BLM20150 -
Defining long funding leases: basic definition: service concession
arrangements
UK GAAP (FRS 5, Application Note F)
Application Note F of FRS 5 applies to Private Finance
Initiative (PFI) and similar contracts. Features of a PFI contract
include:
- A contract to provide services is awarded
by the purchaser (a public sector entity) to the operator (a
private sector entity). The contract will specify the level of
service required over the period of the contract. Usually, the
contract also provides for a single ('unitary') payment to be made
in each period, linked to factors such as availability, performance
and levels of usage.
- A property, which is legally owned by or
leased to the operator, will usually have to be provided to perform
the contracted services. Such properties include buildings (e.g. a
prison or hospital), roads, railways, bridges, vehicles, and
computer systems. Under the PFI contract, the operator will
typically design, build, finance and operate the property. The
contract may specify features or standards required of the
property, for example, in order to satisfy statutory obligations of
the purchaser. The property may or may not have potential for
third-party use during the term of the PFI contract.
Application Note F also applies to contracts of a similar nature
to PFI contracts but which are between entities in the private
sector, for example some contracts for warehousing and distribution
services, where a property is necessary in order to perform the
contracted service.
IFRS (IFRIC 12)
IFRIC 12 is the IFRS equivalent of Application Note F and,
like Application Note F, typically applies to service concession
arrangements whereby a government or other body grants contracts
for the supply of public services – such as roads, energy
distribution, prisons or hospitals – to private operators.
However, it only applies to the operator, not the grantor.
IFRIC 12 applies where
- the grantor (government or other public sector body) controls
or regulates what services the operator must provide with the
infrastructure, to whom it must provide them, and at what price;
and
- the grantor controls – through ownership, beneficial
entitlement or otherwise – any significant residual interest
in the infrastructure at the end of the concession.
Unlike Application Note F, IFRIC 12 only applies to
public-to-private infrastructure service concessions.
