Rules on PFI risks clarified

10 Sep 98
Value for money will still be the driving force in securing Private Finance Initiative contracts, despite the publication of new guidelines this week which some fear could put a constraint on new deals.

11 September 1998

That was the message coming from the government and PFI experts this Thursday after the Accounting Standards Board published its new rules about risks and about which balance sheet these risks should appear on.

The board took the view that the risks incurred from deals involving services and properties should be treated separately from the rest of the contract.

Some believe this would mean the government ultimately meeting any liabilities rather than the private sector, putting a potential block on future PFI contracts.

But ASB chairman Sir David Tweedie said clarification of accounting rules was needed. 'What has worried many observers is the risk that assets and liabilities under PFI contracts end up on nobody's balance sheet.'

But the chief executive of the body trying to promote PFI in local government, Peter Fanning of the Private Public Partnership, said tinkering with the mechanics would make little difference. The row over whose balance sheet to put it on was ultimately secondary. 'Prudent accountancy is a bulwark against bad deals, but PFI in the public sector is driven by value for money rather than accounting,' said Mr Fanning.

The Treasury, which has the final say on the rules governing PFI, said it welcomed a tightening of the regulations. A Treasury statement said: 'The Treasury's initial view, given the broadening of view taken on asset-related risks, is that substantially all the risks transferred to the private sector will continue to be recognised in the determination of accounting treatment.' It added that it did 'not expect capitalisation judgements to change greatly'.

Any new guidance covering PFI is not expected to apply until January 1 next year.


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