Officials ride the newly built light transit system on March 27, as the train makes it way through the tunnel in Vancouver, British Columbia. The Canada Line, running between Vancouver's downtown waterfront and the city's airport, is the latest in a string of public-private partnerships.
(Andy Clark/Reuters)Photos (1 of 1)
In Canada, an innovative way to rebuild roads, hospitals
British Columbia's 'private-public partnerships' have been touted as a model for the US to revamp its infrastructure.
By Susan Bourette | Correspondent of The Christian Science Monitor/ April 20, 2009 edition
Toronto
British Columbia’s political leader Gordon Campbell recently stepped aboard Vancouver’s new light transit system and into the world’s spotlight as one of the leading proponents of a burgeoning movement to twin the public and private sectors in building everything from bridges to roads and hospitals.
The Canada Line, a $2 billion light transit system running between Vancouver’s downtown waterfront and the city’s airport, is the latest in a string of public-private partnerships, or P3s, built in B.C. and being touted as a model for rebuilding America’s infrastructure.
Typically, in a private-public partnership, government invests in the project, along with a private sector consortium which develops, builds, maintains, and operates the asset for a contracted period. The consortium often involves multiple international contractors, a maintenance company, and bank lenders.
While not everyone believes in the successful marriage of these seemingly unlikely business partners, California Gov. Arnold Schwarzenegger, for one, is a fan of B.C’s P3 model.
Governor Schwarzenegger toured the Canada Line project site two years ago alongside Premier Campbell and has since been promoting B.C.’s experience as a template for financing and building public sector projects in California. He reiterated his praise for B.C.’s infrastructure partnerships following a meeting with President Obama last month to discuss future infrastructure projects – beyond the $787 billion federal stimulus package – that also included New York Mayor Michael Bloomberg and Pennsylvania Gov. Ed Rendell.
“We have 38 million people in the state, and we don’t have great infrastructure,” says David Crane, special adviser Gov. Schwarzenegger on economic and job matters. “We should have the greatest rail system, the cleanest water treatment plants in the country and we don’t. Californians have grown accustomed to accepting this, but they deserve better.”
State-of-the-art infrastructure is vital to California’s economic sustainability, and public-private partnerships are the most viable method of delivering many public services because they lower costs and shorten timelines, Mr. Crane says.
British Columbia: a leader in ‘P3s’
While public-private partnerships are still a relatively new concept in the United States, British Columbia has been using the P3 model for several years.
Since 2002, British Columbia has pumped nearly $10 billion (Canadian; US$8.1 billion) into infrastructure financing – 50 percent of it supplied by the private sector. The province has been at the forefront of the Canadian scramble to team the public and private sectors – making the country a world leader in its pursuit of P3s – with projects from Alberta to Ontario, Quebec, and Newfoundland.
Larry Blain, head of the provincial arm that assesses the viability of each project in B.C., says one of the overriding benefits of these ventures is transferring taxpayer risk to the private sector.
“These projects are at the low end of risk, and they’re very attractive investments for pension funds and life insurance companies,” says Mr. Blain, chief executive officer of Partnerships BC. Private companies not only assume risks associated with design but with project construction, he adds.
Do P3s cost more?
But not everyone is enamored with P3s. Recently, serious questions have been raised in British Columbia about the true costs of public-private partnerships.
In a report commissioned by one of B.C.’s public-sector unions, a prominent forensic accountant concluded that the costs of P3s were higher than if the government had constructed the projects alone. For example, accountant Ron Parks pegged the cost of one project at $434 million (US$352 million)more than if the province had paid for it. Similarly, by his calculations, a hospital project will cost taxpayers double the estimate for a public procurement contract.
“There’s a lot of hocus-pocus and management jargon about the projects,” says B.C. New Democratic Party finance critic Bruce Ralston. “The government hides behind the rhetoric. A lot of the bidding and contract documents are not revealed publicly. And their response is: ‘You just don’t understand this.’ And that makes me very suspicious that they are putting public assets at risk.”
California already has a number of P3s underway – including solar power projects in San Jose and the Port of Oakland, as well as the Foothill bus transit system operating in the San Gabriel and Pomona Valleys. Few P3s have been in large transportation projects because public unions have opposed them, Mr. Crane says. But recent legislative changes in the state have set the stage for building new, large transportation projects involving both private and public sectors.
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Comments
2. Bill Main | 04.20.09
The “Emperor’s new clothes” moment has come for P3s in B.C. The very large Australian company, Macquarie Group, was the sole bidder for a new bridge over the Fraser River, replacing the extant Port Mann Bridge. It couldn’t get financing (in fact, the Macquarie Bank might be facing collapse), so the BC government is completely financing it, but - and here’s the strange but predictable twist - not owning it. Macquarie will still own and operate it. It’s the biggest P3 project to date in BC, and it has essentially collapsed as a viable partnership. The risk is completely being undertaken by BC taxpayers. But this is only one of numerous P3s which will not benefit British Columbia, for the single but obvious reason that governments, with double A plus credit ratings, can borrow money at a much lower rate than can private companies. Added to this, of course, is the imperative that private companies must realize a profit - and a not inconsiderable one, at that.
P3s are all about political ideology and nothing about good government.
3. Daro | 04.20.09
A difference in attitude between British Columbia and California is one issue that needs to be addressed. I rode the bus to a business meeting while visiting LA once and was nearly laughed out of the meeting I attended when I told them. They seriously thought there was something wrong with me and it damaged my credibility no end. Needless to say, our company failed to win the contract we tended for.
4. Joe Blog | 04.20.09
Unfortunately, BC’s P3 model has collapsed. Google the “Port Mann bridge” fiasco to see what I mean. Read the articles by the Vancouver Sun especially.
The justification for P3s disappears when one reads that the financing cost for the P3 project was $200M more than the amount that the Government project will cost even when built by the same contrators.
Now, the Government project will be built a year quicker and at a savings of about a billion dollars.
All that politicians can see is the big money being offered to them by the private investor for them to squander at the expense of future generations of voters who have to pay out the extra money. But that is long after they have left office so why should they care!
5. bikram singh | 04.20.09
in india there are several projects like the one mentioned above and majority of them are running successfully and this is not something new…I am surprised to see that this kind of thing is news..!
6. Stuart Hammond | 04.21.09
The Tyee, an online newspaper in British Columbia, has published some critical analyses of P3s.
Here’s a link to one example:
http://thetyee.ca/News/2008/04/25/RiskyGovBiz/
7. AdamG | 04.21.09
I’m in California and if expediency is a result of higher costs, it might be something to explore. It takes far too long for Cal Trans to complete a project and is over budget more often than not.
8. Fred Flagg | 04.21.09
In the UK, Gordon Brown and Tony Blair used the “P3″ as one of New Labour’s signature funding models for building hospitals and other major public works. Sadly it appears to be best at creating hidden debts and “cooking the books” of the government by getting private money into the public works system. Guess who appears to be holding the bag for the private investor’s profits?
This makes it a bit worrying that Treasury Secretary Geithner’s plan to deal with toxic assets is a type of Public Private Partnership; 9 taxpayer dollars risked for every 1 private dollar does not look like a sane deal to try and solve the toxic asset problem with, however grave the problem appears to our banking system.
The muckraking British biweekly “The Private Eye” is a good source for critical journalism on Public Private Partnerships in the UK. According to the satirical newsmagazine, Mussolini’s Italy was an early user of the “P3″.
9. Andy | 04.22.09
Government partnering with businessman in building infrastructures is an almost 100 years idea and many have been built in Asian countries (one of the largest ones: Taiwan High Speed Rail: 20 billion, no government financial investment,i,e, no taxpayers’ money, and it has been operating for two years).
In Asia we have been using the term of B.O.T. for several years. Canada uses the term of PPP, but did not successfully sell it to Americans or Asian countries.
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1. Peter Ouellette | 04.20.09
Hi folks;
I live in British Columbia and believe me, P3’s are more expensive than publicly funded projects. I hope states in the USA don’t fall for this scam. Unless, of course, the only reason for doing so is to line the pockets of the international firms who realize huge profits from these projects. The 3 P’s = Profit, profit, profit.
Thanks for the great newspaper!
Peter