Balance-sheet treatment of PPPs. Unlike governments in Chile, South Africa, and most of the rest of the world, Australian governments publish financial reports prepared according to modern accrual-accounting standards, specifically Australian equivalents to International Financial Reporting Standards (IFRS). That means that public contracting agencies and the government as a whole publish balance sheets. So the issue arises whether the assets and liabilities associated with a PPP belong on the government's balance sheet. Many PPPs now are on the government's balance sheet; on a recent count, fourteen of eighteen "Partnerships Victoria" projects were. PPPs not on the government's balance sheet are those in which the project company is considered to bear most of the project's risks, including the City Link and EastLink toll roads.
Accounting for PPPs remains controversial. In 2005, the Australian Heads of Treasuries Accounting and Reporting Advisory Committee recommended the approach that is currently used, in which PPP assets and liabilities appear on the balance sheet of the party that bears most of the risks and rewards normally associated with ownership-an approach based on Financial Reporting Standard 5 in the United Kingdom. 14The International Accounting Standards Board has recently agreed on a different approach. In 2006, it issued International Financial Reporting Interpretation Committee 12 (IFRIC 12), which, roughly speaking, says that project companies should recognize PPP assets and associated liabilities on their balance sheet if and only if they control those assets (IASB 2006). In 2007, the Australian Accounting Standard Board adopted IFRIC 12 as Australian Interpretation 12 (AASB 2007). Although IFRIC 12 applies only to project companies, and not to governments, it has indirect implications for governments: if an asset isn't on the project company's balance sheet, it seems natural that it should be on the government's. The International Public Sector Accounting Standards Board, whose approach will be influential in Australia, has proposed taking an approach similar to IFRIC 12, but hasn't yet issued an interpretation (IPSASB 2008). Reflecting the uncertainty, the public contracting agency for the EastLink motorway says that for the time being the EastLink project remains off balance sheet (SEITA 2008):
Due to the lack of applicable accounting guidance on the recognition and measurement by the State of assets arising from certain service concession arrangements, there has been no change in policy and those assets are currently not recognised.
Disclosure. Even when PPPs are not recognized on the government's balance sheet, they are typically disclosed in notes to the accounts. The Australian Accounting Standards Board's Interpretation 129 specifies that a PPP contracting agency must provide a description of the arrangement detailing its significant terms, the nature and extent of rights to use specific assets, obligations to acquire the property, renewal and termination options, the amount of revenues, profits, and losses recognised in the period (AASB 2007, which is based on the international interpretation SIC-129).
The following discussion of a planned PPP for a desalination plant comes from the Government of Victoria (2009, 100-101):
The Desalination Project was announced in June 2007, with a capital cost of $3.1 billion, as part of Our Water Our Future: The Next Stage of the Government's Water Plan. A private sector consortium will be responsible for the design, construction, financing, operations and maintenance of the facility, which will be located in the Wonthaggi region…
The project contract will most likely include an obligation for government to make a payment to the contractor should the Government terminate the contract for default. The quantum of the payment is not expected to exceed the remaining balance of the approved project funding at any time.
Publication of PPP contracts. Australia is also notable for publishing PPP contracts. The EastLink concession, for example, can be found on the website of the public contracting agency. 15 So someone skeptical of the contracting agency's disclosure quoted above can look up the contract (see Parts I and J in particular). True, the contract is 408 pages long. But critics of the government or the project can be expected to scour even long documents in search of provisions that could embarrass the government or otherwise undermine support for the project. So disclosure is significant, even if few people have the time and inclination to read the contract. Disclosure can of course embarrass the government. But it may also help to prevent bad deals and indirectly increase public confidence in PPPs. Here is the New South Wales Treasury on the subject:
A main public concern is the lack of transparency surrounding PPPs. In NSW, this has been address[ed] through the mandatory requirement of disclosing a contract summary, which has been certified as a fair representation by the Auditor-General. Contract summaries aim to provide a general overview of the entire contract. Project contractual documents are now also released to the public usually on the website of the procuring agency (Government of New South Wales 2006).
__________________________________________________________________________________
14 Part of the reason for controversy about balance-sheet treatment is that, as for contingent liabilities (footnote 3), risks and rewards (or control) can be shared in many ways, and any way of classifying arrangements into two types inevitably contains an arbitrary element.
15 See http://www.seita.com.au/pages/eastlink-publications.asp.