PPP Networks: The Case of Transportation PPPs in Canada. Matti Siemiatycki Geography and Planning University of Toronto

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1 PPP Networks: The Case of Transportation PPPs in Canada Matti Siemiatycki Geography and Planning University of Toronto

2 Canadian Context: The Growing Importance of Transportation Infrastructure Economic competitiveness/job creation Environmental preservation/sustainability/climate change Social inclusion $25 Billion $5 Billion $50 Billion $17.5 Billion

3 Infrastructure Delivery Challenges Cost Overruns on Canadian Transport Projects Source: Berechman and Wu, 2006

4 Size of the Canadian PPP Market Source: P3 Canada, 2013

5 Transportation PPPs in Canada, PPP Projects in Canada Types of Transportation Projects Education 3% Environmental 7% Other 10% Airport 5% Transit 18% Justice 11% Healthcare 49% Highway Service Stations 9% Road/Bridge 68% Transportation 20%

6 Models of Public-Private Partnerships to Deliver Large Infrastructure Projects Common Partnership Models Canadian Transport PPP Models DBF 8% DBFM 12% DBFOM 64% DBFO 16% (Source: CCPPP, 2013)

7 Partnership Structure: Traditional Procurement and PPP Traditional Procurement Public-Private Partnership

8 Net Present Cost Four Key Characteristics of Canadian Transport PPPs 1. Not a major source of new private funding Few roads have tolls; transit projects do not cover costs from fare box Rely on major capital and operating subsidies 1. On balance sheet financing 2. Not a strategy to significantly reorganize government or insert private sector into public decision making Public sector maintains control over project selection, performance specifications, regulation, and operational standards 3. Little demand risk transferred Most projects, both road and transit, are availability payment deals Retained Risks Transaction Costs Base Costs (Including Financing Costs) Retained Risks Transaction Costs Base Costs (Including Financing Costs) Outcome: Canadian PPPs focus on value for money; seek deal structures that transfer appropriate risks rather than as much risk as possible to the private sector 0 Traditional Procurement PPP

9 Implications of PPPs on Corporate Networks

10 PPPs and Tender Competition Size of tenders and bundling of various service functions in a single concession is in some cases limiting the number of firms that are bidding for projects Limited competition has the potential to drive up costs

11 Enter Foreign Firms We re competing against multinationals coming to Canada with effectively subsidized financing. We have seen our architects and engineers going abroad and do very well but very few of our construction [companies have] I think it s making it very difficult for Canadian companies to compete. Ottawa LRT Consortium: ACS (Spain), SNC Lavalin (Canada), Ellis Don (Canada), Dragados (Spain), Veolia (France) John Mollenhauer Toronto Construction Association President Canadian Industry Complaints: Unfair bidding when financing for foreign firms is government backed Issues regarding the ways that subcontractors were selected Safety issues reported by local sub-trades

12 What happens when things go wrong?

13 Labour Issues

14 PPPs and Facility Design: Good but not Great? We would contend that the existing [PPP] process is geared for predictability, minimizing risk, and producing satisfactory (but not exceptional) results. Within this framework, our architects do their best to deliver exceptional design but would be better served in an environment that encourages or even mandates it. Ontario Association of Architects, 2014

15 Tracing the Money: Pension Funds?

16 Conflicts between the Partners and external stakeholders Skepticism exists within public sector about the merits of PPPs and role of the provincial PPP agencies Has created tension between the public sector agencies High level of confidentiality during the planning process has in some cases kept important project information from politicians responsible for approving billion dollar investments Public sector unions and anti privatization activists have strongly opposed PPPs

17 PPP Outcomes All British Columbia public private partnerships (PPPs) to date have been delivered on time and on budget. Performancebased, fixed-price contracts ensure that cost and schedule overruns don t happen and that project risks are transferred to the private partner. Taxpayers don t pay for a design that doesn t work or for a service that isn t provided to the contractually bound standards set by government. (Blain, 2009: 1) Value for Money Equation for 28 PPP Projects in Ontario Siemiatycki and Farooqi, 2012

18 Conclusions: PPP models used in Canada have been fairly conservative, and maintained a high level of government oversight and control Canadian PPPs have sought to leverage the relative strength of each partner, rather than promoting more ideological objectives related to privatization Transferring project risks comes at a substantial cost Look to lower cost alternatives to manage rather than transfer project risks Could PPP agency expertise be applied to a wider range of projects