unimaginative2
Senior Member
B.C. seems to have had a lot of success with the PPP model. In the past, I've been very hesitant about going that route, since I've found that the government still often shoulders much of the risk while the private sector makes a healthy profit. I think that a few really bad projects have coloured the reputation of PPPs. On the other hand, B.C. has managed to keep the cost of an 18 km rapid transit line down to $1.5 billion dollars, despite a $600 million cost overrun which was shouldered entirely by the private firm. It's important that any contract signed is air tight to ensure that the government isn't required to bail out the private partner in the event of an overrun.
After seeing the rather glacial pace and high cost of many TTC projects, I think this could be a model to seriously examine. I'm not sure whether a Design Build Transfer, or Design Build Transfer Operate model would be most effective. I guess the federal Tories may be on to something. Toronto should at least try to find out if the private sector could build some of the new subway extensions for less. I'm willing to bet they'll find design changes that could save serious money.
B.C. paves the way to better infrastructure
PATRICK BRETHOUR
pbrethour@globeandmail.com
March 14, 2008
VANCOUVER -- The Sea to Sky Highway improvement project that hugs the coast between Vancouver and Whistler is an engineering marvel, with a modern roadway being built, at some points, out into thin air in the narrow wedge of space between mountainous terrain and craggy seashore.
But it is also a business marvel - a capital construction project that is on time, and on budget - in the middle of one of the biggest building booms and labour crunches ever seen in British Columbia. The reason, its backers say, has less to do with how it is being built and more to do with how it is being financed: through a public-private partnership. Or, as policy wonks call it, a P3.
Private companies building public infrastructure is hardly innovative. But P3s, in their pure form, go much further, paying the private sector to administer the project for years, sometimes decades. The resulting investment opportunity is something along the risk profile of a blue-chip, dividend-paying stock: steady cash flow, solid returns and a minimal risk profile.
But there is risk, and that is the attraction of P3s, for both government and for investors. From the government's viewpoint, all worries about shortages of labour, concrete and everything else that conspires to drive up the costs of a capital project can be written away through a properly drafted contract. And for business, accepting that risk means a counterbalancing return - and the chance to turn a tidy profit by managing those perils properly.
"It takes the risk and put it on the backs of those that can bear it best," says Alina Osorio, chief executive officer of Macquarie Essential Assets Partnership, whose fund is the sole equity investor in the Sea to Sky project.
So, if the Sea to Sky project falls behind schedule, the investors pay a penalty. If traffic is backed up beyond agreed-upon standards, the investors pay a penalty. And on it goes, a sensible offloading on to the private sector, which has the imperative of a profit motive to drive it to perform, something government has often tried to emulate, but never duplicated.
There are critics of the P3 approach, of course, who slam it as a right-wing scheme to enrich the private sector. That concern hardly aligns with modest returns of 8 per cent or so, more in the realm of the profit margins at utilities. The other criticism has yet to be disproved, namely that when a big risk blossoms, governments will be left to pay the bill.
But with an infrastructure deficit looming in Canada, the federal government is following the path that B.C. has blazed, announcing in the February budget the creation of a national counterpart to Partnerships BC. When Finance Minister Jim Flaherty visited the Vancouver Board of Trade recently, he gave full credit to this province as a model to emulate. "You in B.C. have the most expertise in the country."
So, many of Canada's crumbling bridges and roads could be transformed into profit centres in coming years, as the federal program hitches up with B.C. and other provincial and municipal governments.
British Columbia has been building up expertise in P3s for a half decade, ever since the fast-ferry fiasco - in which the NDP government sold a $450-million investment for $21-million and scrapped the project - undermined the case for public-only financing. The Liberals won the 2001 election and in the next year, brought in a rule that required any infrastructure project with more than $20-million in provincial funding to be evaluated for the potential to be spun off as a P3. Partnerships BC was set up to do those evaluations, although its original incarnation was not as arm's length as it now is.
About one-quarter of B.C.'s capital spending falls under the P3 umbrella right now, with the Sea to Sky project one of the most prominent. Another major P3 initiative will be the twinning of the Port Mann Bridge over the Fraser River leading into Metro Vancouver. The province yesterday announced the creation of a Crown corporation that will tender out the P3 contract for this critical bit of infrastructure, but the bidding has yet to begin.
And on the Sea to Sky, even as construction moves along neatly, the real test has yet to begin. That will come as the private sector takes over management and maintenance of the highway, and demonstrates whether the B.C. government has truly divorced itself from any downside. P3 supporters - and critics - will be watching.
After seeing the rather glacial pace and high cost of many TTC projects, I think this could be a model to seriously examine. I'm not sure whether a Design Build Transfer, or Design Build Transfer Operate model would be most effective. I guess the federal Tories may be on to something. Toronto should at least try to find out if the private sector could build some of the new subway extensions for less. I'm willing to bet they'll find design changes that could save serious money.
B.C. paves the way to better infrastructure
PATRICK BRETHOUR
pbrethour@globeandmail.com
March 14, 2008
VANCOUVER -- The Sea to Sky Highway improvement project that hugs the coast between Vancouver and Whistler is an engineering marvel, with a modern roadway being built, at some points, out into thin air in the narrow wedge of space between mountainous terrain and craggy seashore.
But it is also a business marvel - a capital construction project that is on time, and on budget - in the middle of one of the biggest building booms and labour crunches ever seen in British Columbia. The reason, its backers say, has less to do with how it is being built and more to do with how it is being financed: through a public-private partnership. Or, as policy wonks call it, a P3.
Private companies building public infrastructure is hardly innovative. But P3s, in their pure form, go much further, paying the private sector to administer the project for years, sometimes decades. The resulting investment opportunity is something along the risk profile of a blue-chip, dividend-paying stock: steady cash flow, solid returns and a minimal risk profile.
But there is risk, and that is the attraction of P3s, for both government and for investors. From the government's viewpoint, all worries about shortages of labour, concrete and everything else that conspires to drive up the costs of a capital project can be written away through a properly drafted contract. And for business, accepting that risk means a counterbalancing return - and the chance to turn a tidy profit by managing those perils properly.
"It takes the risk and put it on the backs of those that can bear it best," says Alina Osorio, chief executive officer of Macquarie Essential Assets Partnership, whose fund is the sole equity investor in the Sea to Sky project.
So, if the Sea to Sky project falls behind schedule, the investors pay a penalty. If traffic is backed up beyond agreed-upon standards, the investors pay a penalty. And on it goes, a sensible offloading on to the private sector, which has the imperative of a profit motive to drive it to perform, something government has often tried to emulate, but never duplicated.
There are critics of the P3 approach, of course, who slam it as a right-wing scheme to enrich the private sector. That concern hardly aligns with modest returns of 8 per cent or so, more in the realm of the profit margins at utilities. The other criticism has yet to be disproved, namely that when a big risk blossoms, governments will be left to pay the bill.
But with an infrastructure deficit looming in Canada, the federal government is following the path that B.C. has blazed, announcing in the February budget the creation of a national counterpart to Partnerships BC. When Finance Minister Jim Flaherty visited the Vancouver Board of Trade recently, he gave full credit to this province as a model to emulate. "You in B.C. have the most expertise in the country."
So, many of Canada's crumbling bridges and roads could be transformed into profit centres in coming years, as the federal program hitches up with B.C. and other provincial and municipal governments.
British Columbia has been building up expertise in P3s for a half decade, ever since the fast-ferry fiasco - in which the NDP government sold a $450-million investment for $21-million and scrapped the project - undermined the case for public-only financing. The Liberals won the 2001 election and in the next year, brought in a rule that required any infrastructure project with more than $20-million in provincial funding to be evaluated for the potential to be spun off as a P3. Partnerships BC was set up to do those evaluations, although its original incarnation was not as arm's length as it now is.
About one-quarter of B.C.'s capital spending falls under the P3 umbrella right now, with the Sea to Sky project one of the most prominent. Another major P3 initiative will be the twinning of the Port Mann Bridge over the Fraser River leading into Metro Vancouver. The province yesterday announced the creation of a Crown corporation that will tender out the P3 contract for this critical bit of infrastructure, but the bidding has yet to begin.
And on the Sea to Sky, even as construction moves along neatly, the real test has yet to begin. That will come as the private sector takes over management and maintenance of the highway, and demonstrates whether the B.C. government has truly divorced itself from any downside. P3 supporters - and critics - will be watching.
