Part IV, 4.2 of the MGDD, titled "Long term contracts between government units and non-government partners (Public-private partnerships)" discusses the National Accounts issues raised by a number of different partnering arrangements. However, Part IV, 4.2 of the MGDD is clear that the specific guidance that it contains on assessing the balance sheet treatment of assets and associated liabilities for the purposes of the National Accounts can only be applied to one particular type of partnering arrangement, which it defines as "services purchased by government on the basis of dedicated assets".
The following is an extract from the MGDD (Part IV, 4.2, section 1.2.g):
"It [services purchased by government on the basis of dedicated assets] tends to occur in areas of activity where government has a strong involvement (transport, education, health, and security). Government concludes with one or several experienced commercial partners, directly or through a special legal entity set up for the specific purpose of a PPP, a contract for the delivery of services derived from a specific asset.
"This type of contract mentions specifically-designed assets which generally need a significant initial capital expenditure (which is precisely why government uses such arrangements in many instances), and the delivery of agreed services, requiring the use of these assets and according to given quality and volume standards that are specifically defined in the contract. It is in this sense that these contracts differ from leases. The contract may refer either to a new asset or to significant refurbishment, modernisation or upgrading of existing assets, including assets already owned and managed by government but provided that the expenditure for renovation, etc., will represent a predominant part of the new value of the asset after renovation.
"A key feature of these PPPs is that government is the main purchaser of the services, through regular payments, once the assets are supplied by the partner, whether the demand originates directly from government itself or from third party users (as for health and education services, and some types of transport infrastructures). There is no need to specify a given threshold on this point. Strictly speaking, it means just above 50% but in reality this percentage tends to be much higher, generally above 90%, because most contracts refer to "typed" economic models.
"The use of the assets is specifically defined in the contract and the partner is necessarily limited as to how the assets may be used. For example, the partner cannot dispose of them at will, and in some instances, has to give priority to government users over other possible users. Note that many contracts do not rule out payments by "third parties", but these are likely to represent a minor (even negligible) part of the partner's revenue and frequently refer to a secondary activity associated with the dedicated assets (for instance "private" use of some infrastructure on given period or fees collected for telephone cables laid along, or under, a motorway)."
In the context of the UK, the expectation is that the majority of standardised PFI transactions, i.e. those where the private sector supplies access to an underlying asset to a public sector entity in return for fixed or variable payments that are procured under contracts based on Standardisation of PFI Contracts version 4 (March 2007) ("SoPC 4"), would meet the definition set of services purchased by government on the basis of dedicated assets, as set out in the MGDD.
The guidance in this paper should not be used to assess either standard, asset only, lease transactions (including leases where minimal services are provided, i.e. serviced office accommodation) or transactions where the private sector receives a significant proportion of income from third party sources. The MGDD states that strictly speaking the threshold at which significant is reached is just over 50%, although typically the types of project that will be considered as being within the scope of this paper will receive in excess of 90% of their income from selling services directly to government.
As such, except for those transactions where the end-user or other third party pays directly to access the asset, it is expected that any transaction which for the purposes of the production of an entity's financial statements needs to be assessed under IFRIC 12, also needs to be considered under the guidance contained within this paper. Note that this may necessitate an analysis of transactions that previously may not have been considered to be PFI contracts.