Nr

Question

YES

NO

User comments

EPEC comments and MGDD extracts (in italics)

Reference to MGDD

III.A. Public corporation

This sub-section is applicable if the partner is a wholly or almost wholly government-owned public corporation.

12

Is the PPP contract one of several commercial activities of the public corporation?

If the answer is "no", reclassification as a government unit is not required if the answer to questions 17 and 18 and 19 is "yes".

In cases where the contract with government is the exclusive source of revenues of the wholly or almost wholly public-owned corporation, payments by government under a PPP contract are a predominant part of the "private" partner's revenue. These payments should be analysed to determine whether they can be classified as sales (statistical notion of sales is specified in part V of the MGDD), particularly if this contract alone results in a significant change in the size or nature of its activities. This corporation could be reclassified as a government unit.

VI.5.3.1/26 VI.5.4.1/73 VI.5.4.1/74

13

Does the partner (in this case a public corporation) have the power to take decisions in respect of its principal function?

In order to be said to have the freedom to take decisions in respect of its principal function, a unit must:

i) be entitled to own goods or assets in its own right, which means that it will be able to exchange the ownership of goods or assets in transactions with other institutional units; and

ii) be able to take economic decisions and engage in economic activities for which it is itself held to be directly responsible and accountable at law; and

iii) be able to incur liabilities on its own behalf, to take on other obligations or further commitments and to enter into contracts.

If the entity does not have the freedom to take decisions in the exercise of its principal function, it should be combined with the unit that controls it.

I.2.2

14

Does the partner (in this case a public corporation) keep a complete set of accounts or would it be possible and meaningful, from both an economic and legal viewpoint, to compile a complete set of accounts if they were required?

In order to be said to keep a complete set of accounts, a unit must keep accounting records covering all its economic and financial transactions carried out during the accounting period, as well as a balance sheet of assets and liabilities. If the entity does not keep a complete set of accounts (or it would not be possible and not meaningful to compile a complete set of accounts if required), its partial accounts are to be integrated with the institutional unit's accounts. Units which are not individual legal entities but do keep a complete set of accounts, are engaged in market activity and whose economic and financial behaviour is similar to that of corporations are deemed to be free to take decisions and are classified as quasi-corporations in the corporations sector, outside the general government sector (criteria for classifying units to the government sector are specified in part I.2 of the MGDD).

I.2.2

15

Is the partner (in this case a public corporation) an institutional unit?

ESA95 sets out the rules according to which an entity can be considered as an institutional unit - a resident unit is regarded as constituting an institutional unit if it has decision making autonomy in respect of its principal function, and either keeps a complete set of accounts or it would be possible and meaningful, from both an economic and legal viewpoint, to compile a complete set of accounts if they were required.

The answer is "yes" and the partner is an institutional unit from a statistical point of view, if the answer to questions 13 and 14 are "yes". If the answer to any of the questions 13 or 14 is "no", the partner should be combined with the unit that controls it. If government controls it, the PPP project is on-balance sheet for government.

I.2.2

16

Is the partner (in this case a public corporation) controlled by government?

Control is defined in ESA95 as the ability to determine the general (corporate) policy or programme of an institutional unit by appointing appropriate directors or managers, if necessary. But even if this is not the case, the partner can still lack autonomy. Control may be exercised by government directly or indirectly (through a public holding corporation, for example). Owning more than 50% of the shares of a corporation is a sufficient, but not a necessary condition for control. Government can also exercise control over a corporation through special legislation, decree or regulation that empowers it to determine corporate policy or appoint the directors. The government secures control of a unit when it influences the management of the specific unit independently of the general supervision exercised over all similar units. Public intervention in the form of general regulations applicable to all units engaged in the same activity should not be however considered to be relevant when deciding whether the government has control over an individual unit.

If the answer to this question is "yes" and the answer to any of the questions 17 or 18 or 19 is "no", the project is on-balance sheet.

I.2.3 I.6.2./7

17

Are prices charged for sales by the partner (in this case a public corporation) economically significant?

If the answer is "no", the partner (in this case a public corporation) is a non-market unit.

A price is said to be economically significant when it has a significant influence on the amounts producers are willing to supply and purchasers wish to buy. Conversely, a price is said to be not economically significant when it has little or no influence on how much the producer is prepared to supply and is expected to have only a marginal influence on the quantities demanded. It is thus a price that is not quantitatively significant from the point of view of either supply or demand. Such prices are likely to be charged in order to raise revenue or achieve a reduction in the excess demand that may occur when services are provided completely free, but they are not intended to eliminate such excess demand.

I.2.4.1

18

Do the prices that generate sales cover more than 50% of production costs?

If the answer is "no", the partner is a non-market unit.

In distinguishing market and other non-market units by means of the 50% criterion, "sales" and "production costs" are defined as follows:

i) "sales" excludes taxes on products but includes all payments made by general government or the institutions of the EU and granted to any kind of producer in this type of activity, i.e. all payments linked to the volume or value of output are included, but payments to cover an overall deficit are excluded;

ii) "production costs" are the sum of intermediate consumption, compensation of employees, consumption of fixed capital and other taxes on production. For this criterion other subsidies on production are not deducted.

To ensure that the concepts "sales" and "production costs" are used consistently

when applying the 50% criterion, production costs should exclude all costs made

for own-account capital formation. The 50% criterion should be applied over a

period of years: only if the criterion holds for several years or for the present year

and is expected to hold for the near future, should it be applied strictly. Minor

fluctuations in the volume of sales from one year to another do not necessitate

reclassification of institutional units.

I.2.4.2 I.2.4.3

19

Is the partner (in this case a public corporation) a market unit?

The answer to this question is "no" when answer to any of questions 17 or 18 is "no". If the unit is financed by sales of goods and services at economically significant prices then it is a market unit. Market units are classified in the corporations sector (i.e. outside the government sector). Non-market units are units that provide most of their output to others free of charge or at prices that are not economically significant.

I.2.4

20

Does government provide significant recurrent support to the partner (in this case a public corporation)?

on-balance sheet

If recurrent support results in a shift from a market activity to a non-market activity of the partner, its classification in the government sector might be required. The term "significant" means that the majority of the production costs are no longer being covered by payments considered as "sales", but instead by transfers from government. If the answer is "yes", the assets will be assigned to the government's balance sheet as a result of the classification of the partner in the government sector.

VI.5.3.1/29

21

Has the partner (in this case a public corporation) shifted an activity from market to non-market?

on-balance sheet

22

Is the partner (in this case a public corporation) statistically classified outside the general government sector?

on-balance sheet

The answer is "yes" as long as it acts as a market unit (50% cost coverage criterion, see question 18) and payments by government can be considered as sales.

If the answer is "no", the project is on-balance sheet for the government.

VI.4.1.6/18 VI.5.3.1/25

23

Is the partner (in this case a public corporation) included in the general government sector?

on-balance sheet

The answer is "yes" if the answer to question 16 is "yes" and the answer to questions 17 or 18 or 19 is "no".

The general government sector may comprise four sub-sectors (central government, state government, local government, social security funds), although not all apply in every country.

I.2.1