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Appraising PPP Projects

412.2 Eurostat standards: ESA2010

The European System of Integrated Economic Accounts (ESA 2010) set up the regulations on how the EU member states prepare national accounts and produce comparable and homogeneous fiscal statistical information. ESA 2010 is the most recent version – until recently the standards applied have been those provided in ESA95.

The Manual on Government Deficit and Debt [37] provides further explanations through more specific rules on the classification of the assets (and corresponding liabilities) as to whether they should be included in the national or government balance sheet or not. The document stipulates several tests to evaluate the required accounting treatment of each PPP deal[38].

First, there is a clear distinction between user-pays PPPs and government-pays PPPs under ESA principles: user-pays PPPs (generally referred as concessions as per national accounting principles in the EU) are generally treated as out of the government balance sheet. ESA rules define a concession as a Design, Build, Finance, Operate and Maintain (DBFOM) contract where more than 50 percent of the revenues are user-payments.

The focus of ESA regulations is government-pays PPPs which are any PPP type of transaction where more than 50 percent of revenues comes from the public budget. The contract will be assessed so as to classify the asset as public or private following risk-reward principles[39].

Three risks (or group of risks) are defined for this purpose. They are construction, availability, and demand risks.

For a PPP asset to be regarded as private and not recorded as a public asset together with a corresponding public liability, the contract should transfer to the private party the construction risk and either the availability or volume risk. This test does not imply a full risk allocation, but it is necessary that “most of the risk” is transferred. Whereas no guideline provides a precise definition of when the majority of the risk has been transferred, in general terms it may be said that some risk retention by the public partner may be compatible with a private asset consideration, when those retained risks are clearly of an extraordinary nature (for example, force majeure).

To explain the full methodology to be followed, so as to decide where to classify the asset (within or off the government balance sheet), is beyond the scope of this PPP Guide. However, for the sake of a general vision, the following are situations that generally require a classification of the asset in the government accounts.

  • For any project where more than 50 percent of the financing is public finance (that is, grant financing even if it is deferred as long as those deferred construction payments are irrevocable and not conditional on performance);
  • For government-pays projects based on volume, where variations in demand do not impose a material financial impact on the project company and/or where there is a floor limit or a minimum guaranteed level of payments that cover a substantial part of the financial package regardless the actual level of demand;
  • For government-pays projects based on availability, where the failure to meet performance requirements does not impose a material financial impact in the project company and/or where there is a floor limit or a minimum guaranteed level of payments that covers a substantial part of the financial package regardless of the actual level of performance; and
  • Where the PPP is a government-pays PPP, and the PPP project company is public (that is, the project is an institutional PPP as described as chapter 1), and it is not constituted as an independent company with its own set of accounts and its own management materially independent of the government.


[37] Manual on Government Deficit and Debt – implementation of ESA 2010 Eurostat 2014.

[38] A summarized description of the principles of ESA 95 and comments on other standards can be found in Eurostat Treatment of Public Private Partnerships.

[39] European PPP Expertise Centre (EPEC) Risk Distribution and Balance Sheet Treatment: Practical Guide (2011) provides a checklist for assessing the accounting treatment or reflection of the PPP asset in national accounts. This guide refers to ESA 95, but in general terms its principles are in substance valid for ESA2010.

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