Output Sharing Certificate

Definition of "Output Sharing Certificate"

A proposed financial instrument for mobilizing resources by the government, it takes the following form: the government sells an existing income-earning fixed asset, such as toll bridge or a high- way, to certificate holders. The proceeds of the sale are needed for another governmental project, whatever it may be, and the purchasers have nothing to do with this matter. Certificate holders may assign a governmental bridge authority ( or any other body of their choice) to run the property on the basis of output sharing, while all the running expenses are borne by the managing authority. Of course, expenses are taken into consideration in determining the rate of output sharing. Alternatively, a private contractor may issue shares and invite investors to construct a toll bridge which will be managed by the governmental bridge authority on the basis of output sharing. The bridge authority may also be the construction contractor as deputed by shareholders. The output sharing certificates can be made negotiable at the stock exchange. They represent actual property. They can thus be sold at market prices. For new projects, there may be a certain waiting period until cash funds are substituted for physical property and/or construction mate- rial. They do not necessarily involve redemption like common stock as they represent the full ownership of fixed assets. They also expose holders to risks resulting from natural calamities as well as commercial risks. The out- put sharing certificates may represent projects in which an allowance for amortization of capital may or may not be made. In the latter case, the peri- odic distribution of output shares represents both a portion of the principal and a return. This approach may be suitable for projects based on exploit- ing a franchise or when there is a condition for transferring ownership of the projects or its assets to the public sector after a certain period.