Public-Private Partnerships PPPs Brett Kaufmann, Robin Lynch, Christoph Maier, and John Pitzer 1
Public Private Partnerships Ø What is a Public Private Partnership PPP? Ø Government and a private corporation combine to provide a public service through the creation and use of new assets for a set time period 2
Public Private Partnerships Ø Why PPPs? Ø PPPs can bring private sector best practice to government service delivery, to achieve best value for money. The financial arrangements allow raising money in the market free from fiscal policy and public finance constraints. 3
Public Private Partnerships Ø Prison example – usual arrangements Ø Government borrows money, pays to get a prison built, runs the prison service Ø PPP Ø Private firm borrows money, builds prison, government pays firm to run prison service for government, hands over after 20 years 4
Public Private Partnerships Ø Accounting issues Ø who is the economic owner of the asset? Ø How do we score the payments from government to private operator, and how do we record the transfer of the asset back to government at the end of the agreement? 5
Public Private Partnerships Ø Who is the economic owner of the asset? Ø Who bears the risks? Ø Who reaps the rewards? Ø Who is in control? 6
Public Private Partnerships Ø Economic ownership issues Ø The private unit is the legal owner and user of the assets Ø The government unit prescribes use of the asset, and takes it over at the end 7
Public Private Partnerships Ø What are the best criteria to apply to determine Ø A. who is the economic owner of the assets? Ø B. is a lease financial or operating? Ø Which criteria are the clearest and most observable? 8
Public Private Partnerships Determine the economic owner using the same principles as for any other asset. Must be general. What are the principles? Depends on the final agreed treatment of leases and the definition of an asset 9
Public Private Partnerships Ø The Canberra Group did not come to a conclusion on a single best way to determine economic ownership 10
Public Private Partnerships Ø Given we have decided who owns the asset: Ø how should we score the payments from government to private unit over the term of the partnership? 11
Accounting Standards Ø The Interpretations Committee (IFRIC) of the International Accounting Standards Board is developing financial accounting standards for PPPs. 12
Accounting Standards (2) Ø The complexity of PPPs and the dependence of national accountants on government financial accounting data makes it highly desirable to have a common treatment of PPPs in the SNA and in the accounting standards. 13
Accounting Standards (3) Ø IFRIC has not reached a decision about either major PPP problem. Ø The disagreement is sufficiently sharp that the project may be referred to the parent International Accounting Standards Board. 14
Public Private Partnerships Statistical offices may not have the resources to evaluate each PPP. Recognize dependence on financial accountants, but be sure SNA principles are followed. 15
Public Private Partnerships 5. Evaluate IASB/IFRIC standards for consistency with SNA principles. 16
Public Private Partnerships 6. Detailed rules for the transactions resulting from a PPP are not possible. Consider all of the facts and circumstances. Use a treatment that brings out the underlying economic relationships. 17
PPP questions for the AEG Ø Should PPPs be in the updated SNA? Ø Is the list of criteria to help decide economic ownership OK? Should we include them? Ø Given the continuing debate in accounting, is it OK to keep the description general? 18
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