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Governments Navigate the P3 Learning Curve Infrastructure Programs Include Room for Alternative Delivery Models
March, 2009
By Dan O’Reilly
Public-private partnerships (P3s) were relatively rare in Canada a decade or so ago with the exception of a couple of high-profile projects like the Confederation Bridge linking New Brunswick and Prince Edward Island and Ontario’s first electronic toll highway, Highway 407. More recently, though, government officials at all levels, the design and construction industry, health care and other service providers have shown renewed interest in this delivery method for infrastructure projects.
In late November, several hundred delegates attended the Canadian Council for Public Private Partnerships’ (CCPPP) annual conference in Toronto, where Federal Finance Minister Jim Flaherty and Alberta Premier Ed Stelmach were among the approximately 100 speakers.
“The fact that you're all here today is proof of how far P3s have come in Canada in a relatively short time,” Stelmach told his audience. “Alberta has long seen the great potential of public-private partnerships and has used them successfully to meet its infrastructure needs in recent years. P3s have a lot of supporters in Alberta and I've long been one of them.”
The province’s rapid growth has placed severe strains on its infrastructure, spurring decision makers to look to P3s. “Because P3s have proven to be good investments for Alberta, they will continue to be part of our capital plan,” Stelmach reported.
Among Canadian provinces, Alberta, British Columbia, Ontario and Quebec have most often opted for P3s to bring hospitals, roads and other large-scale projects on stream. The current British Columbia government, in particular, embraced this delivery method in response to the deficit it inherited when it took office in 2001.
That led to the creation of Partnerships British Columbia, an arm’s length agency that provides advice to public-sector clients on P3s. Several projects have either been completed or are under construction, especially in preparation for the 2010 Winter Olympics.
ECONOMIC STIMULUS COMPATIBILITY
Derek Burleton, Senior Economist with TD Bank Financial Group, mused on the possible role of P3s in the type of infrastructure spending Canadian and US governments have been contemplating to help stimulate the economy. (Canada’s 2009 federal budget states that the Crown Corporation, PPP Canada Inc., which was previously established to administer the federal government’s Public-Private Partnerships Fund, will issue its first call for applications in 2009-2010. See associated story, page 10.)
“There’s an impetus to get the cash out the door. But it takes time to set up P3s and some of the projects being talked about now won’t happen until the next decade,” Burleton said.
However, he sees some positive indicators when comparing today’s economic climate with the last recession of the early 1990s when governments were aggressively cutting spending under the cash flow accounting system then in place. Under the accrual accounting now used, governments can write off a project’s cost over the life cycle of project.
At the November CCPP conference, Finance Minister Flaherty assured delegates that his government is committed to shoring up Canada’s infrastructure through initiatives such as the creation of PPP Canada Inc., which is backed with $1.25 billion in federal funding. “Canada is not immune. We are not an island,” Flaherty said, while suggesting public private partnerships are an innovative measure to drive infrastructure projects during the economic downturn.
In Ontario, 22 projects are under construction and another 10 to 12 are in the procurement process through the province’s Alternative Financing and Procurement (AFP) delivery model. “Projects are happening and we expect that to continue throughout 2009, 2010 and 2011,” said Jim Dougan, Executive Vice President of Infrastructure Ontario, the arm’s length crown corporation overseeing the renewal of the province’s infrastructure.
Thus far, the majority of Ontario projects have been hospitals and health care facilities, and this has attracted attention of private sector players such as Minneapolis-based Honeywell Building Solutions. It’s the facility management arm of Integrated Team Solutions – the consortium responsible for the construction, financing and maintenance of the new Woodstock General Hospital – along with financier LPF Infrastructure Fund, and builder EllisDon.
Construction of the $269-million facility began in November. “We wanted to establish a presence in Ontario and have worked with EllisDon on other (non P3) projects” said Jim Keesling, Honeywell’s Vice President of Services.
COST QUESTIONS
Public-private partnerships continue to be viewed with skepticism in some quarters, and there has been criticism of real and perceived cost overruns. Financial institutions are cautious about investing, and governments have often shied away when faced with public wariness and union opposition. “They [P3s] have been a steep learning curve for governments,” Burleton said.
Notably, Ontario’s Auditor General, Jim McCarter, concluded in a 2008 report that that new Brampton Civic Hospital could have cost $50 million less if there hadn’t been a private component. It was the first hospital in Ontario built as a P3. However, P3 advocates counter that the incorporation of life cycle costs in the final numbers can distort the upfront cost picture, when, in fact, the guarantee of life cycle is a key ongoing benefit for the holders of a facility.
The preceding article is reprinted from Building Strategies, Winter 2008-09. |