The European Union has relaxed its accounting rules to make it easier for governments to engage in public-private partnerships (PPPs) without breaching the rules of the Stability and Growth Pact

Eurostat, the EU's statistical office, said yesterday that assets involved in such partnerships should be classified as non-government assets, and therefore not recorded on governments' balance sheets if the private partner bears the construction risk, and the private partner bears at least one of either availability or demand risk.

A European Commission spokesman said that, while the decision was unlikely to have an impact on public-private partnership projects already under way, it would help governments to design future projects.

"Now it is clear how PPPs will be treated in the future," he said.

Construction risk covers events like late delivery, non-respect of specified standards, additional costs, technical deficiency and external negative effects.

Availability risk refers to a contractor's inability to deliver the volume that was contractually agreed or to meet safety or public certification standards. Demand risk refers to the possibility that there is insufficient demand for the service being provided.

If the assets remain the property of the private partner at the end of the project, and if they still have a significant economic value, then it is normally classified on the partner's balance sheet.

If, however, a government has made a commitment to buy the assets at a pre-determined price that is higher than the market value, the assets could be classified as government assets.

Eurostat's decision follows consultations with experts from 14 national statistical institutes - the Irish representative was Mr Mick Lucy of the Central Statistics Office - and 13 national central banks. All but one of the experts supported the changes outlined yesterday.

In practice, the impact of the decision will be to make it easier for the State to plan PPP projects, while staying within EU rules. Under the old rules, a government commitment to pay the private sector over a lengthy period for the use of a major asset such as a road or a metro would have meant the entire amount payable over the concession period would have had to be counted against government borrowing in the year it was incurred.

This would have made it very difficult, for example, for a government to plan a project such as a metro, as payments which it might make to a private contractor over a 20-30 year period would have had to be counted against government borrowing for EU purposes in the year the deal was agreed, or over a relatively short construction period.

This could have threatened to push the general government deficit - the EU borrowing measure - over the limit of 3 per cent of GDP set down in the Stability and Growth Pact, the budget rules for EU members.

Under the new rules, major investments like this can be moved "off balance sheet" provided sufficient risk is transferred to the private sector. In practice, this is most likely to be done through an agreement that payments from the State to the private sector contractor would not take place if the asset was not available for use at the agreed time.

Provided this happened, the requirement to account for such projects upfront for EU borrowing purposes would no longer apply. This would mean that if the State agreed to invest in a metro by paying a private contractor over a 20-30 year concession period, then the payments would only be counted against borrowing for EU purposes as they were paid over the period.

Similar arrangements could be made in relation to major road projects.

At the moment there is no problem for the Exchequer when roads are paid for by motorists' tolls.

However, in future the State will be able to pay for non-tolled roads over a lengthy concession period, through the payment of "shadow tolls" to the operator.

Again, the new rules mean that for calculating the general government deficit, the State can count the spending in the year it is made, rather than having to take it "upfront" and risk a sharp rise in borrowing in a particular year.

Similar arrangements can be made in relation to other infrastructure projects such as schools, hospitals and prisons.

The Department of Finance has already announced its plans that €5 billion in private sector finance will contribute to total infrastructure spending of €30 billion over the next five years.

It remains to be seen now whether the new rules will lead to an acceleration in the PPP programme to meet or exceed these targets.

The private sector has criticised the Department of Finance for being slow to embrace the concept, but it has moved ahead in the roads programme.

The new rules may also clear the way for the Cork School of Music while State spending on five schools built as part of a PPP will probably now be moved "off balance sheet", leading to a small reduction in measured EU borrowing in earlier years.

Yesterday's decision reflects an EU commitment to promoting public-private partnerships as part of an initiative to promote economic growth through investment in infrastructure.

The Government has been a strong advocate for a change to the rules.