Finance Committee on May 17th, 2012

[Maxime Beaupré]

Those reports have helped show that there was potential when it comes to carrying out the project as a PPP. However, a number of studies will have to be conducted to determine whether value for money is a possibility. In other words, it must be determined whether a proposal that benefits taxpayers is possible.

[The Chair, Conservative, James Rajotte]

Merci.

We'll go to Ms. McLeod, please.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you, Mr. Chair.

I really just want to clarify that of course we do have our financial officials here before us, and I know there are many detailed questions coming to you specifically around very important projects; I think we all have very important projects across the country. Would you perhaps concur that the P3 program might be the better place for these questions to be directed, in terms of specific projects and the direction, as opposed to what the changes are that we're actually proposing in this legislation?

[Martine Lajoie]

The Minister of Transport should be consulted or asked questions about that. Actually, the department is really in charge of managing the Champlain Bridge project. It works with PPP Canada, as it should, but that collaboration does not reduce its responsibility in this file.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

Ms. Nash, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you for being here this morning.

When you do your analysis of what constitutes an appropriate P3 project, are any potential additional fees to the public taken into account as part of an ongoing cost for a P3—like user fees and that kind of thing?

[Maxime Beaupré]

To deliver a project under any kind of delivery method, there needs to be a funding mechanism. It's either governments that provide funding or users. In the case of users, it would be a user fee. So for any kind of project, be it a P3 or not, user fees can be considered as a means to support its delivery.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Let me be a little clearer.

For example, my colleague was talking about the Pont Champlain. I'm from Toronto. We have a toll road in our city that was built as a P3 and has now become privatized. The biggest complaint we hear is about the rising fees on the toll road. So it's a different funding mechanism, as you say. If it had been built with public dollars—or maybe not, as we don't have public toll roads in Toronto—it likely would not have been a toll road.

So here's my question. When you're projecting costs and comparing bids as to whether something is or is not adequate for a P3 project, do you take into account the user fees, as opposed to having something that is built through public dollars and that would not require user fees? Are the user fees factored in as a cost in a P3?

[Maxime Beaupré]

There are many elements to your question.

In terms of comparing bids, typically a government would decide in advance whether it wants to have an asset tolled, for example, or to have some sort of levy that would be raised against its expenditures. Different bidders would propose a user fee or not, depending on their bid. Basically this is a government decision. The procuring jurisdiction would have to decide whether they want to have a certain asset being tolled or not.

In terms of whether a user fee is assessed as a cost to the project, it's more of a revenue source than a cost, so I'm not quite sure I understand your question.

[Peggy Nash, NDP, Parkdale—High Park, ON]

If a government made the decision that it wanted to go with a P3 and not have tolls, how would the private sector make their money?

[Maxime Beaupré]

As I mentioned, to fund the delivery of projects under any method of procurement, either governments provide funding or users contribute to the funding through user fees. We have seen a lot of P3 projects delivered without the recourse of user fees, at both the provincial and the federal level, and in that instance the government will basically pay for the delivery of the asset.

In a P3 project we see various types of payments. Usually there will be a substantial completion payment that is—

[Peggy Nash, NDP, Parkdale—High Park, ON]

So that I can clarify it in my own mind, you could have a P3 operation for the construction of something like a hospital but still have it operated publicly and have no user fees. You're clarifying the difference.

[Maxime Beaupré]

For example, the Government of Ontario is delivering a lot of hospitals with a P3—

[Peggy Nash, NDP, Parkdale—High Park, ON]

Could I just ask you, because I'm running out of time, whether there are any P3 projects under PPP Canada that have been approved for the Toronto area?

[Maxime Beaupré]

There are no announced projects yet in the region of Toronto. There was one announced for Barrie last year. Other announcements will be made over the coming months for projects submitted under round three, so I invite you to stay tuned.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Stay tuned. Okay, thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Nash.

Mr. Jean, do you want to go a round?

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Just very quickly, if I may. I've done some travelling over the last few years, and Australia is one of the places I've visited frequently. In seeing the toll roads and some of the infrastructure there, I was very, very impressed.

I know those are private-public partnerships because of the tolling mechanism. Are you aware of any analysis that would have been done on other jurisdictions that have had successful P3s, and have we emulated that at all?

[Maxime Beaupré]

PPP Canada is the government's centre of expertise on P3s. In terms of other jurisdictions that have been seen as leading the P3 delivery method, Australia is one and the United Kingdom is another one.

They do look at best practices and lessons learned that have come from the delivery of the P3 programs in those jurisdictions. So, yes, I believe we do take into account those experiences.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

If I understand it, I think it's the island of Guernsey—I'm not sure, but there's one particular island in the U.K.—that has Colas taking care of all of its road infrastructure over a 30-year or 40-year contract. They have tied it in for road infrastructure and also some public works. My understanding is that the performance currently versus ten years ago, before they took that contract, is dramatically different.

I come from, as I say, northern Alberta, where there are huge complaints about potholes because of frost heaving, etc. I understand, with the performance that is necessary with P3 projects on the accountability aspects of the contracts with the government, that the quality of the projects—I see you're nodding your head that you agree with me—and the delivery mechanisms, as well as the ongoing quality of the infrastructure, remain at a top level. Is that fair to say?

[Maxime Beaupré]

Indeed, the primary reason a government would do a P3 is to achieve better value for taxpayers, and by that, the particular jurisdiction would mandate the private sector delivery agent to meet certain performance levels. In the case of a road, that would mean a certain service standard for patching potholes or doing regular maintenance to avoid potholes from materializing. The government basically commits to long-term maintenance of those assets via service payments to the P3 delivery agent in the case that it's not funded by user fees. If it's funded by user fees, again the P3 agent has to reach certain service standards so it can collect the funding.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

So they take it out of the political realm of not having enough money for A and B but having enough for C and D, and they have a certain expectation. I find in my own province of Alberta that politics is often a generator of large infrastructure decisions and ongoing maintenance to roadways, etc., because of the limited amount of money and resources. So this would take that right out. People would have a better quality of life, long term, through this type of mechanism, especially on the ongoing maintenance.

[Maxime Beaupré]

A key aspect of P3 is retaking the whole life-cycle cost of an asset. Let's say it's a road and it would be built to last for 40 years. The government is fully aware of what the costs are over 40 years and contracts out the maintenance of that asset over time.

What we see with traditional procurement is that sometimes the decisions are made more on the basis of short-term costs, actually building the road, and with less awareness of the cost of maintaining this asset over the long term. So sometimes, 10 to 15 years down the road, if finances are a bit tight, governments may decide to limit their expenditures on maintenance, and this can lead to the deterioration of the asset.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

My understanding is that there are different grades of asphalt. In fact, the best asphalt is concrete. If they use highway concrete or high-grade asphalt, the roads last much longer—fewer pot holes and less wavering damage from large trucks. I see you're nodding your head, but the mike can't pick it up, so I want to make sure I get that on the record.

I think in Australia almost all the motorways are concrete now and the quality of the roadway is far superior to asphalt.