PFPs often involve the public sector purchaser leasing land to a private sector operator, invariably at a nominal rental, for the duration of the concession period.
Application Note F does not specifically address the appropriate treatment of such leases.
Accounting Standard AASB 117 Leases states that a characteristic of land is that it normally has an indefinite life and, if title is not expected to pass to the lessee at the end of the lease term, the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease (paragraph 14).
A land lease in connection with a PFP is normally for a finite term until the end of the concession period and so the private sector operator does not receive substantially all of the risks and rewards of ownership of the land. Therefore the lease should be treated as an operating lease.
A land lease in connection with a Privately Financed Project (PFP) should be treated as an operating lease.
The lessor should measure the leased land at its fair value in accordance with applicable accounting standards and NSW Treasury's accounting policy TPP 05-3 Valuation of Physical Non-current Assets at Fair Value. This would normally result in the land being measured in accordance with the revaluation model in Accounting Standard AASB 116 Property, Plant and Equipment.