The Strategic Nature of PPPs
A Public-Private Partnership (PPP) is a long-term contractual arrangement between a government entity and a private sector consortium, where the private party designs, finances, builds, and operates a major public infrastructure asset (e.g., toll roads, airports, hospitals, prisons) over a multi-decade horizon. The private partner recovers its capital investment either through direct fees collected from the public or via structured availability payments made by the government.
Asset and Liability Control Frameworks (IPSAS 32 / GASB 94)
Historically, governments used PPPs as an “off-balance-sheet” financing loophole to secure new infrastructure without recording new public debt on their books. To enforce transparency, IPSAS 32 (Service Concession Arrangements: Grantor) and GASB Statement 94 mandate strict control tests. A government must capitalize the PPP infrastructure asset and record a corresponding liability on its balance sheet if:
  1. The government controls or regulates what services the private 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 contractual arrangement.

Technical Models for the Offsetting Liability
Once the control tests are satisfied, the accountant must evaluate the contract to determine how the offsetting liability will be recognized and systematically amortized over time:
1. The Financial Liability Model
  • The Trigger: Used when the government has a binding contractual obligation to make predictable cash payments to the private operator for the use of the asset (e.g., annual availability payments to a company that built a public school).
  • The Mechanics: The transaction is treated similarly to an installment purchase. The initial liability is recorded at fair value and subsequently amortized over the decades-long term using the effective interest method, cleanly separating the operating expense from the finance interest charges. 

2. The Grant of a Right to the Operator (GRO) Model
  • The Trigger: Used when the government does not pay the operator; instead, the government grants the operator the legal right to collect fees directly from the general public for utilizing the asset (e.g., collecting driver tolls on a newly built highway network).
  • The Mechanics: The government records the infrastructure asset at fair value, but enters the offsetting credit into a liability account called a Deferred Inflow of Resources / Deferred Revenue. Because the government earns this asset over time by allowing the operator to exploit the public concession, this deferred liability is systematically reduced and recorded as actual revenue on a straight-line basis over the multi-decade life of the contract.

 
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