CanWest takes on P3s
The existing pot of infrastructure money offered up by the feds in last year’s federal budget has been criticized for being contingent on a P3 model, aka public private partnership, where design, build and subsequent operation of infrastructure was undertaken by the private sector, and leased back to the public sector over the lifetime of the asset.
P3s have been controversial to say the least. In the federal context, it has mean huge hurdles in getting the money rolling, and even though billions in new infrastructure money was announced today by Transport Minister John Baird, if made conditional on P3s then “shovel ready” projects could take a long time to get going. Moreover, P3s have been criticized by organizations like the CCPA for being more expensive due to private financing and profit margins, require complicated contracts that could leave the public sector holding the bag if something bad should happen, and potentially problematic in terms of service delivery.
So it was interesting to see today’s front-page story in the Ottawa Citizen, based on a report by the Auditor General of Ontario on a P3 hospital in Brampton:
Auditor General Jim McCarter found that cost estimates for a government-built hospital were inflated to justify building the $614-million Brampton Civic Hospital through a private consortium. The consortium — the Healthcare Infrastructure Company of Canada — is the same group that built Royal Ottawa and runs its non-medical services.
Brampton Civic, which was conceived as a 716-bed hospital, opened with 479 beds in October 2007. Two months later, public protests over medical deficiencies and shortages of beds and staff forced the Ontario government to appoint a supervisor to run the hospital.
The auditor general found that allowing a private consortium to build the hospital and operate its non-medical services cost Ontario taxpayers $194 million more (in 2003 dollars) than if it had been publicly built and run. As well, taxpayers would have saved $200 million over the life of the 25-year lease, if the government had borrowed money at the lower interest rate of 5.45 per cent to build the hospital, instead of the higher rate paid by the private consortium.
Experts say the auditor general’s findings make such disturbing reading, the provincial government should suspend its P3 projects until a full-scale assessment of their value is undertaken. Lewis Auerbach, a P3 consultant and former director in the Office of the Auditor General of Canada, is worried that with the federal government set to unleash infrastructure spending that could include public-private partnerships, vast sums could be wasted.
On the weekend, there was more news from CanWest on the P3 front, this time from the Vancouver Sun. The story is different, a focus on companies with P3 contracts unable to get financing in the midst of the economic crisis, delaying projects (and some cool “follow the money” flash animation on this page):
In Australia, the high-flying Macquarie Group was dubbed the â€œMillionaires Factoryâ€ because the company made gobs of money investing in and operating toll roads.
Like so much else in the recent financial crisis, the never-ending growth projections and the success those projections delivered turned sour almost overnight.
… Macquarie, which operates more than 30 roads worldwide, slashed the value of its toll-road portfolio from $10.2 billion to $6.5 billion in the last four months of 2008, according to Australian newspapers…. Macquarie is involved in infrastructure projects in B.C. â€” including the upgrades to the Sea-to-Sky Highway.It is also leading the consortium chosen to twin the Port Mann Bridge and expand Highway 1. Macquarie is struggling to arrange funding for that project and was given an extension by the province, which has insisted the financing should now be secure by February.
But on Friday, Transportation Minister Kevin Falcon was poised to make a sudden, late-day announcement about the Port Mann. Then, 18 minutes before the press conference, it was cancelled with little explanation.
The strange on-again, off-again skirmish may be indicative of the ongoing challenges behind the scenes trying to secure funding for B.C.â€™s largest privately financed infrastructure project.
… Partnerships B.C. CEO Larry Blain was not commenting Friday. But in an interview earlier this week, Blain said he was confident funding for the Port Mann would, indeed, be arranged by February â€” although he added it is conceivable the deal could take until March to finalize.â€œWe gave one extension to Macquarie because the markets are difficult, banks are doing more due diligence, they are more picky about projects,â€ he said. â€œ[But] the fact that Macquarie Bankâ€™s stock prices have gone down does not change its commitment to the project.â€
Blain wonâ€™t reveal from whom Macquarie is trying to secure the money, but trade magazine Project Finance identified four lead financiers who met with two dozen banks last month in an attempt to assemble $2.3 billion in debt that it could lend.
According to international news reports, all four of the lead lenders â€” BNP Paribas, Caja Madrid, Royal Bank of Scotland, and Societe Generale â€” have been hit by the credit crunch.
British Prime Minister Gordon Brown recently approved a $525 billion bailout for the Royal Bank of Scotland. He said he was angry it had come to that.
The official reason for the delay in financing for the Port Mann project was credit constraints, but Project Finance magazine reported that â€œmarket rumoursâ€ suggest some banks were uncomfortable with â€œthe debtâ€™s pricing structure,â€ meaning they could be looking to renegotiate the terms.
… Thomas Ross, a senior associate dean at the University of B.C. with an extensive knowledge of P3 projects, said the current economic crisis â€” and the higher cost of borrowing that accompanies it â€” should spark a rethinking of how big public projects are financed.
â€œWhatâ€™s kind of happened is a concern for some existing deals that might come unravelled because everybody thought the banks that were lending the money were fine, and now it turns out the banks that were lending the money arenâ€™t fine,â€ he said, citing the Port Mann Bridge as a possible example.
â€œIt may be that some of them are difficult to finance in these times, and it may be that the only people that can really borrow are governments, and so we go back to the more traditional model of procurement until financial markets settle down.â€
Let me get this straight. The British government is bailing out Bank of Scotland, who in turn will lend money to Macquarie, who will help build the new bridge and send monthly invoices to the government of BC to cover the lease? Why don’t we just ask the British government to finance the bridge for us? It makes just as much sense.
… because that would be socialist!
Don’t forget the fantastice “Olympic Village” P3 that just blew up in BC’s face… ouch!
or, Renee, as many union and health care activists have advocated in recent years, government to government loans and mutual aid could be designed as ‘public-public partnerships’, or PUPs, when public services are involved and there is political will to resist privatization of the sector. This is particularly important in the finance and management of projects. Specific descriptors tend to be more useful as people can clearly understand the mechanisms that are involved in the process.
other people have suggested calling them social-public partnerships, and i’m sure others reading this blog have their own linguistic preferences…
frankly i’m just glad that people are fighting the Harper/Baird health, water, energy, construction, education et al P3 giveaway to whichever financial baron is flavour-of-the-month, and that CanWest is helpfully reporting on it.
Ahhh, at long last, CanWest is desperate enough for readers, that telling the truth about P3s may be one of the things that could help them survive into the spring.
There is no political will in either the Federal or BC governments to avoid P3s as their whole reason d’etre is to support lobbyists and private corps.because thats where the kickbacks are.
The people of Canada/BC are immaterial to them.
And its insane as where in the world does government give business its who police force to collect lose change as officers spend their days ticketing people because they may be short amounts as little as .75 cents stores with big ticketed items going unnoticed. And then fill up our court rooms to boot and use our officers to spend their days in those court rooms or the ticketing the poor yet there is some serious crime going ons here in BC as we are the Gangster Capital of the World and our Kids are Left In Situations no children should have to be in. So P3 On that and the people they hire to clean up the trains aren’t doing the job like the hospitals they plan on building and letting them run and the will do that run this beautiful province into the ground along with the buildings they manage. And they are going to cost big time during a credit crisis so its beyond reason so they stink of corruption as it sounds like a nice safe place to put the publics money with out any accountability or say of whats really going down. No Accountability just when we seen what happened in the USA and citizens in BC and Canada are going to jump right in over their heads when they heads are barely above water and giving way the town and the futures of their children the piped piper all over again don’t take the cheap way out take the safe way as we know its going to cost later.
Whats the Safe Mode well we are in a recession and P3s are real risky stuff so go Public have a look and have a say its the only way.