PPPs: Panacea or Poison?

1. PPPs: Panacea or Poison? 2006 Speak Up Series Presentation by Canadian Taxpayers Federation

2. What is infrastructure? • Office of Infrastructure Canada includes: Railways, airports, transit systems, water treatment systems, schools, hospitals, street lighting, internet, email, parks, golf courses, green spaces, bike paths, museums, recreation facilities, as well as a healthy citizenry and workforce

3. Core Assets: Highways, bridges, roads Airports Schools Hospitals Discretionary Assets: Recreation centres Sports arenas Film theatres Tennis courts Soccer fields Types of Infrastructure

4. Infrastructure Status • Canada’s infrastructure gap $50-125 billion. • Capital asset management is not a priority for short-term governments.

5. The Dilemma • Roads, bridges and highways are needed, they cost money and Canadians are already taxed to the max. • Governments are looking for alternatives to traditional procurement. • Public-Private Partnerships or P3s

6. What are P3s? • Contract. • Government and private partner (or group of partners) to provide some good or service. • Output based performance measures and allocates project risks to the partner best able to manage or mitigate that risk.

7. Public-Private Partnership Contract Characteristics • On Budget • On Time • Quality Standards • Risk Transfer

8. Types of P3s

9. D-B-F-O • Most P3’s are design, build, finance, operate. • Role of the private partner in the project. • A group of private partners come together as a consortium to fulfill the DBFO of the project.

10. Confederation Bridge

11. 35 Year Contract • Private Partner assumes the construction, financing, revenue, operation and maintenance risks. • In exchange for accepting such risks, the private partner receives a fixed annual service payment of $41.9 million (1992 dollars), which represents an estimated annual cost savings of $9.2 million. • The 13 km bridge was built in three and a half years and the 100 year service life. • The private partner assumes the risks in return for a stable, long-term revenue stream—the annual service payment.

12. How are P3s Different? • “Build it and buzz off” • Traditional procurement: prescriptive and project phases are truncated. • No incentives, no penalties, no outcome measurements.

13. Examples of Traditional Procurement

14. P3 Checks & Balances • Confederation Bridge as an example. • The partner responsible for maintenance and operation of the bridge will act as a check on the design and builder of the bridge to ensure that maintenance costs are minimal and profit attainable. • Outcome based contracts ensure taxpayer interests are protected.

15. Why would the Private Sector be interested in P3s? • If done properly, most of the risks that governments do not handle well (budget, construction, material costs) are borne by the private sector, • So, what’s in it for them? • P3s usually include an annual service payment that offers a stable long term revenue stream.

16. Investment • Investment funds want to diversify from real estate and equity holdings. • CPP Investment Board expanding its infrastructure investments by $470 million this year alone. • MacQuarie Essential Assets Partnerships leads the world in P3 financing.

17. Why now? • Global expertise • International Success • Governments feeling the squeeze to provide more with less.

18. International Evidence • UK: started with Conservatives, largely expanded with current Labour government. • Public Finance Initiative: roads, hospitals, highways, bridges and schools. • 64 New hospitals worth $26 billion • 150 New schools with 250 more on the way.

19. 2002 UK Audit by NAO

20. Who else? Chile, Ireland, Australia, New Zealand, Sweden, Italy, Spain, South Africa, Brazil, the United States. Singapore: water treatment, incineration, university student housing and IT infrastructure.

21. Where’s Canada? • Slow, many obstacles to progress. • $17 billion in capital spending just this year! • Some successes: Confederation Bridge, Fredricton-Moncton Highway, Calgary Courthouses, William Osler Health Centre, Charleswood Bridge in Manitoba.

22. BC: Leading the Country • 2002 Capital Asset Management Framework • Partnerships BC • 11 Major projects from mine clean-ups to bridges to ambulatory centres. • Abbotsford Regional Hospital and Cancer Centre

23. D-B-F-O Abbotsford Hospital

24. Contract Details • Labour cost increases absorbed by build partner PCL. • Financial penalties if not open on time. • Quality standards. • Performance based annual payment.

25. What about the rest of Canada? • Quebec is following BC. • Ontario infrastructure has recognized the need for the private sector. • Municipalities have been doing P3s for a long time. • New Brunswick P3 policy.

26. P3 Misnomers • Asset owned by private interest • Loss of public control • Private profit = higher costs • Annual service payment wholly additional cost • Transparency lost • Always cheaper • Always more expensive

27. Obstacles • Vested interest in status quo. • Ignorance on P3 operation. • Political footballs. • NDP in BC, advocated and criticized. • Stunted in ideological partisanship. • Will P3s win out?

28. P3s are not a Panacea • Only a contract. • Only as good as the tendering and provisions. • It is up to the public partner to be mindful of the taxpayers interest • Just because a project is a p3 doesn’t mean it’s a good idea.

29. Questions, comments welcome! Thanks for your attention! Email: smacintyre@telus.net