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Annual meeting of Senior PPP Officials – 17-18th February 2014

Budgeting sustainably for PPPs and traditional capital projects in the medium and long term

Dr. Gisela Lehmer-Kerkloh Gisela.Lehmer-Kerkloh@bmf.bund.de

Federal Ministry of Finance, Germany

How to align PPP investment and traditional infrastructure investment in a medium/long term planning framework

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10%

8%

10%

62%

2%

6% 2%

Human resources

Operating expenditure

Interest

Current grants and subsidies(excluding investment)

Fixed asset investment

Asset transfers

Loan guarantees,acquisition of holdings

2014 draft federal budget: types of expenditure

Capital Budgeting of Infrastructure Investments in Germany

1. No national infrastructure investment budget

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1. No national infrastructure investment budget

2. Federation/Länder and local authority budgets contain planned investments for their tasks in the area of infrastructure

Capital Budgeting of Infrastructure Investments in Germany

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Federation Federal state Local authority

• Armed forces

• Supervision of local authorities

• Water supply (households & businesses)

• Diplomacy • Higher education • Waste disposal

• Postal service • Schools (households & businesses)

• Fire brigade

• Legislation

• Further regulation and administrative orders

• Road building

• Residential building

Responsibilities of different levels of the State in Germany - examples -

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1. No national infrastructure investment budget

2. Federation/Länder and local authority budgets contain planned investments for their tasks in the area of infrastructure

3. National coordination of infrastructure plans launched by Federation, Länder and local authorities together with EU-network plans

Capital Budgeting of Infrastructure Investments in Germany

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Existing Infrastructure plans and network plans in Germany

Trans-European Transport Networks

EU-Habitats Directive

Energy Network

Federation Transport Infrastructure Plan

Federal Regional Policy Plan

16 Länder-level plans, regional development plans & programmes, regional project plans

Sector-specific plans such as energy plan or mining in North Rhine-Westphalia

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1. No national infrastructure investment budget

2. Federation/Länder and local authority budgets contain planned investments for their tasks in the area of infrastructure

3. National coordination of infrastructure plans and network plans for EU, Federation, Länder and local authorities

4. No complete public snapshot of assets and liabilities

Capital Budgeting of Infrastructure Investments in Germany

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Accounting Systems

Federal Budget

National Account System

Balance Balance

Sheets for some

Länder/ L.A.

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Medium/Long term planning and future expenditure on the federal budget

1. Presentation of annual expenditure/revenue in the budget

2. Five-year medium-term financial planning

3. Overview of PPPs over their life cycle in summary X of the federal budget

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Key questions

Ensure affordability

By means of medium-term financial planning

By overview of PPPs over their life cycle in summary X of the federal budget

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Ensure affordability

Estimate infrastructure gap

Differs depending on ministry and industry sector, partially determined by law, e.g., by the Federal Transport Infrastructure Plan

Partially based on estimates and quantity calculations based on statistical and scientific criteria

Institute of Federal Real Estate for centralised property management of the federal assets

Key questions

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PPP / conventional procurement by centralised property management

Economic feasibility examination

alternativs of realization

- construction costs - rental charges

budgeting

Budget dept. FMF

tenant spending ministry

Property manager

technical agency

Requirement specification PPP-aptitude test

rental agreement

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Key questions

Ensure affordability

Estimate infrastructure gap

• Differs depending on ministry and industry sector, partially determined by law, e.g., by the Federal Transport Infrastructure Plan

• Partially based on estimates and quantity calculations based on statistical and scientific criteria

• Institute of Federal Real Estate

Calculation by means of a prescribed procedure

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Prescribed Procedures

Participation of public-sector bodies and citizens in project and settlement panning

Budgeting established by law in accordance with section 24 of the Federal Budget Code

The following are required: plans, allocation of costs, explanatory notes on execution, construction-cost estimates, financing, timetable

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Federal Budget Code

Section 24 – Construction measures, major procurements, major development projects (1) Expenditures and commitment appropriations for construction measures may not be budgeted until plans, cost calculations and explanations are available showing the type of work, the cost of the construction measures, of the land transfer and of the installations, as well as the proposed method of financing and a time schedule. An estimate of the annual burdens on the budget which will be incurred after completion of the measure shall be enclosed with these documents. (2) Expenditures and commitment appropriations for major procurements and development projects may not be budgeted until plans and estimates of the costs and cost sharing are available. Subsection (1), second sentence, above shall apply accordingly. (3) Exceptions to subsections (1) and (2) above shall only be permissible if, in an individual case, it is not possible to complete the documents on time and if the Federation would sustain any disadvantage from a postponement of budgeting. The need for an exception shall be substantiated in the explanatory notes. Expenditures and commitment appropriations relating to measures for which no documents are yet available shall be blocked. (4) Subsections (1) to (3) above shall be applied accordingly to separately budgeted expenditures and commitment appropriations relating to allocations if a total of more than 50 percent of the costs is covered by allocations from the Federation, Länder and municipalities. The Federal Ministry of Finance may permit exceptions.

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Key questions

Ensure affordability

Estimate infrastructure gap

Fiscal space availability

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New Rule as Centrepiece of Federalism Reform II (2009)

Article 109 Basic Law Article 115 Basic Law

• guarantees the independence of Federation’s and States’ fiscal policies

• commits Federation and States (Länder) to fulfill SGP obligations jointly

Revision of Art. 109 to get a joint reform of the budget rules

Revision of Art. 115 to reform the federal budget rules

closely tied with: • assistance for budget

consolidation to individual Länder (Art 143d Basic Law)

• establishment of a “stability council” (Art 109a Basic Law)

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Basic principles applying to both, the Federation and the Länder • Principle of structurally balanced budgets („anchor“ for sustainability!)

• Optional cyclical component: Symmetrical stabilization over the business cycle

• Exception for natural disasters and extraordinary emergency situations

only possible with a binding amortization plan

Core Elements for the maximum permissible net borrowing

Federation limitation of the structural deficits to max. 0,35 % of GDP

Länder limitation of (structural) deficits to 0,0 % of GDP

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Differences between booking PPPs and conventional procurement with construction investments

0

200

400

600

800

1000

1200

1400

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Amou

nt

Year

Haushaltsbelastung ÖPP

HaushaltsbelastungEigenbau

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Thank you

Dr. Gisela Lehmer-Kerkloh Gisela.Lehmer-Kerkloh@bmf.bund.de

Unit II B 6 (General issues of PPP) Federal Minstry of Finance, Germany

Tel.: +49 3018 / 682 – 4323

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