1. 1 Task Force on Harmonization of Public Sector Accounting Private/Public/Government Sector Delineation SNA Advisory Expert Group Bangkok, July 2005

2. 2 Government / public / private sectors Delineation of public and private sector units: based on control criterion Delineation of non market (government) versus market units (corporations) within the public sector: based on economically significant prices (ESP) criterion Issue: Clarify what control and ESP entail

3. 3 Public sector boundary Rec. 1: Use a decision tree 1. Is the entity an institutional unit? 2. Is the institutional unit part of the public sector? 3. Is the public institutional unit market or nonmarket?

4. 4 Rec. 1: Use a decision tree Unit A Unit B Unit C Unit D Step 1: Institutional unit? YESNO Step 2: controlled by government YESNO classified as the parent unit Step 3: ESP? NO: Government sector YES: public corporation YES: private sector

5. 5 Government control of corporations: Rec. 2: eight major indicators 1. Ownership of the majority of voting interest 2. Control of the board or other governing body 3. Control of the appointment and removal of key personnel 4. Control of key committees of the entity 5. Golden shares and options 6. Regulation and control 7. Control by a dominant customer 8. Control attached to borrowing from the government

6. 6 Government control of NPI Rec. 3: five major indicators 1. Appointment of officers 2. Other provisions of enabling instrument 3. Existence of contractual agreements 4. Degree of financing by government 5. Level of risk exposure

7. 7 Market and nonmarket producers Rec. 4: Economically significant prices (ESP) EPS: Criterion to classify output, and thus producers as market or nonmarket Market producers: output sold at ESP Nonmarket producers: output free or at non ESP

8. 8 Public sector Composition: –Government units –Corporations controlled by government units, and –Nonprofit institutions (NPI) controlled by government units. Government control entails for : –Corporations: a source of financial gain –Nonprofit institutions (NPI): not a source of financial gain

9. 9 Control of Corporations Definition of control: Current: ability to determine the general corporate policy Proposed: power to govern financial and operating policies so as to benefit from activities of corporations

10. 10 Control of NPI Definition of control: Current: ability to determine the general corporate policy and largely financed Proposed: ability to determine the general corporate policy

11. 11 Economically significant prices Economically significant prices Definitions: ESP are prices that have a significant influence on the amounts the producers are willing to supply and on the amounts purchasers wish to buy. Market producers: production offered for sale (on the market) at economically significant prices Non-market producers are only in the government or NPISH sectors.

12. 12 Economically significant prices ESA95 « 50% rule » not taken into account as a rule Recommendation 4: « although there is no prescriptive numerical relationship between the value of output and the production costs, one would normally expect the value of output to average at least half of the production costs over a sustained multi- uear period. »

13. 13 Economically significant prices Recommendation 4 (coverage of special cases): Case of production sold only to government: The public producer is the only supplier: it is non-market unless it competes with a private producer in tendering for contract It is one of several producers: it is a market producer if it competes with other producers on the market.

14. 14 Rec. 5: Definition of sales Output is measured as equal to the business notion of sales (plus change in inventories as required) Excluding taxes on products and subsidies on products (except for subsidies granted to all private producers for this type of activities Excluding own account production

15. 15 Rec. 5: Definition of production costs Cost is measured as the sum of: Intermediate consumption Cost of capital services Other taxes on production (other subsidies on production are not deduced).

16. 16 Indicators for classifying government and other public producers Corporations and households primarily Government only only supplier one of several suppliers Supplying public sector units Government and others only supplier one of several suppliers COST normally covered by SALES (CCS) Competes Other private tender Other private tender or CCS Govern ment Public corp. noyes noyes noyes noyes noyes Purchasing units Competes

17. 17 Sectorization of producers PublicPrivate Producer units Government (incl. NPI) Public Corporations (incl. quasi) Private corporations (incl. quasi and NPI) NPISH Hous. Enterpri ses Market Non Market Control ESP

18. 18 Does the AEG agree on: Rec. 1: Use a decision tree? Rec. 2: Eight major indicators of government control on corporations? Rec. 3: Five major indicators of government control on NPI? Rec. 4: Economically significant prices? –Definition of ESP (no major changes) –Supplementary criteria for producers –Cost versus sales (no prescriptive rule) Rec. 5: Definition of sales? Rec. 6: Definition of production costs?