June 22, 2009

Public-Private Partnerships

Canada’s new public-private partnership office engaged in education phase

Spreading knowledge of project models

Canada’s new public-private partnership (P3) office is as much about educating provinces and municipalities about the project model as it is about building itself.

“The state of affairs in provinces differ and range from ones starting to think about P3 to those with significant programs ongoing and to those who have never done one or thought about it,” says P3 Canada CEO John McBride.

“P3s are great, but they are not the right answer in every situation,” he says. “We want to make sure we are investing in the right kind of P3 so we can say taxpayers got the right deal.”

P3 Canada is a Crown corporation designed to work with both the public and private sectors to support P3s and encourage development of Canada’s P3 market. Included in its mandate is a $1.25 billion fund to administer projects that are in the area of federal interest, such as light rapid transit, water and wastewater and transport.

Projects that are under exclusive provincial jurisdiction, such as schools and hospitals, are outside P3 Canada’s mandate.

P3 Canada has engaged every province and territory about ideas they might have for moving forward with P3s in their marketplace.

“Over the next little while, they will send in their ideas and project proposals, so we will get some preliminary indications about that,” says McBride.

“Our first focus is to see that what is eligible has to be a P3. Not everyone understands that a P3 is long-term, risk-based contract, performance-based contract with a significant element of private-sector finance and it has to be in an area of federal interest.”

There is one more anticipated appointment shortly to P3 Canada’s board of directors, says McBride. There has been “an important focus on getting the right board members,” he says. A good mixture of engineering, construction, financing and legal accounting expertise and credibility in the private sector on the board was important.

When McBride started out as CEO of P3 Canada the economic slowdown and the effect on P3s was a major focus.

“With the way credit markets were, it was affecting spreads and liquidity in the market,” notes McBride. “There was quite a bit of concern that the projects in the procurement phase would be able to make their way through to closure.”

P3s are long-term projects and ensuring the ones that were in the pipeline were making their way to market was very important, says McBride.

The P3 projects that will occur over the next 18 months are already in the procurement pipeline and P3 Canada aims to ensure there will be P3 projects in the same pipeline beyond that.

“We are hopeful by fall we will begin some initial announcements, all subject to the due diligence process,” explains McBride. “The big focus is on economic stimulus and those types of projects tend to be shorter rehabilitation projects and not P3s. We are conscious (of that fact) that trying to get people to focus on P3 in the current market is difficult.”

A recent report by economist Hugh Mackenzie states that the financial crisis has made P3s “an even more expensive and risky way” to build public infrastructure. Mackenzie says the financial crisis has increased the spread between borrowing costs for both the private and public sectors, making it harder to attract investors to highly leveraged projects.

McBride says the cost for private sector borrowing is higher than for the public sector and that needs to be weighed against the benefits of the P3 model — including cost certainty, better due diligence, lifecyle costing and specialization.

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