Long-term PPP contracts raise questions about the recording of project assets on either the government's balance sheet or on the private partner's balance sheet3. Recording them on the government's balance sheet may have important consequences for government statistics, both for government deficits and for government debt4.
The "excessive deficit procedure" defined by the Maastricht Treaty (Article 1045) has been in force in the European Union since 1994. The European Commission (Eurostat6) endeavours to guarantee a proper application of the European System of Accounts7 (ESA95), in order to obtain reliable and comparable statistics8 on the debt and deficit position of Member States. Since December 1996, ESA959 has been the conceptual reference framework for these data. Its use is legally binding in the European Union.
ESA95 is a system for producing economic statistics and does not contain explicit rules for PPPs. ESA95 seeks to record the economic reality of transactions rather than their legal form. This can involve looking through complex financial operations to understand who bears the financial risks and who benefits from the rewards, irrespective of how the contracts have been legally constructed.
In practice, it has been necessary for Eurostat to supplement the general rules of ESA95 with additional guidance relating for PPPs. A New decision of Eurostat on deficit and debt - Treatment of public-private partnerships10 was published on 11 February 2004 and concerns the statistical treatment of long-term partnership contracts between government and non-government units. It specifies the treatment of PPPs and its recording in government deficits and debt.
This decision led to more descriptive guidance, also issued by Eurostat in 2004 - Long term contracts between government units and non-government partners (Public-private partnerships) (the "old manual"11) - and expanded in 2010 by the revised Manual on Government Deficit and Debt - Implementation of ESA95 (referred to below as "MGDD"12).
MGDD is an indispensable complement to ESA95. It assists greatly in calculating government deficit and debt data. The 2010 edition is an important update of the manual. In comparison with the previous edition, MGDD clarifies certain issues and contains additional guidance on government financing of PPP projects, government guarantees and contract termination provisions.
In the event of doubt as to whether the ESA95 and MGDD rules apply to a given contract, the national statistical offices of EU Member States can ask Eurostat for its assessment. Such a request can refer to a project that has already been implemented (ex post) or one that is still under preparation (ex ante). Eurostat however only gives opinions on projects that are already structured and does not issue guidance on hypothetical cases or different variants of the same project13. Its opinions, in the form of letters to national statistical offices, are published on the Eurostat website14.
_________________________________________________________________________
3 The International Public Sector Accounting Standards Board ("IPSASB") noted that the lack of specific guidance on PPPs for the public sector had occasionally resulted in PPP assets not being reported in either the government's or the non-government partner's balance sheet. As a result, IPSASB has started a consultation process on the treatment of PPPs within the public sector. For more information, see http://www.ifac.org/Guidance/EXD-Details.php?EDID=0134
4 Manual on Government Deficit and Debt - Implementation of ESA95, Chapter VI.5.2.3.
5 Currently Article 126 TFUE.
6 "Legal framework for European statistics - The Statistical Law" is available at http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-31-09-254/EN/KS-31-09-254-EN.PDF
7 Council Regulation (EC) 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community (OJ L 310, 30.11.1996, p.1), as amended. The European Parliament is working currently on a revision of ESA95. For further details please visit http://www.europarl.europa.eu/oeil/FindByProcnum.do?lang=2&procnum=COD/2010/0374
8 Manual on Government Deficit and Debt - Implementation of ESA95, Preface.
9 A user-friendly version of ESA95 is available at http://circa.europa.eu/irc/dsis/nfaccount/info/data/esa95/esa95-new.htm
10 The Eurostat Decision of 11 February 2004 is available at: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-11022004-AP/EN/2-11022004-AP-EN.HTML
11 The "old manual" is available at http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BE-04-004/EN/KS- BE-04-004-EN.PDF
12 MGDD is available at http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-RA-09-017/EN/KS-RA-09-017- EN.PDF
13 Guidelines for Eurostat's ex ante advice on methodological issues are available at http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/documents/EUROSTAT_ADVI SE_19_JULY_2006.pdf
14 Available at http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/methodology/advice_member_states