Government Operations Committee on Nov. 1st, 2012

[Costas Menegakis, Conservative, Richmond Hill, ON]

I have another question.

[George Theodoropoulos]

This is all on the public record. You can go to the Ontario government. They can show you the analysis. This is the type of analysis that's available.

[Costas Menegakis, Conservative, Richmond Hill, ON]

One of the next studies we're going to be doing here in our committee is a study on energy efficiency in government buildings. Can you discuss the PPP model in the energy sector? I was very interested to hear that there are 14 projects, as I think you said, covering a number of different sectors. Can you discuss the PPP model application there, specifically with regard to the energy sector?

[George Theodoropoulos]

Currently we are following a project in Ottawa where, for the energy systems that provide energy services to a number of federal buildings in Ottawa, the government is now considering whether it wants to use a PPP model to basically update and seek services from these assets for a long period of time. In the energy services model, one approach is that government will define the energy services it's seeking. This is the efficiency.

Government obviously has a mandate to seek more efficient ways to procure energy, and in a more environmentally responsible manner, so it will define the actual energy services it needs. Government will say, “We need this coolant load, this heating load, for our buildings, and we expect the private sector to provide it at this level of efficiency”—meaning that this is how much fuel you will use to provide this unit of energy.

Government can simply put out a contract stating this is the energy load it needs, this is the efficiency that it expects, and it expects the private sector to provide that energy load and efficiency for a 30-year period. As for how the private sector does that—what it builds and what it doesn't build—that's the private sector's scope. It ultimately has to deliver energy, and it has to deliver energy at a certain efficiency.

I'm simplifying things, but in effect this is it. You allow the private sector to compete. You have several groups that could qualify. The government will qualify companies that have the credentials for this type of procurement and will allow the private sector to innovate and provide that service at the most efficient cost to government.

The alternative is that government figures it out itself with engineers, etc., tries to procure on its own, manages the energy system on its own, and hopes that things go as planned, as opposed to having a contract with real teeth in it, stating that “you didn't produce the energy at a certain efficiency, so here are the penalties involved”. Once you introduce penalties, you have capital at risk.

[The Chair, NDP, Pat Martin]

Thank you, Mr. Theodoropoulos. We'll have to go into that. Maybe we'll ask you back when we start our next study on the energy efficiency of our public buildings.

Thank you, sir.

Next, for the NDP, Mr. Jean-François Larose.

[Jean-François Larose, NDP, Repentigny, QC]

Thank you, Mr. Chair.

I would like to clarify one point with the witnesses. We are not at all opposed to P3s. On the contrary, we are trying to study all possible options.

However, I do not like it when most of the witnesses who come here and talk about P3s tend to embellish everything and, as Mr. Lee said a little earlier, to project a bright shinny image. That irritates me because it really makes no sense.

P3s are not applicable to everything. Mr. Légaré, earlier you mentioned certain projects, such as the Highway 25 project, that are not successes and that were poorly planned.

This is our last day on P3s. What often comes to my mind in hearing all the witnesses is that there are incongruities and paradoxes. I hear comments that are questionable. Mismanagement is attributed to the government. They say, in short, that it is irresponsible in the way it does things and that those responsibilities should be transferred to the private sector. However, at the same time, we also have the Charbonneau commission, which is shedding light on the intentions of private companies with conventional contracts. So we have some serious questions.

Before moving on to the rest of the topics, my first question concerns your NPO. I find this interesting. Why did you choose to establish an NPO and not a private company?

[Johanne Mullen]

Our organization is in fact really an association, somewhat like the Canadian Council for Public-Private Partnerships, whose representatives were here two or three weeks ago. We do not provide any services. We simply form an association that brings together public and private sector stakeholders who have an interest in P3s.

[Jean-François Larose, NDP, Repentigny, QC]

So you are a salaried employee.

[Johanne Mullen]

I have a job. Mr. Légaré is on salary, but I am a volunteer.

[Jean-François Larose, NDP, Repentigny, QC]

I find it interesting to look outside the box, to look at P3s as an option, to see what is applicable and what is not. With regard to project management, maintenance and everything that may be applicable—I am not talking about large construction equipment—have you considered the option of calling upon cooperatives or NPOs?

[Roger Légaré]

Look at what is going on in Lévis, for example. It is the tenth largest city in Quebec and it was unable to provide certain public services to its population, such as a congress centre, figure skating centre and soccer fields. It had to respond quickly to those types of demands for public services. The city turned to NPOs to get the best possible return and without making major investments. It was thus able to act more quickly and opted for a public-private partnership project. It was not a traditional or conventional project. It took into consideration the fact that it wanted assurances that there would be competition, that it would be able to deliver the goods and that there would be the best possible return for the municipality.

Moreover, Mr. Meurant came and made a presentation that addressed that aspect. He did that with the mayor, Ms. Marinelli. They are extremely satisfied with the results.

[Jean-François Larose, NDP, Repentigny, QC]

I am pleased to hear you say it. It is even reassuring because we often hear that conventional P3s, in many countries and even back home in Quebec, result in the same problem, a lack of success as a result of poor applications and poor management.

My next question is for Mr. Lee.

A little earlier, you talked about the motivation of elected people. I completely understood. However, I believe that the purpose of government is to be accountable and not to do the contrary. Unfortunately, I see that, with P3s, problems are put off until later. What is good planning? Will we see that there has been good planning 30 years from now? That is the question. We always wind up in various holes. We talk about taking risks, but, strangely, every time a P3 seems to fail, we wind up with the bill, the problems and the management.

I had the honour to go to Mexico, where I travelled on a highway that had been built as part of a P3 project. However, after making proper enquiries, I ultimately discovered that it was not a P3 project. The highway had been built by the private sector, which had paid the highway's costs from A to Z. The government has the authority to buy it back toward the end of the agreement. Consequently, 30 years from now, the government may or may not buy the highway back. So there are other methods that are just as promising.

The problem with P3s is that we always wind up in a situation somewhat like that of the Highway 25 bridge, with a kind of hidden tax. In fact, the costs were initially to be half of what it ultimately cost. The project was delivered on time. There is also the fact that rates were supposed to be low and that there would be little use. Planning was very poor because, with the two junctions, people do not end up in the municipality, but rather head off on two highways. They leave on Highway 40 and take Highway 25 to Highway 440. People are realizing that the planning was very poor because the highway was not modified based on the number of vehicles travelling on it. The more vehicles travel on it, the more the rate will increase. It is a big success; it is incredible.

Taxpayers will wind up having to pay $500 million for the bridge, which is much more expensive than planned. They will wind up with constantly rising rates, about which the public will have no say because the elected people are accountable.

Do you believe that letting the government off the hook would be one way—this is paradoxical—of increasing its ability to plan for future P3 projects?

[The Chair, NDP, Pat Martin]

Could we have a very brief answer, please? We're well over the time allocated.

[Johanne Mullen]

To whom are you putting that question?

[Jean-François Larose, NDP, Repentigny, QC]

To someone who wants to answer it.

[Roger Légaré]

I do not believe we are here to absolve governments of any liability or to take on the planners' responsibility for all P3 projects, but rather to make sure that different tools are at legislators' disposal for the purpose of providing services to the public.

There is no monopoly on knowledge. I do not believe that singling out someone as being responsible for good or bad planning would add anything to the debate. Last year, we toured the 10 largest cities in Quebec and realized that there were enormous needs, a significant lack of liquidity and an obligation to work jointly to improve the situation for users.

I believe the institute works more on those issues. We are not dogmatic. We want to add an accountability tool to the toolbox and to ensure that there are ultimately no major cost variances, as you can currently see. These are surprises that have occurred because a number of people along the way said that they had bought a suit but that it didn't have a tie, belt or suspenders. We launched the project and failed to realize that there were other options that we should look at.

So I think that is why we recommend that all these risk analyses should be conducted before starting a project.

[The Chair, NDP, Pat Martin]

I'm afraid, sir, that I'm going to have to interrupt you.

Never mind cost overruns: we're having time overruns here.

[Voices]

Oh, oh!

[The Chair, NDP, Pat Martin]

I'm going to have to ask for the next questioner, Mr. Jacques Gourde. Perhaps he can continue in the same vein.

Thank you.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you, Mr. Chair.

My question is for Mr. Légaré.

I am pleased that you mentioned the success of the city of Lévis. My riding includes half of Lévis, all of Lotbinière and part of Beauce-Nord.

P3s are a success in Lévis. These partnerships mainly enable people to engage in these great projects. These are NPOs administered by volunteers. These people really add value to the projects as a whole, not to mention the maintenance and services they provide to the public. Through their commitment, people ensure that these multi-purpose centres operate at full capacity.

In many cases, these are people who directed sports organizations that had needs. These people also invest themselves in their infrastructure. They deserve a tip of the hat from us. This phenomenon has been around in my riding for more than 20 years. Some small municipalities of 1,000 inhabitants developed these kinds of partnerships in the 1990s. I can tell you that because I sat on those boards. Some municipalities built themselves very high-quality multi-purpose centres at very low cost.

Could more municipalities benefit from this kind of partnership through projects of $10 million or less? P3s are often talked about in connection with major projects, but I believe we have neglected to promote small projects.

[Roger Légaré]

From the outset, I would say yes. That is one of the reasons why, in our October 18 forum, we focused the debate more on the needs of small communities, regional municipalities, and smaller-scale projects, those of $10 million or less, which did not involve all the costly terms and conditions of projects costing $40 million or more.

We are trying to see how to deal with the federal program and to get back to the municipalities with projects that are along the lines of what you were saying about the city of Lévis.

I do not know whether that answers your question, but we are concerned about this situation.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

In your forum, do you foresee partnerships with federal, provincial and municipal governments or with school boards as private or other partners? Is there an ideal situation or do you have to adjust to each of them?

[Roger Légaré]

Each one is an individual case that must be evaluated based on transparency, competition and the need for maximum return on the money we invest. I gave your clerk a notebook outlining the method for quickly evaluating what is compatible with a project carried out under a public-private partnership. We give you those kinds of details in a quarter of a page.

I think it would be premature to say that there is only one way to proceed in order to get there. We believe that every case should be considered separately. Carrying out a project as part of a P3 does not make it better. However, if the project has to get done, we do it.

[Johanne Mullen]

And the evaluation of the implementation method has to be adapted to the specific characteristics of each project.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

In communities of 5,000 inhabitants or less, do non-profit organizations seem more effective or better suited to this small project model?