The Nature of Service Concession Arrangements
A Service Concession Arrangement (SCA) or Public-Private Partnership (PPP) is an arrangement where a government (the grantor) contracts with a private sector operator to design, build, finance, and operate public infrastructure (e.g., toll roads, airports, hospitals, prisons) for a specific multi-decade duration.
Asset and Liability Control Tests (IPSAS 32 / GASB 94)
Historically, governments used PPPs as an “off-balance-sheet” financing trick to get new infrastructure built without recording new public debt. To stop this practice, IPSAS 32 and GASB 94 enforce two explicit control tests. The government must recognize an infrastructure asset and a corresponding liability on its balance sheet if:
  1. The government controls or regulates what services the operator must provide with the asset, to whom it must provide them, and at what price.
  2. The government controls—through ownership, beneficial entitlement, or otherwise—any significant residual interest in the asset at the end of the arrangement term.

The Financial Liability Model vs. Grant of a Right to the Operator Model
Once the tests are met, the offsetting liability is accounted for using one of two distinct economic models based on who pays for the asset:
                  ┌──► Financial Liability Model (Government pays operator via availability payments)
                  │
Service Concession│
   Arrangement    │
                  └──► Grant of a Right Model (Operator collects fees from public; government credits Deferred Revenue)

  • Financial Liability Model: The government promises to pay the private operator a series of predefined availability payments over time. The government treats this transaction similarly to an installment purchase, recognizing a formal financial liability that is amortized using the effective interest method.
  • Grant of a Right to the Operator (GRO) Model: The operator earns its return by collecting fees directly from the general public (e.g., driver tolls on a highway). The government records the infrastructure asset, but records the credit as a Deferred Inflow of Resources / Deferred Revenue. This liability is systematically reduced and recorded as revenue over the multi-decade life of the concession agreement.

 
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