Public-Private Partnerships PPPs

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Public-Private PartnershipsPPPs

• Brett Kaufmann, Robin Lynch, Christoph Maier, and
• John Pitzer

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Public Private Partnerships

• What is a Public Private Partnership PPP?
• Government and a private corporation combine to
  provide a public service through the creation and
  use of new assets for a set time period

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Public Private Partnerships

• Why PPPs?
• 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.

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Public Private Partnerships

• Prison example usual arrangements
• Government borrows money, pays to get a prison
  built, runs the prison service
• PPP
• Private firm borrows money, builds prison,
  government pays firm to run prison service for
  government, hands over after 20 years

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Public Private Partnerships

• Accounting issues
• who is the economic owner of the asset?
• 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?

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Public Private Partnerships

• Who is the economic owner of the asset?
• Who bears the risks?
• Who reaps the rewards?
• Who is in control?

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Public Private Partnerships

• Economic ownership issues
• The private unit is the legal owner and user of
  the assets
• The government unit prescribes use of the asset,
  and takes it over at the end

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Public Private Partnerships

• What are the best criteria to apply to determine
• A. who is the economic owner of the assets?
• B. is a lease financial or operating?
• Which criteria are the clearest and most
  observable?

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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

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Public Private Partnerships

• The Canberra Group did not come to a conclusion
  on a single best way to determine economic
  ownership

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Public Private Partnerships

• Given we have decided who owns the asset
• how should we score the payments from government
  to private unit over the term of the partnership?

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Accounting Standards

• The Interpretations Committee (IFRIC) of the
  International Accounting Standards Board is
  developing financial accounting standards for
  PPPs.

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Accounting Standards (2)

• 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.

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Accounting Standards (3)

• IFRIC has not reached a decision about either
  major PPP problem.
• The disagreement is sufficiently sharp that the
  project may be referred to the parent
  International Accounting Standards Board.

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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.

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Public Private Partnerships

1. Evaluate IASB/IFRIC standards for consistency
   with SNA principles.

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Public Private Partnerships

• 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.

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PPP questions for the AEG

• Should PPPs be in the updated SNA?
• Is the list of criteria to help decide economic
  ownership OK? Should we include them?
• Given the continuing debate in accounting, is it
  OK to keep the description general?