Public-private partnerships fail to deliver
Governments should abandon the myth that the P3 model has benefits.
by Ken Georgetti
Governments have flirted for a number of years now with using so-called public-private partnerships (P3s) to build everything from hospitals to highways, but there is growing evidence that the model is both flawed and costly. The traditional way of creating infrastructure was to have the private sector design and build it, but for governments to finance, maintain and operate it. But the P3 model extends the role of the private sector into all of those areas. The theory is that everybody wins - private companies get paid well for their efforts and after 30 years or so projects revert back to the public.
In practice, however, P3s have turned out to be a bad way to build public infrastructure and all too often it is citizens who are left holding the bag. The list of failures is growing:
In February 2009, the Ontario Auditor General released a report on the P3 Brampton Civic Hospital. The report concluded that the hospital cost $394 million more than if it had been built within the public system, including $200 million in higher interest costs. Instead of 716 beds that the public hospital would have included, the P3 hospital only has 479 beds. In light of this disaster, another Ontario hospital, the Peel Memorial, will be rebuilt using traditional financing models rather than a P3.
Another recent example involves the collapse of British Colombia's plan to rebuild the Port Mann Bridge by means of a P3. The Australian investment bank behind the project could not finance it. The province will now assume the risk and finance the construction, but the investment bank will continue to benefit by providing advisory services for financing and tolling operations.
The weaknesses of the P3 model have been magnified in the current financial crisis because banks are not lending to the private sector infrastructure consortia. Moody's, the credit rating firm, said in a January 2009 report that, "there is a potential for P3 projects to be increasingly unable to show value for money, meet affordability tests, or even complete their funding."
But the Harper government continues to favour the model despite mounting evidence against it. The government decided in 2007 to create a new crown corporation called PPP Canada Inc., which was tasked with creating P3s across the country. All large scale projects under the Building Canada Fund would have to employ a "screen" demonstrating that the P3 option had been fully considered.
The 2009 budget promised infrastructure spending for a range of municipal, provincial, federal and First Nations' projects. The government is in the process of determining the criteria by which these proposed projects will be evaluated and we fear that the P3 screen remains in place.
I have written to John Baird, the minister in charge of infrastructure, asking that there be no P3 screen on the dispersal of money allocated under new or continuing infrastructure programs, including those through the Building Canada Fund. In fact, I have asked that the crown corporation PPP Canada Inc. be shuttered and its operating resources reallocated.
We desperately need major reinvestments to replace ageing infrastructure, support communities, reduce unemployment and deal with continuing income inequality. The Federation of Canadian Municipalities reports that there are hundreds of projects ready to go, including water and wastewater projects, public transit, roads and bridges.
We must ensure that a flawed P3 model does not get in the way of an effective stimulus package for the Canadian economy. P3s cannot build infrastructure projects faster or at a reduced cost to taxpayers. The government should instead support traditional public infrastructure projects that will deliver results quickly and in a cost-effective way. These projects are transparent, accountable and democratically-governed in the communities they serve.
Ken Georgetti is president of the Canadian Labour Congress.
Posted: April 22, 2009
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