17. PFI transactions are currently budgeted using UKGAAP i.e. FRS 5. HMT put forward proposals that Departmental budgets (as of 1st April 2009) must follow National Accounting standards. These standards are laid out in Part IV of the Manual on Government Deficit and Debt ("MGDD") which provides guidance on the application of the European System of Accounts 1995 ("ESA 95")).
18. The MGDD states that the assets that underlie PFI and similar transactions can only be considered as being off the public sector balance sheet where there is strong evidence that the private sector is bearing most of the risk and reward attached to the asset in question. For the purposes of simplicity, this determination focuses on the following three main categories of risk:
• Construction risk,
• Demand risk, and
• Availability risk.
19. Having analysed these risks, determination is made as follows:
• If the public sector carries construction risk, the assets are viewed as being on the public sector balance sheet for the purposes of the National Accounts.
• Where the private sector holds construction risk and either demand or availability risk, the assets are not considered to be on the public sector balance sheet for the purposes of National Accounts.
20. At the time of writing, further HMT guidance is awaited on when these proposals are to be adopted as Government policy and how Departments should implement it. For up to date policy and advice on budgeting for PFI transactions, project teams should, in the first instance, consult with their Financial Controllers/Chief Accountants.