On 29 September 2016, Eurostat and the European PPP Expertise Centre (EPEC) published the much anticipated guide on ESA10 for PPP projects - “A Guide to the Statistical Treatment of PPPs” (the “Guide”) which is located here http://bit.ly/2d81RR8.
The Guide seeks to provide clarity on the interpretation of the rules on whether a PPP project should be considered to be on, or off, government balance sheet. It is worth noting, however, that the Guide applies only to (i) projects achieving financial close after its publication and (ii) projects which are varied after its publication where such variation alters the balance of risk and/or reward under the contract.
The Guide has been published in recognition that PPPs have an important role in boosting infrastructure investment and uncertainties in balance sheet treatment flowing from ESA10 and the Manual on Government Deficit and Debt – Implementation of ESA10 published in March 2016 was impacting deal flow across the EU. The Guide therefore seeks to look at the statistical treatment of PPPs (i.e. is it on or off government balance sheet?) “through a ‘PPP lens’” to enable procuring authorities to make an early informal assessment as to likely balance sheet treatment.
The Guide is written with experienced PPP practitioners in mind and aims to provide a practicable, comprehensive, clear and stable set of guidelines. Of note is the aim that further substantive revision of the rules used by Eurostat for assessing the statistical treatment of PPPs is not expected in the near future unless it becomes necessary to address new practices emerging in the market.
The starting point with the Guide is to establish whether the project under consideration is a “PPP” or not. Having established that the project is a “PPP”, the Guide considers 16 key “themes” which apply across all PPPs rather than specific contract provisions; reflecting the fact that different approaches apply across the EU. These themes have been assessed and categorised as factors which do, or do not, influence the statistical treatment (with those influencing the statistical treatment being classified as Moderate, High or Very High importance) or, in some cases, the themes being sufficient in themselves to lead to the PPP as a whole being On Balance Sheet. The Guide also seeks to apply an assessment of the aggregation of the individual themes.
Whilst the Guide is very welcome and provides a wealth of information, the key message to emerge is that in the areas where PPPs have adapted to answer previous criticisms (e.g. increasing public sector participation, profit sharing, enhanced public sector refinancing gain shares), such features are adversely impacting balance sheet treatment. So, in essence, balance sheet treatment and the politically acceptable features of PPPs appear to be pulling in opposing directions.
It is for the national statistical authorities of EU Member States to consider how a PPP project should be treated (in the case of the UK, the Office of National Statistics). In Scotland, we await guidance from SFT in terms of next steps for hub projects currently in procurement and for future hub and PPP/NPD projects in the pipeline and indeed the very future of the NPD model itself.