A Privately Financed Project (PFP) is a contractual arrangement under which the private sector is responsible for supplying and operating infrastructure that traditionally would have been provided by the public sector. Under a PFP a public sector entity (the concession provider, termed in this paper 'the purchaser') arranges for the private sector (the operator) to provide the infrastructure and associated services for an agreed period (the concession period).
It is integral to most PFPs that the private sector operator designs, builds, finances and operates infrastructure in order to provide the contracted service. Examples of such infrastructure include roads, railway stations, hospitals, water treatment plants, prisons and car parks.
Service provision models range from private sector control (eg toll roads), where the private sector builds, owns and operates the infrastructure asset, to a model in which the private sector builds and supplies the asset and public sector specialists operate the service, eg schools operated by the public sector.
This policy provides guidance to aid in analysing whether the public sector purchaser or the private sector operator has an asset of the infrastructure that is the subject of the PFP.
Where a PFP contract can be separated into elements that operate independently of each other, and where some of those elements relate only to services rather than the infrastructure, any such service elements are excluded from the analysis as they are not relevant to determining which party has an asset of the infrastructure.
Once any separable service elements have been excluded, PFPs can be classed into those where the only remaining elements are payments for the infrastructure and those where the remaining elements include some services. Where the only remaining elements are payments by the public sector purchaser for the infrastructure, the PFP should be accounted for as a lease in accordance with Accounting Standard AASB 117 Leases. Where the remaining elements include some payments for services, the PFP should be accounted for in accordance with this policy as set out below.
For those PFPs that fall directly within this policy, the question of which party should recognise the infrastructure as its asset should be determined by considering which party has the majority of the risks and benefits in relation to the infrastructure.
Depending on the particular circumstances, a range of factors may be relevant to this assessment. The principal factors to be considered, where relevant, are:
• demand risk
• the presence, if any, of third-party revenues
• who determines the nature of the property
• penalties for underperformance or non-availability
• potential changes in relevant costs
• obsolescence, including the effects of changes in technology
• the arrangements at the end of the contract and residual value risk.
Where it is concluded that the public sector purchaser has an asset of the property and a liability to pay for it, these should be recognised in its balance sheet.
Where it is concluded that the public sector purchaser does not have an asset of the property, there may be other assets or liabilities that require recognition. These can arise in respect of up-front contributions, the residual interest in the infrastructure, and associated leases of land.
In relation to up-front contributions, the accounting treatment depends on whether the contributions give rise to future benefits for the purchaser. If they do, they should be deferred and recognised in the operating statement progressively over the period of the benefits. If they do not, they should be recognised in the operating statement immediately.
In relation to the residual interest in the infrastructure, the accounting treatment depends on the amount at which the infrastructure will transfer to the purchaser at the end of the PFP. Where the contract specifies the amount (including zero) at which the property will be transferred to the purchaser at the end of the contract, any difference between that amount and the expected fair value of the residual estimated at the start of the contract should be recognised progressively over the term of the contract. Conversely, where all or part of the property will pass to the purchaser at the end of the contract at its then market value, no accounting is required until the date of transfer as this represents future capital expenditure for the purchaser.
Any land leased by the purchaser to the operator as part of the PFP should be accounted for as an operating lease in accordance with Accounting Standard AASB 117 Leases.