4.4 Regardless of whether or not the other actions listed in para. 4.2 above are taken, if there is to be an increased use of PPPs the center should work to strengthen oversight of their fiscal costs. PPPs can involve substantial contingent liabilities as well as long-term purchase obligations. Fiscal Responsibility Acts passed at the central level and by the states of Karnataka, Uttar Pradesh, Punjab and Kerala all include statements on fiscal prudence and treatment of contingent liabilities that are relevant to PPPs. State legislation typically limits total liabilities as a percentage of GDP and includes provisions related to contingent liabilities. Karnataka's Act breaks new ground by including off-budget borrowing and other debt-equivalent instruments within the annual borrowing (consolidated fiscal deficit) cap. Nonetheless, implementing this may not be straightforward.6 More generally, while debt guarantees are often published, the values of other kinds of guarantees are not. Nor is it clear that governments value or calculate in-kind support provided to many PPPs, for example real estate development options, which can be a further source of fiscal costs as well as an important factor in deciding whether a PPP offers value-for-money.
4.5 There are only emerging practices and models internationally since this is also new for most other countries. In general, reporting and disclosing PPP contracts and government guarantees and reporting the stream of future payments under existing PPP contracts would be good practice and, where a PPP program is of fiscal significance, a report on PPPs covering these areas should be included as part of the budget documentation. Some countries have started to implement enhanced programs of disclosure. Chile, starting with the October 2003 Report on Public Finances, now reports the contingent liabilities arising from PPPs as well as the cash payments to and from concession firms. Monte Carlo simulations and option-pricing models are used to value minimum revenue guarantees, revenue sharing agreements, and the exchange rate guarantees.
4.6 The center should work to strengthen oversight of the fiscal costs of PPPs, including assisting state governments in this area and enhancing analysis of the fiscal costs of PPPs in central government monitoring of the fiscal position of the states. Capacity-building efforts should be led by the GoI Finance Ministry, with involvement from other agencies, such as the Reserve Bank of India, as necessary. This capacity building effort should go forward regardless of any other steps taken by the center.
___________________________________________________________________________
6 It is understood that the annuity scheme used to finance the expansion of the existing Bangalore-Mysore road has not been included in these consolidated calculations even though it could be regarded as a "debt-equivalent" instrument.