Poltergeists and P3s: They’re back
In February, with the spectacular collapse of the $3 billion Port Mann Bridge public private partnership, many people thought P3s in British Columbia were a dead item. They’re back.
With the Fort St. John Hospital project the government’s privatization agency, Partnerships BC (PBC), has found a way to drastically reduce private investment in P3s while still giving the private companies 30 year contracts to run the facilities.
Public borrowing has always been a cheaper way to finance government projects than private investment and borrowing through P3s, but BC’s government argued that the added cost was worth it. Big private investments guaranteed we got risk transfer, Partnerships BC said, and the banks who provided much of the money gave “due diligence”.
But with our current financial crisis the gap between public and private borrowing became so great that Partnerships BC’s model where the private sector provided all or most of the money became unfeasible.
Partnerships BC President Larry Blain admitted to the Surrey Leader that paying for the Port Mann project with public borrowing rather than private investment would save taxpayers $200 million.
But on 22 July 2009 PBC issued a press release announcing a new financing structure for its P3s.
In a typical PPP arrangement, the private sector would provide both debt and equity financing for the project; however, the cost of private debt relative to Provincial debt has increased in current financial markets, the release said.
The new plan drastically reduced the private commitment required. The Peace River Regional Hospital district will provide 40% of the funding borrowed publicly through the Municipal Finance Authority. That leaves the province’s 60% share. The province is covering 80% of its 60% through public borrowing as well. That leaves the private partner to raise just over 10% of the projects costs.
The publication Project Finance International reports that:
The funding arrangement between the province and the consortium demands that the province takes on a more direct oversight of the project construction than under typical P3 arrangements.
So the government says, with hugely reduced private investment they are still getting risk transfer and due diligence. And they are saving taxpayers money by doing away with the private investment. And yet they are still giving the private partners a guaranteed 30 year cash flow.
The big question is this: if the government is saving this much money, why not save more and build the whole thing publicly? It is a triumph of ideology over the interest of taxpayers.
This sea change in how P3s are done has received no provincial news coverage but the story has been carried by a handful of expensive, international publications for business insiders. Project Finance and the Infrastructure Investor actually both carried articles before the July news release announcing the change.
