Public-Private Partnership Concerns

A number of recent reports, news articles and blogs on public-private partnership (P3) models indicate the city should be wary of following such a model for the Valley Line.

A few years ago, the Parkland Institute raised concerns around cost escalations, value-for-money, lack of integration, service issues and transparency/accountability related to a P3 approach to the Valley Line LRT: http://parklandinstitute.ca/research/summary/wrong_turn

The Alberta government has also turned away from the P3 model in other infrastructure development: in 2014, it cancelled nineteen school construction projects after it discovered the P3 model would cost more than a traditionally funded approach.[1]

Other provinces have had similar experiences. Vancouver’s success with the P3 construction of the Canada Line is debatable. This project came in over-budget (2.054 billion rather than 1.76 billion). Furthermore, the operational incongruence of the Canada Line from the rest of the network means that the value-for-money of this model is not clear – and, as the BC auditor noted, the lack of transparency involved in P3 arrangements makes this value very hard to actually determine. The fact that Vancouver was not satisfied with the P3 model is suggested by its decision to not build its upcoming Evergreen line as a long-term P3. See http://www.policynote.ca/bcs-auditor-highlights-big-differences-between-the-evergreen-and-canada-lines/ and http://www.francesbula.com/uncategorized/canada-lines-unusual-financing-scheme-still-generates-interest-and-debate/

Last year, Saskatchewan’s opposition leader also called for an end to all P3 deals: http://www.cbc.ca/news/canada/saskatchewan/sask-opposition-says-p3s-should-be-scrapped-1.2867660

Ontario’s auditor general also released a report last year that is highly critical of P3 arrangements: http://rabble.ca/blogs/bloggers/progressive-economics-forum/2014/12/ontario-auditor-generals-damning-report-on-p3s The report notes that P3 projects resulted in an $8 billion higher cost than traditional public-sector funding, and that “there is no empirical data supporting the key assumptions used by Infrastructure Ontario to assign costs to specific risks” (p. 198). Furthermore,

[t]he private sector initially finances construction of AFP [alternative financing and procurement] projects, but, as with projects delivered by the public sector, the province ultimately pays for these projects under the terms of their contracts, some of which are up to 30 years. The March 31, 2014 Public Accounts reported almost $23.5 billion in liabilities and commitments relating to AFP projects that the present and future governments, and ultimately taxpayers, will have to pay. However, the financial impact of AFP projects is higher since the province has also borrowed funds to make the payments to AFP contractors when the various projects reached substantial completion. These borrowed amounts, which we estimate to be an additional $5 billion, are part of the total public debt recorded in the March 31, 2014, Public Accounts. (p. 198)

Also,

In some cases, a risk cost that the project’s VFM [value for money] assessment assumed would be transferred to the private-sector contractor was not actually transferred, according to the project agreement. For example, the VFM assessment for a hospital project assumed the contractor would bear the risk of design changes; however, this hospital project was procured under a Build Finance model, in which the contractor is not responsible for project design, and the project agreement made the public sector responsible for the risk of design changes. In fact, the private-sector contractor was paid an additional $2.3 million as part of two change orders resulting from changes to the hospital’s original design. (p. 199)

Various articles and blogs have also indicated the flaws of the P3 model. See:

http://www.theglobeandmail.com/report-on-business/economy/the-hidden-price-of-public-private-partnerships/article4611798/ and

https://www.policyalternatives.ca/publications/monitor/problem-public-private-partnerships.

The above information all suggests that Edmonton should be wary of the P3 model, especially given our province’s current economic situation. It also suggests that city council might fully consider the findings of the Edmonton Transit System Advisory Board that “Compared to the LRT, [bus rapid transit] is much cheaper in terms of infrastructure and capital costs, can be developed faster, and is less expensive to operate,” and consider giving up or renegotiating the federal funding in favor of more affordable BRT and a system that is truly public. What has the City done to ensure an alternative system to LRT (such as BRT) would not be more affordable to the point of negating the need for the federal contribution tied to a P3 model? With a newly elected, pro-public-infrastructure federal government, there appears to be a prime opportunity to renegotiate the federal funding component and financing structure.

Finally, Public Interest Alberta has raised a number of important practical concerns regarding a P3 LRT project. Where has the City outlined for the public the guidelines for the private contractor to ensure operational compatibility with the public lines? For example, currently the City covers LRT closure with buses. Will the contractor have buses? If not, will the City have to provide them in the event of Valley Line LRT closure, and at whose expense? Likewise, how will the City handle disparity in wages of drivers of the private and public systems? How will the City ensure responsible spending when private control of the line means less obligation for financial transparency?

[1] http://globalnews.ca/news/1401800/alberta-government-scraps-p3-funding-model-for-new-schools/