Government financing of the capital costs of a PPP project affects the transfer of construction risk between the parties to the contract. The government may finance capital costs through loans, grants, milestone or bullet payments. This government financing is normally provided with a view to reducing the project's financing cost or to meet a liquidity shortfall. Such financial support may have an impact on the transfer of the construction risk as Eurostat considers financing risk as an integral part of construction risk. Indeed, the EDP Manual does not consider the financing risk as one of the major project risks on which asset classification is based, the rationale being that a PPP is a contract for a particular service and the provision of the underlying asset and its financing is the responsibility of the private partner.
If a government finances the majority of the capital costs associated with a PPP asset, Eurostat considers that the government implicitly bears the majority of the construction risk. For asset classification purposes, an assessment needs to be made as to whether the total percentage of financing provided by the government exceeds fifty percent of the capital cost associated with the asset.
When a government bears the majority of the financing risk (whether through debt, equity or direct or indirect guarantees), the PPP assets should be reported on its balance sheet. This does, however, not apply to government undertakings towards the re-financing of a PPP project post-completion as, in this case, the financing risk refers to the original financing put in place to deliver the project assets. This is clearly an important point in the context of a number of PPP support measures put in place by Member States.