esa95 eurostat principles 41274426
TRANSCRIPT
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Budgetscoring and accounting for PPPsThe Eurostat approach (ESA95)
Marcin Woronowicz
European Commission, Eurostat, Unit C.3 Public finance
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Content
Excessive Deficit Procedure (EDP) context
European system of accounts (ESA95) principles
economic reality / risks and rewards
Manual chapter on PPPs accounting for governmentsector
Application in practice
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EDP context
EU fiscal rules for the Economic and Monetary Union andthe Excessive Deficit Procedure (EDP)
The EU Treaty sets governments fiscal targets according to
national accounts rules
Deficit: net lending / net borrowing of general government
Debt: main categories of liabilities of general government
Comparability between EU Member States
The EU national accounts framework: European system ofaccounts (ESA95)
A legal act: EU Council and European Parliament regulation
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EDP context
European Commission (Eurostat) legally responsible forassessing the quality of government deficit and debtdata
Amendments / reservations to the notified data
Regular EDP dialogue visits to Member States
Interpretation of ESA95 rules for EDP purposes byEurostat
ESA95 Manual on government deficit and debt (MGDD)
Provision of methodological advice on complexgovernment transactions (advice letter published)
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EDP context
Methodological work on PPPs Task Force convened in 2003 (with Member States, DG
TREN, EIB)
Financial Accounts Working Group
Committee on Monetary, Financial and Balance of PaymentsStatistics (CMFB)
Statistical institutes and central banks + ECB
Vote in 2004: 26 to 1
Eurostat decision 11 February 2004 News Release, including the CMFB opinion
Chapter of MGDD on PPPs, based on the decision
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ESA95 principles
General government delimitation
Market / non-market
Very different from the concept of public sector (accounting)
Economic reality takes precedence over legal formof a transaction (substance over form)
Focus on risks and rewards
Financial vs. operating lease
Securitisation (MGDD chapter: however new chapter hasslightly shifted the role of risks and rewards)
Other cases: e.g. repurchase agreements, recognition of equitystakes in entities
Who bears risks and rewards attached to the asset?
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MGDD chapter on PPPs
Scope of the MGDD chapter on PPPs
PPP features:
New or significantly refurbished asset
Government paying operator fees for the agreed service
Service often used by other users; e.g. availability fee /shadow tolls
Variety of operators: private, but also public corporations,even SPVs
In the ESA95 meaning, in case of non-government userspurchase, contracts are concessions instead ofPPP
Users pay for the service, e.g. road toll
Not regulated by the PPP decision
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MGDD chapter on PPPs
Asset on the private sector balance sheet if majority ofrisks and rewards have been transferred to the private
partner
Three risks considered for practical reasons:
The construction risk
The availability risk
Demand risk
Private partner must bear the majority of:
The construction risk
Any of other two risks
Some further considerations might be necessary:
To whom final allocation of the asset after the PPP?
Government provides financing or guarantees?
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MGDD chapter on PPPs
Construction risk: covers events related to the initial state of the involved
asset(s). In practice it is related to events such as late delivery,non-respect of specified standards, significant additional costs,technical deficiency, and external negative effects (includingenvironmental risk) triggering compensation payments to thirdparties.
E.g.:
Who eventually supports overruns / profits from savings onconstruction costs?
Are there penalties for delays / unfulfilled technicalspecifications?
Who pays if the asset has not been delivered?
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MGDD chapter on PPPs
Availability risk:
covers cases where, during the operation of the asset, the
responsibility of the partner is called upon, because ofinsufficient management (bad performance), resulting in
a volume of services lower than what was contractuallyagreed, or in services not meeting the quality standardsspecified in the contract
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MGDD chapter on PPPs
Availability risk:
E.g.:
Significant financial penalties for non-availability or lowlevel of service? Non-availability = zero fee?
Is the application of penalties automatic or are delaysadmissible ?
Can penalties be recovered by the partner / operator?
What procedure in place for fees adjustment?According to which cost indexes?
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MGDD chapter on PPPs
Demand risk:
covers the variability of demand (higher or lower thanexpected when the contract was signed) irrespective of theperformance of the private partner. In other words, a shift
of demand cannot be directly linked to an inadequatequality of the services provided by the partner. Instead, itshould result from other factors, such as the businesscycle, new market trends, a change in final userspreferences, or technological obsolescence. This is part ofa usual economic risk borne by private entities in a
market economy.E.g.:
Amount of fees / shadow tolls in function of demand?
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MGDD chapter on PPPs
Further considerations:
Financing / guarantees by government might alterevaluation of construction risk
Transfer of the asset to government after the contract? Forwhat price?
Partner / operator a 100% public owned corporation?Special monitoring needed
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Application in practice
Eurostat requires Member States to follow nationaldevelopments
Dialogue with National Statistical Institutes on statistical
treatment of PPPs in government accounts
Large number of PPPs recorded off-governmentbalance sheet
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Application in practice
International comparison:
IPSASB work on service concession agreements(eventually new accounting standard?)
Focus on notion of the control of the asset during theconcession period and asset reversal
IMF
Emphasis of the legal ownership of the asset