PPPs and government balance sheets: clarifying EU rules

Photo Credit: Pedro Ribeiro Simões via Flickr Creative Commons 

Should PPPs in the European Union be included in government deficit and debt figures? A new publication provides guidance for PPP practitioners.

A public-private partnership (PPP) is usually viewed in the context of a single infrastructure or public service project. But PPPs are also part of a bigger economic picture, one that includes governments’ finances.

In the European Union (EU), member states are bound by rules that determine whether or not PPP investments may be excluded from government deficit and debt figures. The EU’s statistical office, Eurostat, applies and enforces these rules. In certain cases, the deficit and debt impact of applying the Eurostat rules has been a factor influencing EU governments’ decisions to procure projects as PPPs.

Rules matter when planning PPPs

But the rules can be tricky. Many governments and PPP stakeholders have been voicing concerns about a lack of definition and clarity in how the rules are expressed, inconsistency in how they are applied, and the number of times the rules change. The lack of understanding or certainty on how the Eurostat rules are meant to be interpreted and applied to individual PPPs has caused problems for governments planning and procuring PPPs, particularly those for whom the debt and deficit impact is critical. A number of PPP projects and programs have been delayed and disrupted as a result of this, at significant cost for all those involved.

Hearing and seeing the difficulties and frustrations that many were facing, the European PPP Expertise Centre (EPEC), which is part of the European Investment Bank’s Advisory Services, approached Eurostat to look at what could be done. The result is a new publication—A Guide to the Statistical Treatment of PPPs—that brings together the commercial PPP expertise of EPEC and the technical statistical expertise of Eurostat.  It is available on the EIB website and the World Bank’s PPP Knowledge Lab.


Clarity for PPP practitioners

The Guide provides a clearer picture on when and how PPPs should be accounted for by governments. In contrast to the Eurostat rules themselves, which are written for statisticians, the Guide has been written with PPP practitioners in mind, using the style and language of a typical PPP contract . It describes the typical contract provisions used in PPPs across the EU and states Eurostat’s official position on which provisions or combinations of provisions would bring a project within the government’s deficit and debt. The Guide is intended to be a tool used by PPP stakeholders to provide clarity and certainty as they prepare and negotiate PPP contracts , and to better understand the debt and deficit implications of the deals they propose to procure and sign.

The Guide deals with issues that apply uniquely to EU Member States, however, it is likely to be of interest more widely as a reference point for typical PPP contracting, structuring, and risk and reward sharing practices observed across the EU. It is important to stress to anyone that reads the Guide for that purpose, that it does not endorse the value for money, bankability or affordability implications of the practices it describes.

The Guide has been very positively received by PPP stakeholders across the EU, which include the public sector directly affected by the debt/deficit impact, and the private sector affected by PPP procurements stopping and starting (or not starting at all) while their public sector counterparts struggle with this issue. The Guide is already being put to the test on the ground in several EU Member States, and over the coming months, the market can expect to see governments move projects forward with greater confidence.

• Download a PDF copy of A Guide to the Statistical Treatment of PPPs here (in English).

Disclaimer: The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.