With the exception of self funding arrangements such as tollways, most of the PPP arrangements provide for private sector financing of the facility, with the debt, in effect, repaid by the government over periods ranging from 15 to 35 years. The early contracts usually provided for operating leases which meant that the debt was not recorded as a liability in the government's financial report.
Several of these arrangements have subsequently been reclassified to finance leases, or will need to be reclassified to finance leases with the advent of the new IFRS rules on leases. Finance leases are regarded as government debt. Regardless of their classification, operating or finance, leases will continue to be met from public sector budgets many years into the future.
The Committee accepts that PPPs can be an appropriate form of funding public sector infrastructure in certain circumstances. More attention, however, needs to be given to improving public sector delivery of major projects which has the inherent advantage of obtaining cheaper finance. Whilst the cost of private sector provision of infrastructure may initially appear cheaper than public sector provision (according to the public sector comparator), over the long term period of the agreements the private sector looks to a rate of return on private equity of around 11 per cent or higher.79
The Committee considers that the long term financial implications of PPP arrangements on the state's finances need to be carefully considered by the government.
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79 R Opiat, Director, Business Development, Baulderstone Hornibrook, transcript of evidence, p.180