Transcript Document

Public-Private Partnerships:
Ideology Trumping Common Sense
Blair Redlin
CUPE National Research
Greater Victoria Water Watch
Coalition
Public Forum on P3s
Victoria, BC
March 12, 2009
What are P3s?

Many definitions.
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Key feature is multi-decade private operation of public services
(operational contracts of 10-40 years in duration. Generally 25 or 30
years).
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In Canada, most P3s are “design/build/operate” (d.b.o.) and many
include some private finance (d.b.f.o.). Yet most risk is in
construction and design phase which can be reduced through
design/build.
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Design/build is not a P3 method.
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Public and private sectors have always partnered to build
infrastructure in Canada.
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Top Arguments for P3s
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Cost control
Risk transfer
Value for Money
Debt management
Efficiency
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Cost control
Project
Abbotsford Hospital and
Cancer Center
Decision Point
Budget
Current
Estimate
$211,000,000
$355,000,000
$1,550,000,000
$2,100,000,000
Golden Ears Bridge
$600,000,000
$808,000,000
Sea-to-Sky Highway Project
$600,000,000
$789,000,000
$1,500,000,000
$3,300,000,000
$100,000,000
$170,000,000
Canada Line
Port Mann Bridge
William Bennett Bridge
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Procurement negotiations:
What about the public interest?

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P3 process lengthy, bureaucratic,
complex.
Confidential negotiations with single
preferred proponent for final contract.
After years of prep., public owner and
managers mostly concerned that the P3
“succeed”.
Result: public owners out-negotiated.
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Public Sector Cost Control

Kamloops Centre for Drinking Water Quality
As public project, 20% cheaper than projection for P3 ($48.5
million, not $60 million).
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During P3 process, Whistler project costs jumped from $22
million to $36 million in just one year. The now public project is
on budget and ahead of schedule.
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After ending a P3, Hamilton water and wastewater saved 5.2%
($4.49 million) over three years . “…the City has achieved
significant cost savings by operating the treatment facilities inhouse” (City of Hamilton news release, Mar. 31, 2008).
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Cost Control and Risk

“The case studies indicate that the potential benefits of P3s
are often outweighed by high contracting costs and
opportunism. These costs are often particularly high when
construction or operating complexity is high, revenue
uncertainty (use risk) is high, both of these risks have been
transferred to the private sector partner and contract
management effectiveness is poor. In infrastructure projects it
rarely makes sense to try to transfer large amounts of use risk
to the private sector”.
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Source: Public Private Partnerships in Canada Theory and Evidence
by Aiden R. Vining and Anthony E. Boardman, UBC P3 Project,
Working Paper 2006-04, December 5, 2006, Sauder School of
Business, University of British Columbia.
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Risk Transfer

“Our analysis of the Canadian P3 evidence indicates
that the willingness of private sector firms to bear
user risk declines with the level of user risk. Private
sector firms will not participate in a P3 if it bears cost
risk and large revenue risk.”
Source: Public Private Partnerships in Canada Theory and Evidence
by Aiden R. Vining and Anthony E. Boardman, UBC P3 Project,
Working Paper 2006-04, December 5, 2006, Sauder School of
Business, University of British Columbia.
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Risk Transfer
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Canada Line – TransLink has ridership risk.
Must pay for 100,000 riders per day (up
from 40,000 on transit corridor today).
City of Hamilton water and wastewater
debacle – companies refused liability for
sewage spills and floods. 200% risk
premium in contract renewal proposal.
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Risk Transfer – Metronet 2007
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Metronet Tube Maintenance P3.
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Regulator denied additional public money for cost
overruns.
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Consortium collapsed.
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Risk reverts to public, since Tube must be
maintained.
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Transport for London has already provided a loan
of 897 million pounds to administrator.
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Ultimate cost of collapse for Transport for London
= $2 billion pounds (i.e. $4 billion Canadian)!
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“Value for Money”
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Value for Money reports lack credibility. Too often they are
justification reports…especially since they’re produced AFTER
the final contract is signed.
They are often “….pseudo-scientific mumbo jumbo where the
financial modeling takes over from thinking…it becomes so
complicated that no-one, not even the experts, really
understands what’s going on”.
Jeremy Colman, Deputy Controller and Auditor General
National Accounting Office – UK Financial Times June 5, 2002.
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“Value for Money”
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Sea-to-Sky highway P3 – Partnership BC’s V.F.M. report
incorrectly assumed the cost of government borrowing is the
same as the cost of capital for the P3.
“…the Sea-to-Sky P3 will cost taxpayers over $220 million more
than a traditionally procured and financed project”.
Source: The Real Cost of the Sea-to-Sky P3 by Dr. Marvin Shaffer, Canadian
Centre for Policy Alternatives, September 2006.
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Public sector borrowing always cheaper than private finance.
Current Municipal Finance Authority of BC rate for a ten year
term is 5%.
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Debt Management
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There was once hope P3 debt could be “off-book”. No
longer.
“…how the accounting profession looks at P3s and how debt is treated
has actually been evolving since 2003…the capital costs of our P3
projects will be treated as assets and liabilities on (the government’s)
books.” Kevin Falcon, BC Minister of Transportation, BC Legislative
Assembly Hansard. October 25, 2005.
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From 2008/09 U.K. public financial statements have had to abide by
International Financial Reporting Standards. This brought PFI projects on
to the public balance sheet and increased UK public sector debt by 6
billion pounds. Source: Public Finance Magazine March 3, 2007.
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Debt or Liability?
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2006 Public Accounts of BC showed provincial contractual
obligations up a staggering $21 billion in just one year…up
from $34 billion to $55 billion!
“What (the Public Accounts) show is the effect of the Liberal
government’s determination to turn to the private sector to
provide services and facilities that were in the past provided
by government” “P3s just put the bill in another pocket” by
Craig McInnes Vancouver Sun July 19, 2007.
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Efficiency
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“A P.F.I. Transaction is one of the most complex
commercial and financial arrangements which a
procurer is likely to face. It involves negotiations
with a range of commercial practitioners and
financial institutions, all of whom are likely to have
their own legal and financial advisors.
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Consequently, procurement timetables and
transaction costs can be significantly in excess of
those normally incurred with other procurement
options.”
Source: HM Treasury, Value for Money Assessment Guide, August
2004 p. 30.
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Efficiency

Kicking Horse Pass – Park/10 Mile Bridge.
Fed/Prov. funding confirmed March ’03. Took
three years to put a single shovel in the ground.
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Whistler Wastewater Treatment
Capital costs rose from $22.5 million in Jan.
2005 to $36.5 million in June 2006 as complex
P3 procurement delayed start of project.
Efficiency
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Millennium Line Skytrain
(design/build) – took only three years
to complete.
Canada Line (d.b.f.o. P3) – scheduled
to take five years from signing of
contract, but has been in P3 process
since 2001, so really 8 years in total.
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Secretive and Unaccountable
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Councillor in Hamilton told he had to pay $5000 for F.O.I.
request on P3 water contract with City.
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P.W.C. financial feasibility study on Canada Line withheld
from TransLink Directors.
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Quiet deal between Epcor and Regional District of
Nanaimo managers.
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Critical Dayton and Knight report not shared with Whistler
councillors.
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Maple Ridge process ruled illegal by BC Supreme Court.
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F.C. M. Conclusion
August 2007
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“There is no evidence to suggest that P3s consistently cost less or provide
better services than traditional public projects.
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P3s give the responsibility for financing infrastructure to the private sector,
even though traditional municipal financing is simple, relatively easy, and
less costly than private sector financing.
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Long-term P3 arrangements, which often keep proprietary information out
of the public domain and put the day-to-day management of public services
in private hands for periods of 20 to 30 years, can reduce flexibility,
transparency, and accountability for local governments.”
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Source: Public-Private Partnerships and Municipalities: Beyond Principles,
a Brief Overview of Practices by Dr. Pierre J. Hamel for Federation of
Canadian Municipalities, August 31, 2007.
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Ontario Auditor General
slams Brampton Hospital
P3
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Total life cost: $1.2 billion.
December 2008 - Ontario Auditor General Jim
McCarter said Province would have saved $200
million if it had borrowed money directly.
Construction would have been $50 million less if
built directly.
Government would have saved $58 million if it
hadn’t privatized non-clinical support services.
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Parks Report: Top BC
Forensic Auditor on P3s
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Ron Parks is top forensic auditor in BC.
January 2009 – Parks and co-author Roseanne
Terhart commissioned by CUPE BC to study 4
BC P3s.
Concluded all cost more than public
projects…130% more in case of Diamond
Health Centre.
Said process for assessing P3s is biased
against public sector.
Criticized “general lack of transparency and
public accountability”.
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Financial crisis means P3s
make even less sense
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Private financing now is even more costly & risky.
The spread between public & private financing costs is
increasing.
Financial crisis caused by same policies as P3s…like
deregulation, privatization and inadequate public
investment.
Bailouts prove private sector not better than the public at
managing risk (e.g. Vancouver Athlete’s Village)
P3s are complex and lengthy…so if P3, stimulus won’t
get spent quickly .
Governments are always ultimately accountable anyway.
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COPE-*491
Some Key Resources
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Value for Money? Cautionary Lessons about P3s from British Columbia by
Stuart Murray, Canadian Centre for Policy Alternatives, June 2006.
Evaluating the Operation of PFI in Roads and Hospitals Research Report 84,
The Association of Chartered Certified Accountants, London, 2004.
Public Water for All: The Role of Public-Public Partnerships Transnational
Institute, Amsterdam, March 2006.
Public-Private Partnerships in Canada Theory and Evidence by Aidan R. Vining
and Anthony E. Boardman, Sauder School of Business, UBC P3 Project,
Working paper 4, December 2006.
Public-Private Partnerships and Municipalities: Beyond Principles, a Brief
Overview of Practices by Dr. Pierre J. Hamel, Federation of Canadian
Municipalities, August 2007.
Evaluation of Public Private Partnerships: Costing and Evaluation Methodology
Blair Mackay Mynett Valuations Inc. January 5, 2009.
2008 Annual Report of the Office of the Auditor-General of Ontario “Chapter 3:
Brampton Civic Hospital Public-Private Partnership Project”.
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Cope491
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