Home Procurement Canada’s P3 Landscape

Canada’s P3 Landscape

written by Chris Webster September 29, 2015

Infrastructure has at last become sexy—in political circles at least. With a yawning infrastructure gap and votes to play for in the upcoming federal election, promises of infrastructure investments and ideas for funding them are eating up column inches like never before.

Infrastructure was once seen as the political equivalent of death by a thousand cuts, but if recent media coverage is anything to go by, it has become a much safer place for politicians to stake their reputations. That change has come as a result of the positive momentum generated through projects getting built on time and on budget. The introduction of public-private partnerships (P3s) played a major role in generating that momentum, and although it does not work for every project, it has been successful in giving politicians the confidence to take the plunge, knowing that risk is shared with the private sector.

Canada is rightly seen as a global success in the adoption of the P3 model, but the picture of adoption and use is very different across Canada. We are seeing a range of different approaches to funding projects being rolled out from province to province.

Federal

The current Conservative government has been a strong advocate of P3s, having established PPP Canada, a crown corporation formed to drive the adoption of innovative funding models for infrastructure, and providing the dedicated P3 Canada Fund to encourage other levels of government to use P3s. The government’s commitment was further underlined with additional funding commitments, and by their decision to utilize P3s for two high-profile bridge projects: the $4.24-billion new bridge for the St. Lawrence in Montreal (No. 6 in the Top 100 Report) and the $2.14-billion Gordie Howe International Bridge in Windsor (No. 19).

With Liberal governments in British Columbia and Ontario at the forefront of P3 development in Canada, Justin Trudeau’s Liberals are understandably supportive. As the Liberals are fighting it out for votes in Canada’s major urban centres with the NDP, promises of tackling gridlock and investing in urban infrastructure are important vote winners.

Trudeau recognizes that P3s will be a critical element in delivering on his promises, and has invited the private sector to come up with innovative solutions to finance and build public infrastructure.

The NDP’s Thomas Mulcair has taken a pragmatic approach in his comments on P3s to date. With votes to fight for in Canada’s big cities, he has been wary of writing off the P3 model, which would cut off a funding source, while taking care not to make statements that could unsettle sections of his union base. He has attacked what he described as “the Conservatives’ ideological and inefficient obligation to public-private partnerships,” but has also pointed to examples of where P3s have been used well. His comments would suggest he remains open to using the model, but reforms could be on the table, including stripping away a requirement to examine the possibility of P3s as a condition of funding and greater transparency.

British Columbia

British Columbia is a trailblazer in P3s. The government’s crown corporation, Partnerships BC, has successfully delivered 42 projects spread out over a variety of sectors over the past 13 years, with the Canada Line in particular being heralded as a template for successful transit P3s.

Premier Christy Clark is an advocate of the delivery model and has made it clear that her government’s long-term infrastructure and transit plan, BC on the Move, will rely on P3s to bridge the gaps in funding the province’s key infrastructure projects. Vancouver’s recent rejection of a tax hike to pay for major transit investments in the city is a setback, but could open up opportunities for innovative funding solutions.

British Columbia’s capital budget for infrastructure and transportation for 2015-’16 sits at $5.2 billion. The majority of this will go into priority projects in the following sectors: transportation (roads, bridges, and ports), energy (natural gas), hospitals and health care, and education.

Alberta

Under Progressive Conservative (PC) rule, P3s were utilized sparsely, but appear poised to ramp up. The Alberta government rarely had a funding gap due to the revenue brought in by the oil sands and their abundance of natural resources, and it also did not want to compete with the private sector for labour. With Premier Rachel Notley and the NDP now in power, the outlook for P3s does not look good in Alberta.

In the past, Notley has been vocal in her opposition of P3 projects, such as the Royal Alexandra Hospital and the bundled schools project. She was fairly unequivocal when describing P3s as “simply an expensive way to get capital debt off the books. They cost more and deliver less.” Transport and Infrastructure Minister Brian Mason is also not a fan, stating in 2007, “in our view P3s are a scam.” However, he has pushed forward the development of the PC-initiated southwest ring road in Calgary P3 project, but the green light will only be given after the party looks at the province’s finances.

Notley has asked former Bank of Canada governor David Dodge to help advise on Alberta’s future capital plan. As part of this request, she did not ask him to consider P3s, but Dodge is free to include it as part of his recommendations if he sees fit. The ability to spread costs over multiple years, hopefully giving the oil sector time to recover could be attractive, but given the strength of NDP criticisms of P3s in the past, it could be difficult to change tack, unless it comes as a condition of federal funding.

Saskatchewan

Saskatchewan is one of the provinces that has created an agency to handle and oversee all of its P3 procurements. SaskBuilds has successfully managed nine P3 projects so far and is quickly expanding despite pressure from the opposition party to scrap the model altogether. In Saskatchewan, the push for P3s has typically come from municipalities who, without private funding, would be unable to afford critical infrastructure projects.

A unique aspect of the P3 experience in Saskatchewan is that the province was the first to put a P3 procurement to a referendum. The 2013 Regina referendum on whether the city should build their local wastewater treatment plant via a P3 was successful and precedent setting. Construction on the $611-million project has begun and will continue until December 2016.

The province’s 2015-’16 capital budget for infrastructure is $581 million. The majority of this investment will be allocated through the province’s five-year capital plan and will go into priority projects in the following sectors: transportation (highways and roads), energy (potash), and hospitals and health care.

Manitoba

After surviving a leadership challenge, Premier Greg Selinger reiterated his position on keeping investments modest, while placing a priority on projects that will help mitigate flood damage and improve the education system.

The government’s Five Year Plan to Build a Stronger Manitoba indicates there will be $320 million earmarked for flood protection infrastructure, and $1.5 billion on municipal infrastructure. Since Selinger was elected in 2009, his NDP government has not been a strong advocate of the P3 model. As a result, the government—which has a provincial deficit of $394 million—is not expected to use the model to bridge their financial shortcomings. The province’s 2015-’16 capital budget for infrastructure is $602.9 million. The majority of this investment will go into priority projects in the following sectors: education and transportation (roads and highways).

Ontario

Premier Kathleen Wynne recently announced a $130-billion investment in infrastructure projects over the next 10 years. The challenge for Ontario is identifying funding sources to leverage as the province already has a sizeable deficit to tackle. Asset sales, land value capture, and green bonds are interesting approaches put forward so far, with other possibilities being examined. Dealing with the higher degree of political risk that comes with the more complex transit projects in the P3 pipeline, especially in Toronto, will provide an acid test for the P3 model in the years ahead. Ontario has also touted the use of P3s to unlock resource potential in the North.

The province’s auditor general raised questions over the benefits of the P3 model, slapping a headline-grabbing—but highly criticized—$8-billion premium on P3s over traditional procured projects. Wynne and her government defended their use, highlighting the risk of cost overruns, delays, and maintenance that was offset by the premium and not adequately taken into account in the report. Despite this rebuttal, the findings have since been used as ammunition by those opposed to the P3 model.

The province’s 2015-’16 capital budget for infrastructure is $4.6 billion. This investment will go into priority projects in the following sectors: transportation (LRT, highways, and train infrastructure), energy (natural gas and mining), justice and corrections (courthouses), education, and hospitals and health care.

Quebec

In Quebec’s 2014-’24 infrastructure plan, Premier Phillippe Couillard and his government have laid out their priorities for the next 10 years. This $90.3-billion investment will see 19 per cent spent on roads; 16 per cent on health and social service infrastructure; 10 per cent on education; and nine per cent on municipal infrastructure.

Couillard is supportive of the P3 model and has said he will partner with Ontario since both provinces are committed to infrastructure renewal. In Quebec, the role of the Caisse de dépôt et placement du Québec makes the P3 picture in the province quite unique. A recent and unique law change has allowed the provincial pension fund to plan, finance, and manage infrastructure projects. Providing they offer an adequate return, this will see the Caisse take on two projects initially: a Montreal airport link and a public transit connection for the Champlain Bridge.

The province’s 2015-’16 capital budget for infrastructure is $9.9 billion. This investment will go into priority projects in the following sectors: transportation (roads and bridges), energy (nuclear and hydroelectric), education, and hospitals and health care.

Atlantic Canada

All four Atlantic provinces have long-term infrastructure plans in place. In Prince Edward Island (P.E.I.), Nova Scotia, and New Brunswick, the importance is placed on roads and bridges, while Newfoundland and Labrador is focused on funding offshore oil projects. With respect to P3s, each province—with the exception of Prince Edward Island—has had some experience with the model. The main issue is whether there is  an adequate pipeline of big enough projects going to procurement.

Projects over $100 million are few and far between in Atlantic Canada. This makes the P3 model more suited to one-off situations where the government can look to private financing to support large individual projects.

Combined, the Atlantic provinces’ 2015-’16 capital budgets for infrastructure are $1.2 billion. This investment will go into priority projects in the following sectors: offshore oil (Newfoundland and Labrador), transportation (all four), liquefied natural gas/natural gas (Nova Scotia), education (all four), information technology infrastructure (New Brunswick), and renewable energy (P.E.I.).

Yukon, Nunavut, and the Northwest Territories

The territories have so far been open to leveraging P3s, with a new $419-million airport in Iqaluit currently under construction using the model. Combined, Yukon, Nunavut, and the Northwest Territories’ 2015-’16 capital budgets for infrastructure are around $500 million. The majority of this investment will go to priority projects in the following sectors: energy (mining, oil, and natural gas exploration), transportation (roads and highways), education, and hospitals and health care.

 

David Caplan is the vice-chair of Global Public Affairs & the chair of The Infrastructure Lab

 

*Source for all data: Canadian Council for Public-Private Partnerships – Canadian P3 Project Database

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