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Establishing a PPP Framework

21.8.6 Controlling Aggregate Fiscal Exposure to PPPs

In addition to considering fiscal exposure on a project-by-project basis, some governments introduce targets or rules limiting aggregate exposure. Given the difficulties in deciding whether a particular PPP commitment is affordable, limits on aggregate exposure can be a helpful way to ensure the government’s total exposure to PPP costs and risks remain within manageable limits. Examples of PPP fiscal limits are presented in box 2.22.

BOX 2.22: PPP fiscal limits

  • Peru’s Legislative Decree No. 1012 (2008)[153] states that the present value of the total fiscal commitments to PPPs firm commitments and measurable contingent liabilities shall not exceed 7 percent of gross domestic product (GDP). However, every three years, the President may, with the endorsement of the Ministry of the Economy and Finance, issue a decree increasing or decreasing this limit, depending on the infrastructure needs of the country;
  • In Hungary, the public finance law limits the total nominal value of multi-year commitments in PPPs to 3 percent of government revenue (Act 38 of 1992, Article 12, as quoted in Irwin paper); and[154]
  • Brazil’s Federal PPP law (Law 11079, 2004) limits the total financial commitments undertaken in PPP contracts to a maximum of 1 percent of annual net revenue.[155] Hemming notes that accounting rules for PPPs are being defined, including the valuation of guarantees and their treatment in relation to this limit.

However, creating PPP specific limits distinct from other limits on public expenditure can simply create incentives for agencies to choose public procurement over PPP even when PPP would provide better Value for Money.

An alternative, therefore, is to incorporate limits on PPP commitments within other fiscal targets. For example, some governments introduce targets or limits on public debt. Some types of PPP commitment may be included within measurements of public debt, following international norms or national rules. In such cases, an appropriate approach could be to establish a limit on “debt plus PPP commitments”. In any control on total PPP exposure, a difficult issue will be whether to include contingent liabilities, and if so, how to value them.

When aggregate exposure is limited, each PPP will have to be tested against such overall limits, under the respective appraisal exercises as part of the approval process (see chapter 4.12).

 

[153] President of Peru (2008) Legislative Decree No. 1012.

[154] Irwin and Mokdad (2010) Managing Contingent Liabilities in Public-Private Partnerships: Practice in Australia, Chile, and South Africa. World Bank/Public Private Infrastructure Advisory Facility.

[155] Brazil, Presidency of the Republic (2004) Law 11079 ("Federal PPP Law").

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