With the present financial crisis, governments have significantly extended their support to PPPs. Limited liquidity in the PPP financing markets, increased risk-aversion of lenders and sponsors and a higher cost of capital have led governments to take a more active role in providing direct and indirect financial support to PPP programmes. So far, government support has often been provided through financing non-government partners' capital costs, granting extensive guarantees to creditors as well as agreeing to more generous PPP contract termination clauses.
Government commitments designed to provide direct or indirect financial support during the lifecycle of the project as well as at on termination of the PPP contract may substantially influence the risk allocation between the parties to a PPP. Therefore, the nature and degree of government support may become factors which cause assets to be reported on government balance sheets.
The Eurostat principles are such that where the impact of government support results in most of the project risk being borne by the government, the asset underlying the PPP should be reported on the government balance sheet. However, the impact assessment of the support mechanisms introduced by governments in the context of the crisis has raised a number of practical issues (e.g. temporary nature of the measures, economic and financial complexity) such that a deeper risk transfer analysis is required.
Three separate issues (i.e. capital contributions, guarantees and termination payments) are considered below. However, government support measures should be considered jointly in assessing the degree of risk transfer. A combined effect of government support measures may lead the government to cover a clear majority of the capital cost, while individual measures may not.