Accessing Private Capitol. Nobody can borrow for less than the gov't.
I think all in means in real life is that the gov't is willing to pay a premium (over-and-above the normal time-value of money) in order to spread the costs over a longer period of time.
In the DBFOM (design build finance operate maintain),
- the DB should be for the Contractor to design the entire line so they can optimize total costs. Maybe pay more for trains and less for stations, or more for tunnels and less for stations. I understand that worked well in Vancouver. Ontario chose to break the DB part into a few large contracts. Too large to allow more bidders, but not large enough to really allow optimization. Either break it into smaller DBB (Design Bid Build) contracts that can get more bidders (but needs gov't to Quarterback everything), or give it all to one contractor. But not in between.
- The Finance is just there to make the immediate gov't books look better.
- The Operate is admission that gov't operation is inherently less efficient.
- The Maintenance is a sort of Warranty - since there was much less oversight during construction.
You’re pretty far off here.
AFPs (the Ontario version of a P3) are used because they are supposed to move risk away from the public sector. Governments can always borrow money more cheaply than private companies. The reason AFPs use private financing is to force private partners to take responsibility if things go wrong. If a project is late or does not work as promised, ProjectCo is (in theory) supposed to pay for that. Under the traditional design bid build approach, cost overruns almost always end up being paid by the government.
That said, the benefits of that risk transfer have not really happened on transit projects in Ontario thus far. A big reason is that AFP consortia are extremely experienced at navigating contracts and using contract language to their advantage, while the public client was not as well prepared or as contract-savvy (hence the reliance on consultants in technical advisory roles). That imbalance means risks that were meant to stay with ProjectCo have drifted back to the public sector.
The extra cost of an AFP is not just about paying interest over time. It is the price of asking the private partner to take on the risk of delays, cost overruns, and long term performance. Those same risks exist under design bid build, but in that model the government carries almost all of them, even if they aren't generally publicized.
Breaking large projects into separate pieces is done on purpose. You can only fully optimize a whole system if the government is willing to give up control over standards and how the network fits together long term, which would not be advisable with TTC as operator. For example, TTC standards for tunnels need to be much more strictly adhered to versus stations which can vary more as long as they work just as well and meet certain criteria.
In theory, AFPs also give governments access to up to date industry knowledge. Private firms work on large projects around the world and bring newer construction methods than public agencies that build megaprojects only occasionally. That benefit has shown up unevenly because the public client has not always been positioned to challenge or properly manage the private partner.
The main benefit, cost wise (again in theory) is the predictability of a fixed price and schedule, and penalties if the private partner doesn't meet the requirements. That obviously hasn't worked out as planned thus far.
The problem to date is that the client has not consistently acted as a strong, informed client, allowing private partners who understand the contracts far better to shift risk back onto taxpayers. This is compounded by TTC being able to leverage their position as operator to have elements of the project delivered to their liking very late in the game and at significant cost as these are considered contract changes.
There are a million ways that these projects could be better delivered using AFP but the benefits, if they're managed properly, are still significant.
