## d8-publicprivate-partnerships

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### SECTION I: THE ISSUE — Background
- Definition: Public-Private Partnerships (PPPs) are long-term contracts between two units whereby one unit acquires or builds an asset or set of assets, operates it for a period, and then hands the asset over to a second unit (BPM6, paragraph 4.111).
- Scale and trends:
  - Number of PPP projects globally estimated to have grown to over 6.4 million by 2020 from 1984.
  - PPPs to developing countries averaged US$79 billion per annum between 2007–2011 and about US$30 billion between 2002–2006.
  - Over 134 developing countries implemented new PPP projects in infrastructure alone.
- Typical parties and focus:
  - Arrangements commonly between a private corporation (resident or nonresident) and a government; public corporation or private nonprofit institution may also be parties.
  - Statistical treatment depends on economic ownership: the party bearing majority of risks and receiving majority of rewards.

### SECTION I — Current statistical treatment of PPPs
- Economic ownership and standards:
  - Decision to record PPP-related assets/liabilities on government or private corporation balance sheet hinges on economic ownership; assets may have service lives longer than contract periods.
  - International standards adopt a "risk and rewards" approach to determine economic ownership (2008 SNA; GFSM 2014).
- Balance of payments (BPM6), IIP and External Debt:
  - BPM6 provides limited references to economic ownership and adopts a treatment akin to financial leases for some PPPs (BPM6, paragraph 4.111).
  - If private sector corporation is nonresident, classification as external debt depends on economic owner of the fixed asset during the contract period and the nature of the contract (EDS Guide 2013, Appendix 1).
  - No references in international statistical standards for PPPs under direct investment (DI).
- BPM6 Compilation Guide (BPM6CG) guidance relevant to PPPs and DI:
  - Identify operating company and existence of DI relationship between operating company and foreign owner(s).
  - Create an artificial production unit (branch or DIE) when a nonresident has substantial operations without a separate legal company; each branch is a direct investment enterprise (DIE).
  - Establish the direct investor when contracting parties comprise a single foreign investor and the government.
  - Identify contracting parties’ rights; participating interests alone do not determine a DI relationship.
  - Record direct investor’s share in the financial account, under DI, equity and investment fund shares.
- Existence of production/branch/notional units:
  - If a foreign firm is not the economic owner but has substantial external construction operations (taking a year or more), they will usually give rise to a resident branch and hence a DI relationship.
  - If the foreign firm is the economic owner, a notional unit (DIE) may be required so the notional unit owns the immobile nonfinancial asset and the foreign investor owns the notional unit, complying with SNA requirements on land ownership.

### SECTION I — Issues for discussion (summary and options)
- Issue 1 — Methodological framework for PPPs under DI:
  - Additional classification elements to consider:
    - Sectoral classification of the government unit participating in the PPP (for instance, only units of the general government).
    - Type of the asset (for instance assets that are public assets).
    - Use of the asset (for example assets that will be used for public services).
    - Type of unit mainly covering payments for services provided by PPP assets (government or users).
    - Relevance of distinguishing PPPs from concessions.
    - Presence of Special Purpose Vehicle (SPV) or other units in PPPs.
    - Relevance of information in PPP contracts for adequate classification of flows and stocks.
  - Options:
    - Option A: Include an appendix in the BPM providing detailed guidance on concepts, definitions, scope of PPP arrangements, associated DI transactions and positions, and their treatment in the balance of payments and IIP.
    - Option B: Maintain the status quo but provide practical guidance on compiling PPP-related DI transactions and positions in the BPMCG.
- Issue 2 — Clarification on treatment of SPV/DIE in PPP generic models:
  - Notes: BPM6 provides guidance on notional units (paragraphs 4.34–4.40) and branches (paragraphs 4.26–4.33); DIEs likely important in PPPs but current frameworks give limited reference to DIE roles.
  - Options:
    - Option A: No changes in updated BPM; explain issues in other documents (e.g., compilation guide and clarification notes).
    - Option B: Provide detailed guidance on applying existing guidance on branches and notional units for PPPs; explain DI relationship using PPP examples and include explanations in the Appendix recommended in Issue 1.
- Issue 3 — Ownership of the asset: economic vs legal ownership in PPPs under DI:
  - BPM6 bases ownership on economic ownership (party with risks and rewards).
  - Options:
    - Option A: No changes in updated BPM; explain issues in other documents (e.g., compilation guide and clarification notes).
    - Option B: Include in the Appendix (recommended in Issue 1) relevant alternatives to determine which unit in PPPs under DI has economic ownership of the asset.
- Issue 4 — Recording: reporting of PPPs under DI:
  - Current practice: PPP transactions and positions in DI are not separately identified in ESS presentations; recorded in corresponding DI categories (equity and debt instruments in the financial account) and investment income in the current account.
  - Options:
    - Option A: Include a supplementary "of which PPPs" line under the DI functional classification to track PPP-related DI evolution.
    - Option B: No changes in current reporting of DI statistics in the current and financial accounts.

### SECTION II: OUTCOMES (Recommendations)
- Recommendation for Issue 1:
  - Option A recommended: Include an annex in the BPM providing guidance on concepts, definition, scope and treatment of PPP-related DI and associated transactions and positions.
- Recommendation for Issue 2:
  - Option B recommended: Provide detailed guidance on imputation criteria for notional units or branches (DIEs) in PPPs under DI and include this discussion in the new BPM.
- Recommendation for Issue 3:
  - Option B recommended: Include guidance on treating PPP arrangements under DI depending on whether the economic owner is the government or a private corporation.
- Recommendation for Issue 4:
  - Option B recommended: Do not introduce a separate breakdown to identify PPPs in the DI functional classification because of confidentiality issues and that PPPs may be large but infrequent and limited in some countries.

### Summary of DITT discussions and consensus
- DITT members generally supportive of drafting team’s recommendations to provide further guidance on concepts and treatment of PPP arrangements.
- Vast majority agreed with providing a detailed appendix on concepts, definitions, scope, and statistical treatment of PPPs related to DI in the updated BPM; two members preferred inclusion only in the BPM6CG.
- All commenting DITT members agreed with including relevant aspects of PPP arrangements from other statistical frameworks (such as GFS) in guidance and agreed that it is not necessary to separately identify PPPs in DI classification in the balance of payments and IIP.

### Questions for decision
- Provide a detailed Appendix on concepts, definitions, scope, and statistical treatment of PPP-related DI in the updated BPM, or include it only in the BPMCG?
- Provide further guidance on treatment of PPPs related to DI in the updated BPM by including relevant aspects described in other statistical frameworks, such as GFS?
- Agree that it is not necessary to separately identify PPPs in DI classification in the balance of payments and IIP?

*Guidance Note prepared by Mr. Wilson Phiri (Bank of Zambia), Ms. Rita Mesias and Mr. Bruno Rocha (both IMF), and Mr. Piet Swart (South African Reserve Bank); and The Manual on Government Deficit and Debt, implementation of ESA 2010 (MGDD), 2019.*


### MGDD (2019) — Definition and core features of PPPs
- PPPs presented as long-term contracts where government pays to a nongovernment partner "all or a majority of the fees under a specific contractual arrangement, thus covering most of the total cost of the service provided."
- Contracts are for provision of "public assets" and involve government buying services from a nongovernment partner that uses specific "dedicated assets" built to supply public services.
- Government typically contracts with commercial partners directly or through a special purpose vehicle (SPV) set up for the PPP to deliver services derived from a specific asset.

### MGDD — 2008 SNA characteristics and economic/legal ownership issues
- During the contract period the PPP contractor often has the economic ownership; once the contract period is over, government has both economic and legal ownership.
- Determining legal ownership during the contract period and recording implicit transactions when economic ownership changes can be complex.
- Typical arrangements:
  - Private enterprise acquires fixed assets and uses them with other inputs to produce services delivered either to government as an input to its production or distributed to the public without payment (government makes periodic payments).
  - Alternatively, private enterprise may sell services to the public (e.g., toll road) with prices regulated by government but set to allow cost recovery and a return.

### MGDD — Eurostat definition and classification of participants
- Eurostat definition: "a long-term contractual arrangement for the provision of a public asset and related services in exchange for performance-based payments linked to the asset’s availability and/or use and the delivery of the related services."
- Two participants required: an authority (classified as part of the general government) and a partner (not part of general government).
  - If authority is classified outside general government, Eurostat does not consider the contract to be a PPP.
  - Partner is typically an SPV; if SPV is controlled by private entities the project is a PPP; if SPV is controlled by government and classified as general government, the project is not a PPP.
- Government control of an SPV can be established via ownership rights, contractual rights, financing arrangements, law, regulation, or vetoes over important decisions.

### MGDD — Nature of activities and distinction from concessions
- PPPs commonly cover roads, tunnels, bridges, rails, ports, airports, water supply and sewerage treatment, hospitals, schools, housing projects, prison facilities, electricity generation and distribution facilities, and pipelines.
- Key feature: government is the main purchaser of services from the partner; under Eurostat’s definition, general government is the direct source of most partner revenues.
- If majority of partner's revenues is sourced directly from users, Eurostat considers the project a concession; concessions assessed under separate statistical rules.

### MGDD — PPP contracts, DI implications, and typical structure
- Contracts vary widely; statistical treatment should be selected after considering all facts and circumstances.
- Contracts address disposition of assets at contract end, required operation and maintenance, and government specifications (design, quality, capacity, maintenance).
- At contract end, government may gain legal and economic ownership of assets, possibly without payment.
- Typical PPP project structure suggests existence of DI and related transactions and positions; potential DI transactions include interest, dividends, equity; debt instruments such as loans and debt securities if equity investment is 10 percent of the voting shares of the project company.

### MGDD — Statistical treatment under 2008 SNA (Annex II)
- If government is economic owner during the contract but makes no explicit payment at contract start, an imputed transaction must cover acquisition of the asset(s), most frequently recorded as an imputed financial lease.
- Alternative imputations:
  - An imputed loan equal to market value of the asset at acquisition.
  - Government payments partitioned into loan repayment and expense/subsidy components.
- If private corporation is economic owner during the contract, debt associated with acquisition is attributed to the private corporation.
- Two approaches for government acquisition at contract end:
  - Over the contract period government builds a financial claim (other accounts receivable) while private corporation accrues a corresponding liability (other accounts payable) equal to residual asset value; at contract end government records asset acquisition with reduction in the financial claim.
  - Alternatively, record the end-of-contract transfer as a capital transfer: government records revenue as a capital transfer financing acquisition; private unit records an expense as a capital transfer payable, financed by disposal of the asset.
- Eurostat recommends three steps for statistical treatment:
  1. Identify issues influencing treatment.
  2. Analyze significance of those issues.
  3. Conclude statistical treatment, primarily to establish if PPP is off-balance-sheet for government.

### MGDD — Determining economic ownership of PPP-related assets (Annex III)
- Economic ownership determined by which unit bears majority of risks and expects majority of rewards.
- Factors to consider:
  - Acquisition risks: degree of government control over design/quality/size/maintenance; construction risk (late delivery, specifications, building codes, environmental risks, payments to third parties).
  - Operating risks: supply risk (government control over services, recipients, prices); demand risk (actual demand differing from expected); residual value and obsolescence risk; availability risk (penalties or extra costs for not meeting volume/quality standards).
- Basic MGDD rule for classifying PPP assets on partner balance sheet (and not government) if all the following are met:
  - the partner bears the construction risks;
  - the partner bears at least one of either availability or demand risk (sometimes both); and
  - the risks are not incurred by government through other means (for example, government financing, government guarantees, early redemption clauses).
- If above conditions are met, contracts should still be examined for other mechanisms that might allocate risks to government; absent such mechanisms, accounting treatment resembles an operating lease and is classified as government purchase of services.

### MGDD — Recording PPPs in external debt (Annex IV)
- If economic ownership of the asset remains with a nonresident private enterprise until transfer on completion, any prepayments by government are claims on a nonresident enterprise—i.e., external debt of the private nonresident corporation.
- If economic ownership remains with government during the contract but government makes no explicit payments to the private nonresident corporation, an imputed financial lease arises, creating external debt for government.
- Lease arrangements between government and nonresident private corporation classified as operating or financial leases in the normal way and hence as external debt or not depending on which party gains most risks and benefits of ownership.
  - Example: If private corporation legally owns the asset but government payments cover operating costs and financing costs, then a financial lease—and hence external debt—arises for government.

### MGDD — Control and implications for general government classification (Annex V)
- DI relationship arises when an investor resident in one economy makes an investment giving control or significant influence over management of an enterprise resident in another economy; ownership of 10 percent or more of voting power is evidence that a DI relationship exists.
- Examples placing an SPV inside general government (project on-balance-sheet for government):
  - Government has a 51% share in ownership and voting rights of the SPV → SPV deemed controlled by government through majority share.
  - Government has a 25% share that gives rights to veto important decisions (for example through shareholder agreements or general company law) → SPV deemed controlled by government through those rights, even if veto rights mirror those of other owners.
  - Government has no ownership share but has veto rights over important SPV decisions via financing agreements or contracts → SPV deemed controlled by government through those veto rights.
- In such examples the SPV is classified inside the general government sector and the project will be on-balance-sheet for government.

*Guidance Note prepared by Mr. Wilson Phiri (Bank of Zambia), Ms. Rita Mesias and Mr. Bruno Rocha (both IMF), and Mr. Piet Swart (South African Reserve Bank); and The Manual on Government Deficit and Debt, implementation of ESA 2010 (MGDD), 2019.*

### SECTION I: THE ISSUE

### SECTION I: THE ISSUE

### BACKGROUND
- Public-Private Partnerships (PPPs) are defined in international statistical guidance as long-term contracts between two units, whereby one unit acquires or builds an asset or set of assets, operates it for a period, and then hands the asset over to a second unit (BPM6, paragraph 4.111).
- The number of PPP projects globally is estimated to have grown to over 6.4 million by 2020 from 1984.
- PPPs to developing countries averaged US$79 billion per annum between 2007–2011 and about US$30 billion between 2002–2006.
- Over 134 developing countries implemented new PPP projects in infrastructure alone.
- PPP arrangements are commonly between a private corporation (resident or nonresident) and a government, though other combinations—public corporation as either party or a private nonprofit institution as the second unit—are possible.
- The statistical treatment of PPPs depends on the economic ownership of the asset(s); economic ownership is assessed by which party bears the majority of the risks and receives the majority of the rewards.

### CURRENT STATISTICAL TREATMENT OF PPPs
- Economic ownership:
  - The decision whether to record PPP-related assets and liabilities on the government’s or the private corporation’s balance sheet hinges on economic ownership and is frequently not straightforward because assets may have service lives much longer than contract periods.
  - International standards adopt a "risk and rewards" approach to determine economic ownership (2008 SNA; GFSM 2014).
- PPPs in Balance of Payments, IIP and External Debt Statistics:
  - BPM6 provides limited references to economic ownership and adopts a treatment akin to financial leases for some PPPs (BPM6, paragraph 4.111).
  - If the private sector corporation is a nonresident, classification as external debt depends on who is the economic owner of the fixed asset during the contract period and the nature of the contract (EDS Guide 2013, Appendix 1).
  - None of the international statistical standards include references for the statistical treatment of PPPs under direct investment (DI).
  - The BPM6 Compilation Guide (BPM6CG) refers to production sharing agreements (PSAs) and DI (Chapter 10, Box 10.1) and provides broad guidelines for adapting BPM6-based guidance in contexts like PSAs:
    - Identify the operating company and existence of a DI relationship between the operating company and its foreign owner(s).
    - Create an artificial production unit (a branch or DIE) when a nonresident has substantial operations without a separate legal company; each branch is a direct investment enterprise (DIE).
    - Establish the direct investor when contracting parties comprise a single foreign investor and the government.
    - Identify rights of contracting parties; participating interests do not alone determine a DI relationship.
    - Record the direct investor’s share in the financial account, under DI, equity and investment fund shares.
- The existence of a production unit, branch, or notional unit is important for applying BPM6 guidance to PPPs in DI:
  - If a foreign firm is not the economic owner and its external construction operations are substantial (taking a year or more), they will usually give rise to a resident branch and hence a DI relationship.
  - If the foreign firm is the economic owner, a notional unit (DIE) may be required so the notional unit owns the immobile nonfinancial asset (e.g., land or building) and the foreign investor owns the notional unit, complying with SNA requirements on land ownership.

### ISSUES FOR DISCUSSION
- Issue 1 — Methodological framework for PPPs under DI:
  - Additional elements to consider for ESS/DI classification include:
    - Sectoral classification of the government unit participating in the PPP (for instance, only units of the general government).
    - Type of the asset (for instance assets that are public assets).
    - Use of the asset (for example assets that will be used for public services).
    - Type of unit mainly covering payments for services provided by PPP assets (government or users).
    - Relevance of distinguishing PPPs from concessions.
    - Presence of Special Purpose Vehicle (SPV) or other units in PPPs.
    - Relevance of information in PPP contracts for adequate classification of flows and stocks.
  - Options:
    - Option A: Include an appendix in the BPM providing detailed guidance on the concepts, definitions, scope of PPP arrangements, associated DI transactions and positions, and their treatment in the balance of payments and IIP.
    - Option B: Maintain the status quo but provide practical guidance on compiling PPP-related DI transactions and positions in the BPMCG.
- Issue 2 — Clarification on treatment of SPV/DIE in PPP generic models:
  - BPM6 already provides guidance on notional units (paragraphs 4.34–4.40) and branches (paragraphs 4.26–4.33), but PPPs' long-term contracts and large projects make DIEs likely to play important roles; current frameworks give limited reference to DIE roles in PPPs.
  - Options:
    - Option A: No changes in updated BPM; explain issues in other documents (e.g., compilation guide and clarification notes).
    - Option B: Provide detailed guidance on applying existing guidance on branches and notional units for PPPs; explain DI relationship using PPP examples and include explanations in the Appendix recommended in Issue 1.
- Issue 3 — Ownership of the asset: economic vs legal ownership in PPPs under DI:
  - BPM6 bases ownership on economic ownership (party with risks and rewards).
  - Options:
    - Option A: No changes in updated BPM; explain issues in other documents (e.g., compilation guide and clarification notes).
    - Option B: Include in the Appendix (recommended in Issue 1) relevant alternatives to determine which unit in PPPs under DI has economic ownership of the asset.
- Issue 4 — Recording: reporting of PPPs under DI:
  - Currently, PPP transactions and positions in DI are not separately identified in ESS presentations; they should be recorded in corresponding DI categories (equity and debt instruments in the financial account) and investment income in the current account.
  - Options:
    - Option A: Include a supplementary "of which PPPs" line under the DI functional classification to track PPP-related DI evolution.
    - Option B: No changes in current reporting of DI statistics in the current and financial accounts.

### SECTION II: OUTCOMES (RECOMMENDATIONS)
- Recommendation for Issue 1:
  - Option A recommended: Include an annex in the BPM providing guidance on concepts, definition, scope and treatment of PPP-related DI and associated transactions and positions.
- Recommendation for Issue 2:
  - Option B recommended: Provide detailed guidance on imputation criteria for notional units or branches (DIEs) in PPPs under DI and include this discussion in the new BPM.
- Recommendation for Issue 3:
  - Option B recommended: Include guidance on treating PPP arrangements under DI depending on whether the economic owner is the government or a private corporation.
- Recommendation for Issue 4:
  - Option B recommended: Do not introduce a separate breakdown to identify PPPs in the DI functional classification because of confidentiality issues and that PPPs may be large but infrequent and limited in some countries.

### SUMMARY OF DISCUSSIONS WITHIN THE DITT
- DITT members were generally supportive of the drafting team’s recommendations to provide further guidance on concepts and treatment of PPP arrangements.
- The vast majority agreed with providing a detailed appendix on concepts, definitions, scope, and statistical treatment of PPPs related to DI in the updated BPM; two members preferred inclusion only in the BPM6CG.
- All commenting DITT members agreed with including relevant aspects of PPP arrangements from other statistical frameworks (such as GFS) in guidance and agreed that it is not necessary to separately identify PPPs in DI classification in the balance of payments and IIP.

### QUESTIONS FOR DISCUSSION
- Do you agree to provide a detailed Appendix on concepts, definitions, scope, and statistical treatment of PPP-related DI in the updated BPM? Or should it be included only in the BPMCG?
- Do you agree to provide further guidance on treatment of PPPs related to DI in the updated BPM by including relevant aspects described in other statistical frameworks, such as GFS?
- Do you agree that it is not necessary to separately identify PPPs in DI classification in the balance of payments and IIP?

*Guidance Note prepared by Mr. Wilson Phiri (Bank of Zambia), Ms. Rita Mesias and Mr. Bruno Rocha (both IMF), and Mr. Piet Swart (South African Reserve Bank).*

### 2. The Manual on Government Deficit and Debt, implementation of ESA 2010 (MGDD), 2019

### 2. The Manual on Government Deficit and Debt, implementation of ESA 2010 (MGDD), 2019

### Definition and core features of PPPs
- PPPs are presented as long-term contracts where government pays to a nongovernment partner "all or a majority of the fees under a specific contractual arrangement, thus covering most of the total cost of the service provided."
- Contracts are for the provision of "public assets" and involve government buying services from a nongovernment partner that uses specific "dedicated assets" built to supply public services.
- Government typically contracts with commercial partners directly or through a special purpose vehicle (SPV) set up for the PPP to deliver services derived from a specific asset.

### 2008 SNA characteristics and economic/legal ownership issues
- During the contract period the PPP contractor often has the economic ownership; once the contract period is over, government has both economic and legal ownership.
- Determining legal ownership during the contract period and recording implicit transactions when economic ownership changes can be complex.
- Typical arrangement described:
  - A private enterprise acquires fixed assets and uses them with other inputs to produce services delivered either (1) to government as an input to its production (e.g., motor vehicle maintenance) or (2) distributed to the public without payment (e.g., education), in which case government makes periodic payments during the contract period.
  - Alternatively, the private enterprise may sell services to the public (e.g., toll road) with prices regulated by government but set to allow the private enterprise to recover costs and earn a return.

### Eurostat definition and classification of participants
- Eurostat defines PPPs as "a long-term contractual arrangement for the provision of a public asset and related services in exchange for performance-based payments linked to the asset’s availability and/or use and the delivery of the related services."
- Two units must participate: an authority and a partner.
  - The authority (the public authority entering into the PPP contract) is classified as part of the general government. If the authority is classified outside general government, Eurostat does not consider the contract to be a PPP.
  - The partner should not be part of general government; in most PPPs the partner is an SPV created solely to enter into the PPP contract.
    - If the partner is an SPV or non-SPV controlled by private entities, the project is considered a PPP.
    - If the partner is an SPV or non-SPV controlled by government and is to be classified as a general government unit, the project is not considered a PPP.
- Government control of an SPV can be established through ownership rights, contractual rights, financing arrangements, law, regulation or vetoes over important decisions.

### Nature of activities and distinction from concessions
- PPPs commonly cover assets usually the responsibility of general government or public corporations: roads, tunnels, bridges, rails, ports, airports, water supply and sewerage treatment, hospitals, schools, housing projects, prison facilities, electricity generation and distribution facilities, and pipelines.
- Key feature: government is the main purchaser of services from the partner. Under Eurostat’s PPP definition, general government is the direct source of most partner revenues.
- If the majority of the partner's revenues is sourced directly from users of the asset, Eurostat considers the project to be a concession; concessions are assessed under separate statistical rules.

### PPP contracts, DI (direct investment) implications, and typical structure
- Contracts vary widely; statistical treatment should be selected after considering all facts and circumstances of each contract.
- Contracts address: disposition of assets at contract end, required operation and maintenance, and government specifications (design, quality, capacity, maintenance).
- At contract end, government may gain legal and economic ownership of assets, possibly without payment.
- Typical PPP project structure suggests existence of DI and related transactions and positions; these should be measured and recorded in external sector accounts. Potential DI transactions include interest, dividends, equity; and debt instruments such as loans and debt securities if equity investment is 10 percent of the voting shares of the project company.

### Statistical treatment under the 2008 SNA (Annex II)
- If government is economic owner during the contract but does not make explicit payment at contract start, an imputed transaction must cover acquisition of the asset(s). Most frequently recorded as an imputed financial lease.
- Alternative imputations where appropriate: an imputed loan equal to market value of the asset at acquisition; government payments partitioned into loan repayment and expense/subsidy components.
- If private corporation is economic owner during the contract, debt associated with acquisition is attributed to the private corporation.
- Two approaches for government acquisition at contract end:
  - Over the contract period, government builds a financial claim (other accounts receivable) while private corporation accrues a corresponding liability (other accounts payable) equal to residual asset value; at contract end government records asset acquisition with reduction in the financial claim.
  - Alternatively, record the end-of-contract transfer as a capital transfer: government records revenue as a capital transfer financing acquisition; private unit records an expense as a capital transfer payable, financed by disposal of the asset. The capital transfer approach is less reflective of underlying economic reality but is acceptable pragmatically given data limitations and uncertainty.
- Eurostat recommends three steps for statistical treatment: (1) identify issues influencing treatment; (2) analyze significance of those issues; (3) conclude statistical treatment, primarily to establish if the PPP is off-balance sheet for government. The first step focuses on assessment of contract provisions.

### Determining economic ownership of PPP-related assets (Annex III)
- Economic ownership is determined by which unit bears the majority of risks and expects the majority of rewards from the asset.
- Factors to consider include risks related to acquiring the asset and to using the asset.
  - Acquisition risks: degree of government control over design/quality/size/maintenance; construction risk (late delivery, specs, building codes, environmental risks, payments to third parties).
  - Operating risks: supply risk (government control over services, recipients, prices); demand risk (actual demand differing from expected); residual value and obsolescence risk (asset value differencing from agreed transfer price at contract end); availability risk (penalties or extra costs for not meeting volume/quality standards).
- Basic MGDD rule for classifying PPP assets on partner balance sheet (and not government) if all the following are met:
  - the partner bears the construction risks;
  - the partner bears at least one of either availability or demand risk (sometimes both); and
  - the risks are not incurred by government through other means (for example, government financing, government guarantees, early redemption clauses).
- If the above conditions are met, contracts should still be examined for other mechanisms that might allocate risks to government (e.g., financing, guarantees); absent such mechanisms, accounting treatment resembles an operating lease and is classified as government purchase of services.

### Recording PPPs in external debt (Annex IV)
- If economic ownership of the asset remains with a nonresident private enterprise until transfer on completion, any prepayments by government are claims on a nonresident enterprise—i.e., external debt of the private nonresident corporation. If government borrows abroad to finance purchase when it obtains ownership on completion, government will incur external debt when it borrows.
- If economic ownership remains with government during the contract but government makes no explicit payments to the private nonresident corporation, an imputed financial lease arises, creating external debt for government.
- Lease arrangements between government and nonresident private corporation are classified as operating or financial leases in the normal way and hence as external debt or not depending on which party gains most of the risks and benefits of ownership. For example, if the private corporation legally owns the asset but government payments cover operating costs and financing costs, then a financial lease—and hence external debt—arises for government.

### Control of a unit related to a DI relationship and implications for general government classification (Annex V)
- A direct investment (DI) relationship arises when an investor resident in one economy makes an investment giving control or significant influence over the management of an enterprise resident in another economy; ownership of 10 percent or more of voting power is evidence that a DI relationship exists.
- Examples of government control that place an SPV inside general government sector (making the project on-balance-sheet for government):
  - Government has a 51% share in ownership and voting rights of the SPV → SPV deemed controlled by government through majority share.
  - Government has a 25% share that gives rights to veto important decisions (for example through shareholder agreements or general company law) → SPV deemed controlled by government through those rights, even if veto rights mirror those of other owners.
  - Government has no ownership share but has veto rights over important SPV decisions via financing agreements or contracts → SPV deemed controlled by government through those veto rights.
- In the examples above, the SPV is classified inside the general government sector and the project will be on-balance-sheet for government.

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/ditt/d8-publicprivate-partnerships.pdf_