Abstract
This paper makes an analysis of the European System of Accounts (ESA95) financial treatment of Public-Private Partnerships (PPP). PPP are complex operations that allow incumbents to create infrastructures while hiding debt, with an eye on the next elections. However, the sad part of the story is that PPP are more expensive than traditional contracts in the long run. We think that PPP are not always the best solution. Governments should allocate the risk to the party that is the “least cost avoider”, i.e., the party best suited to control and/or bear the risk. Without this approach, the public sector runs the risk of using PPP with the aim to achieve inadequate goals, for example to achieve a short-term improvement of public accounts, and at the same time, worsening the long-term financial picture.
Highlights
The public sector aims to provide the best services and the most complete infrastructures to the citizenry
This paper makes an analysis of the European System of Accounts (ESA95) financial treatment of Public-Private Partnerships (PPP)
The public sector runs the risk of using PPP with the aim to achieve inadequate goals, for example to achieve a short-term improvement of public accounts, and at the same time, worsening the long-term financial picture
Summary
The public sector aims to provide the best services and the most complete infrastructures to the citizenry. With the aim of publishing a methodological regulation that ensures the coherence, the Eurostat issued a regulation on PPP: News Release No 18/2004 of February 11th, Treatment of Public-Private Partnerships, which was later included and developed in Section 4 of the “ESA95 Manual on government deficit and debt”. This standard is the ESA95 technical standard currently used in the EU to account for PPP operations.
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