Eurostat's ESA95 Manual on Government Deficit and Debt contains statistical rules for the assessment of the risk distribution in long-term projects between Government and commercial partners (PPPs and concessions)6. As SGs alter the distribution of risks in a project, they may influence the statistical classification of PPP assets on a Government balance sheet. In substance, Eurostat considers that SGs covering more than 50% of the capital cost of a given PPP project have a significant impact on the distribution of project risks between the parties to a contract. In such cases the PPP assets should be recorded on the balance sheet of the Government, which means that the project-related debt will be accounted for in full by the Government7.
In Eurostat's view, when classifying PPP assets it is necessary to look at the individual and aggregate impact of SGs in order to test whether these cover more than 50% of the capital cost of the project. Such analysis needs to take into account all types of guarantees provided to the PPP company, such as:
(i) partial or total loan guarantees;
(ii) minimum revenue guarantees;
(iii) minimum demand guarantees.
The aggregate impact of these SGs will determine whether the related PPP assets should be recorded on the Government balance sheet, irrespective of the probability of an SG being called.
The same rule applies where Governments undertake to reimburse all or part of a project's debt service through direct or indirect contractual provisions. For instance, where the PPP contract has an excessively lenient regime of service charge deductions (i.e. the PPP company will de facto rarely be liable for deductions as a result of the asset unavailability), Eurostat treats these provisions in the same manner as it treats guarantees.
As far as PPP contract termination provisions are concerned, Eurostat considers that, depending on their features, these may also have an impact on the risk allocation and should be considered when determining the statistical asset classification. Compensation may constitute legitimate reparation for the PPP company but it may also have economic effects similar to SGs where the PPP company (or its lenders) would recoup its investment under all circumstances. This will therefore have an impact on the risk distribution between the parties. Termination provisions which provide that, following a PPP company default, the Government is liable for compensation sums calculated on the basis of the capital or operation costs of the PPP assets (rather than the market value of the assets at termination) imply that most of the project risk is borne by the Government. Therefore, for statistical purposes, these termination provisions should be treated as guarantees. Equally, contractual obligations which provide that, following a PPP company default, the Government is liable for the payment of all or part of the debt outstanding, should be treated as partial (or full) credit guarantees by the Government.
Guidance: Prior to committing an SG to a PPP project, the Government may wish to assess whether the statistical classification of the PPP project asset has not changed as a result of the SG. In the event of doubt, Member State's statistical authorities can seek advice from Eurostat.
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6 For further details, please see "Accounting and Statistical Treatment of Public-Private Partnerships: Purposes, Methodology and Recent Trends", European PPP Expertise Centre (2010), at: www.eib.org/epec/resources/epec-eurostat-statistical-treatment-of-ppps.pdf .
7 It is important to note that if, in addition to SGs, the Government also provides financing to the PPP project, both the tests for majority financing and for SGs must be performed simultaneously. It is thus necessary to establish whether or not the total value of SGs and government financing exceeds 50% of the project's capital cost.