The author was a Senior Economist in the Government Finance Division of the Statistics Department when he prepared this paper. He is grateful to Paul Cotterell, Rob Dipplesmann, Nils Mæhle, Robert Heath, John Pitzer, and Betty Gruber for their comments. Any remaining omissions and errors are solely the author's responsibility.
Although, conceptually, BOOT schemes could be set up between private sector entities, in practice such schemes are only important for contracts between the government and private sectors.
Sometimes referred to as build-operate-transfer (BOT) schemes.
Such schemes could in theory involve the provision of assets to private sector entities, but in practice these arrangements are only important for the provision of public assets. For simplicity, this paper considers these schemes from the point of view of government, but the same arguments would apply to similar schemes involving only private sector entities.
Commission ofthe European Communities, International Monetary Fund, Organisation for Economic Co-operation and Development, United Nations, World Bank: System of National Accounts 1993,Brussels/Luxembourg, New York, Paris, Washington, D.C., 1993.
Although of course subsequent financial lease arrangements can result in effective transfer of ownership back to the government.
Eurostat, European System of Accounts 1995 (ESA95) Manual on government deficit and debt, Luxembourg, 2002.
The corporation is likely to value the asset at the present value of the income stream that the corporation expects to receive over the period that it controls the asset. If so, the asset value would be correct from the corporation's point of view, but would understate the true value of the fixed asset. In any event, the government asset values are understated.
The BOOT contracts could always be varied to require a nominal value to be paid at the time of transfer, in which case the value of the “option” would be the market value of the BOOT asset, less the cost of exercising the option.
Part III, Section F of Government Assets and Liabilities: Licenses, Leases, and Other Issues – A Paper Prepared for the 27th General Conference of The International Association for Research in Income and Wealth, Stockholm, August 18 to 24, 2002.
For simplicity, the public sector is referred to as “government” in the following discussion.
Using financing in the general sense of obtaining resources to pay for such acquisitions.
Less any amounts explicitly paid by government for the asset, plus any lease-related payments made by the corporation (but excluding taxation, and any amounts paid for government services, etc.).
To avoid swings in asset values, the intangible “right to use” asset, and associated economic flows, must be deemed to come into existence as work is put in place on the BOOT asset.
Because the other changes in the volume of assets represents the return of the BOOT asset value to government over a period which is less than the useful life of the asset, it will be greater than the depreciation expense for the BOOT asset, and government net worth will increase over the life of the BOOT period.
Either internally if the BOOT involves assets used by government itself, or charges to the public if the asset is used to produce goods and services for sale.
Inter-Secretariat Working Group on National Accounts, Reports on the ISWGNA Meetings, Report on the Treatment of Mobile Phone Licences in the National Accounts, December 21, 2001. Available via Internet: http://unstats.un.org/unsd/nationalaccount/iswgna.htm. See also Eurostat Decision on the Allocation of Mobile Phone Licenses (UMTS). Eurostat news release No. 18/2000, July 14, 2000. Available via Internet: http://www.europa-kommissionen.dk/presse/eurostat/2-14072000-EN-AP-EN/
Consistent with normal commercial accounting practices.
International Monetary Fund, Government Finance Statistics Manual 2001, (Washington, D.C.: International Monetary Fund, Publication Services, 2nd ed.), 2001. Also available via Internet: http://www.imf.org/external/pubs/ft/gfs/manual/index.htm.
i.e., where the value of the contract does not depend on other transactions.
Robert J. Dippelsman and Nils Ø. Mæhle, Treatment of Mobile Phone Licenses in the National Accounts, IMF Working Paper 01/72 (Washington, D.C., International Monetary Fund), 2001. See also the Intersecretariat Working Group on the National Accounts, report of the meeting of 18 April, 2001, as reported on the SNA News and Notes, Issue 14, April 2002. Available via Internet: http://unstats.un.org/unsd/nationalaccount/sna/snal4-en.htm.
i.e., the right to the exclusive use of the BOOT asset for a defined period.
It should also be noted that the designation of a lease as a finance lease also results in the imputation of debt and debt servicing transactions.
However, it should be noted that where the BOOT corporation is foreign, or uses foreign financing, the effect on the future balance of payments may be similar to that resulting from foreign debt.
However, it is likely that the corporation will expense the whole value of the asset over the period of its exclusive use, i.e., an expense of $5m per year.
As argued in Part V, the granting of a period during which the BOOT corporation has exclusive use of the BOOT asset is equivalent, in economic terms, to the granting of a lease over the asset during that period.
The interest rate chosen is arbitrary, and results in offsetting expense and revenue flows. Perhaps an interest rate which merely maintains the real value of remaining principal should be used here.
As discussed in Part V, Section B, lease amortizations should be classified as transactions, rather than other economic flows. Transactions which reduce liabilities are classified as revenues.