On 29 September 2016, Eurostat and the European PPP Expertise Centre (EPEC) launched "A Guide to the Statistical Treatment of PPPs", the purpose of which is to deliver some much needed clarity around the application of Council Regulation (EC) 549/13 on the European system of national and regional accounts in the European Union (ESA10) on the statistical treatment of PPPs. In other words, the guidance looks at statistical treatment through a "PPP lens".
The guide itself is well structured, setting out a three-step methodology for the assessment of the statistical treatment of a PPP. The three steps involve:
Step 1: identifying the key issues that typically influence statistical treatment on PPPs across the EU through key "themes" set out in the guidance (i.e. design and construction, operation and maintenance, compensation, relief and force majeure events, changes, changes in law, insurance, payment mechanisms, termination, compensation on termination, financing arrangements and government influence).
Step 2: analysing the significance of the issues against the categorisations in the guidance:
- Automatically on balance sheet
- Very high
- No importance to statistical treatment
Step 3: concluding the statistical treatment against the presumptions in the guidance (for example, according to Eurostat, there would be a strong presumption that the PPP is off balance sheet for government if, after step 2, it has no more than one "Very High" importance provision, no "High" importance provisions and no more than two moderate importance provisions).
The analysis must take place at financial close, and at any time during the course of a PPP project where a contract change may affect the risk/reward allocation. The principles in the new guide apply to all PPP contracts which reach financial close after 29 September 2016.
So, how might PPP models be affected in the UK?
It is now crystal clear that seeking to impose caps on SPV profits or authority sharing in lifecycle fund surpluses will automatically lead to on-balance sheet statistical classification.
Eurostat has also made it clear that PPP contract provisions that base the compensation payable on SPV default on the senior debt outstanding (such as termination for corrupt gifts and fraud) are akin to a financing guarantee and will influence statistical treatment, and any departure from the insurance premium risk/benefit sharing conditions described in the guidance will lead to a "High" categorisation, meaning a pass through approach would need to be carefully assessed in conjunction with all other issues influencing statistical treatment.
Although the guidance does not hold the answers to all the questions, we are now undoubtedly further forward in understanding how Eurostat will interpret common UK PPP provisions. However, one area that would perhaps have benefited from further clarity is government influence. In the modern era, where transparency and stakeholder interest are key to improving political perceptions of PPP, gauging the level of control the authority has over the asset and over its economic life will undoubtedly be important and will need to be carefully assessed by procuring bodies.