Thank you.
The P3 module has been under-researched in Canada, and the large profits that are being made on them by large construction companies, finance houses, and consultants and the ideological commitment to P3s by various levels of government mean that the Canadian public finds it difficult to have an objective view of them.
On the basis of more than 15 years of research published in a number of places, including a book I wrote with my son, called Public Service, Private Profits, and more recently a guide called “Asking the Right Questions: A Guide for Municipalities Considering P3s”, my conclusion is that the model has many crucial flaws, that future generations of Canadians will be paying heavily for them, and that we should not be tying infrastructure finances to P3s, but rather exploring alternative models.
There are two major claims made for PPPs. The first one is that they make more dollars available for infrastructure. It's kind of a macro argument. The second one is that they provide microeconomic benefits—cheaper, greater efficiency, more value for money.
Earlier in the week you heard from our mayor, Mayor Katz, who argued both of these. Both of these arguments are highly questionable, if not incorrect. I was pleased to see that the committee asked the mayor to verify these, as we have been unable to do so in Winnipeg.
I think it's important to note that the private sector always builds projects, not the public sector. In a PPP what we do is we add private financing, private operations, private maintenance, a degree of private equity, and occasionally private ownership of the facility. Debt servicing and operation expenses are replaced by public sector lease payments to the private sector.
Leases, as we all know if we lease cars, are a form of debt regardless of how the PPP is entered in the public sector accounts, and private borrowing is almost always higher than public borrowing. Therefore, I would argue that in the long term the micro argument of greater resources for infrastructure investment is invalid.
What about the micro argument? The issue is what makes the value for money of P3s better than that of the public sector comparator. In fact it is an entire sparer of risk. If you look at the websites of Infrastructure Ontario and Partnerships BC and the individual projects on the websites in places like Winnipeg, you will see this is clearly the case.
The so-called savings that Mayor Katz mentioned, for instance, on the Chief Peguis Trail of $31 million were arrived at by a risk transfer said to be $51 million. Were it not for the risk transfer, the public sector comparator would have been superior. If you examine the individual projects on the websites of Infrastructure Ontario, you will find that this is the case for every single project.
I'll pick a few examples. The Durham Region Courthouse has a value for money of $49 million and a risk transfer of $132 million, if one can believe that for a courthouse. The Kelowna and Vernon hospitals had a value for money said to be $25 million, and the risk transfer was $32 million. These figures for risk transfer are not substantiated and are quite often just unbelievable. Risk transfer is the key, and it's not substantiated.
I attempted to find the calculations behind the risk transfer in Winnipeg. I was unable to obtain them through freedom of information. I was not given access. I then appealed to the company that had conducted them, the consulting firm, and it also denied me access on the grounds of commercial confidentiality. Such risk analysis has to be based on reality and public projects, and yet we're denied access to these.
Other problems with P3s, I would argue, are very high transactions costs. The legal cost, the organizational cost, the massive amount of documentation involved add up to quite significant costs. Frequently there's a lack of competitive bidding because of the size of these things. Value for money is sometimes missing, and is often flawed. Occasionally we find quite bogus arguments about there being no debt in P3s, as, for instance, with the Moncton water treatment plant, but there it is built in to the water charge. There's a capital charge that every person drinking that very fine water in Moncton now pays. The cost of that debt implied in the project is 10%. P3s introduce long-term inflexibility and rigidity. These projects last for a very long time. They often damage local small scale construction capacity, and small scale contractors are often very vocal against them. There's a long-term problem of monitoring P3s given the long life of these projects, and the relatively short institutional memory of politicians and civil servants. We're finding that with the school system in Nova Scotia, where auditors are being quite critical of our ability to monitor commitments under P3 arrangements.
Once the construction phase is finished and that period of high risk has ended, the ownership of these P3s is often flipped. As we know from various cases in B.C., that ownership may end up overseas, so original calculations about tax revenues have to be looked at very carefully.
It's a very short presentation and I elaborate on these issues in my publications.
I would argue that we should take a very cautious second look at P3s. I don't believe that they are in any way suitable for first nations, and I would say for the vast majority of municipalities, which simply don't have the capacity to handle them. I would argue that we should be exploring alternative models, and strengthening the ability of the public sector to handle investment projects more efficiently.