The public financial management framework for PPPs is discussed in the World Bank Institute's PPP Reference Guide, particularly in section 2.4, dealing with fiscal exposure, budgeting, and reporting.
This note sets out three key components of a Fiscal Commitment Management Framework, which are described in turn in the sections below:
a. Defining clear roles and responsibilities within government for managing the fiscal commitments of PPPs throughout the project cycle;
b. Building the requirement to assess and approve fiscal commitments into the PPP development and approval process (PPP development stage);
c. Ensuring fiscal commitments are adequately managed during PPP project implementation-by monitoring fiscal commitments at a project and portfolio level, reporting on and disclosing them as part of regular government financial reporting, and budgeting for them as needed (PPP implementation stage).
This Fiscal Commitment Management Framework should be part of a broader PPP governance regime. Effective and efficient PPP implementation requires also institutions and capacity for assessing PPP projects, procuring them, and managing PPP contracts during their long life. Without institutions and effective capacity for assessing projects, PPP fiscal costs (direct and contingent, explicit and implicit) will not be well identified, and so project selection and prioritization may be jeopardized. Without proper procurement, those costs cannot be minimized through competitive pressure. And without adequate contract management, fiscal costs tend to rise by force of exogenous change (technological, demographic, and commercial), policy action or inaction, and moral hazard or strategic behavior by the private partner.
PPP Units have a key role to play in managing fiscal commitments. PPPs require a design and procurement approach that significantly differs from the usual approach for four main reasons. They require complex financing arrangements, a broad identification and analysis of risks, an output and performance-based definition of project requirements, and a long-term assessment of the projects. The natural scarcity of government staff with the required knowledge typically invites governments to move scarce "PPP resource people" into central teams, known as PPP Units. PPP Units are usually given responsibility for fostering the PPP agenda-advising on policy, adapting the legal framework, preparing a pipeline of projects, structuring them, procuring them, even managing contracts on behalf of line ministries. Too much centralization risks weakening the governance regime for PPPs. The inevitable centralization of government PPP expertise should not imply the full centralization of PPP-related decision making. International experience shows that some checks and balances are needed, particularly when large infrastructure investments are at stake. Good decision processes require an informed debate between several government agencies. For example, some agencies will propose projects, others will select and prioritize them; some will prepare projects, others will review them.