August 3, 2017

The private sector will and must play a larger role building public infrastructure in Canada

by Mark Romoff, President and CEO, The Canadian Council for Public-Private Partnerships

Canadian governments have collectively committed to historic investments in infrastructure over the next decade. The federal government alone has committed $186 billion to new, critical projects from public transit and healthcare facilities to social housing and water treatment plants. With the Canadian infrastructure gap estimated at $1 trillion, it is clear that governments are not in a position to address this deficit on their own.

The private sector will and must play a larger role in the design, build, financing, maintenance, operation and in some instances even the ownership of future projects. So it is important to understand the tools available to governments, to ensure these partnerships produce the best possible return on public sector investments. Each project must demonstrate real value for taxpayer dollars.

Mariana Valverde’s July 24, 2017 op-ed as originally published on The Conversation highlights the importance of having an informed discussion. As she points out, Ontario and British Columbia have developed their public-private partnership (P3) models over the past 25 years or so. They are, in fact, the two most active Canadian P3 markets and account for a majority of the more than 260 projects across the country, with those that are in operation or under construction valued at $122 billion. She is also correct that P3 projects are publicly owned and publicly controlled. But she misunderstands how they work.

Contrary to her opinion, P3s really are partnerships. They are, to use her words, “a long-term agreement” where the partners “share financial risks over time.” Risk is allocated to the partner who is best able to handle it. That’s what drives real value for money on these projects. It is the very essence of the typical P3 in Canada.

The private sector consortium doesn’t “do their work and leave,” as Valverde says. In fact, the opposite is the case – these are long term fixed price contracts with the private sector assuming responsibility for the performance and maintenance of the asset for a period of typically 30 to 35 years. Contrary to Valverde’s assertion, governments make payments over the course of the contract. It’s not a “don’t pay for 30 years” plan.

Public-private partnerships in Canada have been successful in helping deliver needed public infrastructure that may not have otherwise been built. There is no ownership transfer to the private partners. It’s not privatization.

There is nothing that signals governments are planning to give up ownership of public assets, such as hospitals or schools built through P3s. To raise that warning is irresponsible and incorrect.

Similarly, it is incorrect to claim that the newly established Canada Infrastructure Bank (CIB) is designed to sell off major federally owned assets. Finance Minister Bill Morneau and Infrastructure and Communities Minister Amarjeet Sohi have made it abundantly clear the CIB is intended to attract private sector investment in revenue generating projects. They would be new projects – including those that cross jurisdictional borders like power transmission lines. The government has said, repeatedly, the CIB will not be in the business of selling off airports or seaports.  Its mission is to bring more large, complex projects successfully to market.

That doesn’t mean however, that governments may not find it beneficial to sell some assets to private investors. But even if that were to happen, it would certainly not be the first time our governments have leveraged assets to generate billions of dollars to benefit taxpayers across the country.

There is a long list of notable crown corporations that are no longer owned or controlled by the federal government. Air Canada was privatized in 1988. The Canadian National Railway Company was privatized in 1995. Petro-Canada shares were first sold on the open market in 1991 and the 2004 federal budget committed to selling off Ottawa’s remaining stake in the company. Similar sales have been conducted by provincial and municipal governments that have leveraged energy companies, telecommunication systems, investment corporations, empty schools and underused or redundant real estate properties.

P3s and the CIB are innovative tools that help governments address our growing infrastructure needs in the face of real fiscal constraints. They are designed to ensure the best and most efficient use of public resources, tax revenues and current assets.

Above all, they engage the private sector to do what the public sector is neither skilled nor equipped to do when it comes to designing, building, financing, maintaining and operating complex infrastructure – delivering high quality projects on time, on budget and ensuring tax payers get real value for their investments. Independent research shows that since their inception, P3s have saved Canadian governments more than $27 billion, and on average every year create 115,000 jobs , and contribute $14 billion of economic activity, $4 billion of private capital investment and $4 billion in federal and provincial tax revenue.

We are about to embark on an historic period of nation building in this country and it will require considered debate and discussion because the policy decisions being made will affect Canadians for generations to come. We welcome that. We would only ask that this dialogue be evidence-based and informed.