Infrastructure finance guidelines promised

By Peter Chapman

Date: 23/10/03

THE European Commission has pledged to issue new guidelines by the end of the year explaining how a raft of infrastructure projects planned at last week's EU summit in Brussels should appear on governments' national accounts.

This follows concerns over the treatment of so-called public private partnerships (PPPs), a crucial part of the Union's growth initiative plans.

Under PPPs, governments hand over some or all of the responsibility for financing, building or operating infrastructure projects worth billions of euro.

But senior figures, including European Parliament President Pat Cox, have warned that clear guidelines are needed to clarify how PPPs - the remit and terms of which can often be extremely complex - should be tackled in national accounts.

For instance, there are fears they might clash with the legal responsibility of member states to keep their public debt under control.

"It might appear as dry as dirt, but the outcome could be to hit the limits of the Stability and Growth Pact," said Cox, referring to the EU's budget rules which outlaw deficits above 3% of national income.

But Gerassimos Thomas, the Commission's economic and finance spokesman, said a task force comprised of national experts and Eurostat officials is already close to finalizing a report on how PPPs should be handled.

The group, due to hold its final meeting on 4 November, will produce proposals which will then go to the Committee on Monetary, Financial and Balance of Payments Statistics (CMFB) for final approval. Thomas said the rules would add to existing Eurostat regulations that govern PPP schemes, which are very popular in the UK.

"Given that we plan to give a boost to PPPs the idea has been to cover all possible cases. [The new rules] will give statistical certainty, so that each time a government does a PPP it will know ex ante what is the statistical treatment."

Thomas stressed that the group would not approve of any accounting methods which could result in debts being hidden from government balance sheets - a huge concern in the wake of the corporate scandals at Enron, WorldCom and Ahold.

Instead, he explained, the extent to which they appear on national accounts would depend on the amount of government financial risk attached to a project. The greater the risk, the bigger the impact on the accounts.

Eurostat had already taken a tough line against the way governments, including Italy, have used money raised through so-called securitization techniques to reduce their public debt levels.

Italy set up a company to issue bonds that guaranteed to pay holders a proportion of expected future receipts from the national lottery. The company, known as a "special purpose vehicle", then paid the government the proceeds from the bond sale.

But Eurostat ruled that the payments could not be used to help the country keep the lid on its burgeoning budget deficit.

The European Commission has pledged to issue new guidelines by the end of 2003 explaining how planned infrastructure projects should appear ion government's national accounts.