’s Airport Link in 2008. Exceptions like NorthConnex arose only because the operator of a connecting toll road could forecast demand with unusual certainty.
Conclusion
Most of the so-called benefits of PPPs can be delivered without private finance. What remains unique is limited to:
transferring demand risk (rare today),
providing a buffer against subcontractor insolvency and default, and
applying real financial discipline through capital at risk.
In niche cases — such as when construction can’t be wrapped into a single D&C subcontract — PPP equity could add further value by managing integration risk. But to date, we have not seen this value materialise in Australia.
If private financiers want to revive the PPP model, they must stop overselling generic benefits and focus on these few areas where their involvement genuinely adds value.
