Government Operations Committee on Nov. 1st, 2012

[Roger Légaré]

I entirely agree.

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

Mr. Lee, do you have any comments about this? I did read about some of the problems that you had with the City of Ottawa, so I was wondering if you had any comments.

[Prof. Ian Lee]

Was your question meaning can we involve NGOs in P3s...? Is that your question?

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

We're talking about oversight, so it's to have permanent oversight.... In the Ottawa situation, the perception of the people was that there was no actual consultation.

[Prof. Ian Lee]

That's right.

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

I wasn't there, but I think having a non-profit organization that would be permanently part of the PPP would be an interesting avenue. I'm just wondering if you have any comments.

[Prof. Ian Lee]

Quite frankly, I hadn't thought of that. There needs to be ongoing oversight, yes, because the government is the partner in the P3. That's going forward on what I said to Mr. McCallum: there has to be transparency. It doesn't have to be made public to the world, but it certainly should be made public to the regulators.

I'm not sure—I haven't thought that through—whether you need some kind of a regulatory body for P3s analogous to the OSFI. As a former banker, I'm a very strong believer in the Superintendent of Financial Institutions. They've struck the right balance between excessive interference and too little interference. In the United States, they had too little regulation. I'm being very frank with you: I hadn't thought that through.

Without getting into the names or the details, the problem in the Ottawa deal was that there was not enough transparency, even inside. Secondly, I don't think the elected officials, many of them, really had a full understanding of what was going on. That again calls into question whether or not the technical expertise exists on the government side, so maybe it would be a specialized committee of Parliament at the federal level or maybe some kind of a regulatory body analogous to OSFI.

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

Do I have a little time left?

[The Chair, NDP, Pat Martin]

I'm afraid your time is up now, Jean-François. Thank you very much.

We'll have Mike Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

I want to thank our guests for joining us today.

I have just a few questions.

I'm going to start with you. Can we call you George?

[George Theodoropoulos]

Yes, sir, no problem.

[Mike Wallace, Conservative, Burlington, ON]

You can call me Mike.

The funds you use or represent are pension funds. They're public sector pension funds and private sector pension funds. Is that correct? For example, is OMERS one of your customers?

Could you give us a list of your customers or your suppliers again?

[George Theodoropoulos]

You can divide the pension funds in Canada many ways. One way to divide them is by what I call the super-sovereign pension plans. They are, going from west to east, bcIMC, AIMCo, OMERS, Ontario Teachers', CDPQ, and CPP. These are pension plans that have $50 billion and up under management. These pension plans are famous around the world for investing in infrastructure, by the way—world famous. They're direct investors.

We do not manage any money. They have their own staff of people like me. They employ them. They manage a lot of money, so they can afford the staff.

We target pension plans with under $20 billion under management. These are universities, corporate pension plans, and trade union pension plans. There are many of them. There are 200 or 300 pension plans. We take those pension fund investors and get them into infrastructure and a few PPP projects. We aggregate them to allow them to get into these projects.

[Mike Wallace, Conservative, Burlington, ON]

For my second question, now that I have a clearer understanding, I'm going to focus on the trade union pension plans.

We have heard from some that unions aren't happy with P3s, because there is some sort of perceived risk that affects employment. In actual fact, their pension plans do invest.... You're encouraging them to invest in infrastructure through a P3 process through mechanisms you provide them. Have you heard back from the trade unions directly that they're concerned about P3s?

[George Theodoropoulos]

In the world of unions, there are two categories of unions. There are unions that work for the public sector and there are unions that work for the private sector.

We manage capital for unions that work for the private sector. These are trade unions that literally work with builders. They're very pro-PPP. They want to build things, and they're happy to invest capital in things. They feel that they understand construction risk. They feel that they understand infrastructure risk—or at least they're comfortable with it. The public sector unions, on the other hand, have been vocal, many of them, without naming names, against PPPs.

I'm a layperson when it comes to unions. From my perspective, it's simple. When government outsources a piece of infrastructure to be built and operated, the operations are really the primary aspect of the objection to PPPs. When government outsources the operations of a public sector asset, those unions may now have to work for the private sector. Generally, public sector unions do not like working for the private sector. They like working for the public sector. Let's not get into why and why not, but that is the general objection.

[Mike Wallace, Conservative, Burlington, ON]

Thank you very much.

Dr. Lee, I have two questions for you.

We've had other economists here who were independent in the sense that they work for think tanks. One of them categorized P3s as being cheaper, faster, or better, and you can pick two: do you agree with that comment?

[Prof. Ian Lee]

Yes, I do. He's a co-author, with Vining and Boardman, of the article “Public-Private Partnerships in the U.S. and Canada: 'There Are No Free Lunches'”.

[Mike Wallace, Conservative, Burlington, ON]

That leads me right into my second question. Have the articles and the literature you're reviewing that are peer-reviewed been sponsored by certain organizations or would you consider them academically independent?

[Prof. Ian Lee]

I believe that they're academically independent. I've read these articles, every one of them. I'm talking about the articles published in Canadian Public Administration. I myself have published in the journal Canadian Public Administration. Some of them are SSHRC funded, which is, of course, the Government of Canada. SSHRC is the government granting agency that distributes grants to scholars.

I don't believe they've been funded by construction companies. To my knowledge, they haven't. I certainly see no evidence of that. In fact, the articles I'm reading, that I've read, and that I'm referring to have very good, very rigorous methodology. They have been peer-reviewed. I'm certainly aware of the peer-review process with CPA and CPP, Canadian Public Policy. I don't have any doubts concerning their intellectual bona fides.

[Mike Wallace, Conservative, Burlington, ON]

We had another professor here from another university; on the bottom of their documentation it has CUPE.... It looks like the Canadian Union of Public Employees has paid for the research. I just want to be clear.

[Prof. Ian Lee]

I've read their material. It's not peer reviewed. They have an agenda. Fair enough—there's nothing wrong with that, but it's not peer-reviewed literature. In fact I met some of the CUPE people because we were involved in the Lansdowne dispute. It was quite interesting—I felt uncomfortable.

[Mike Wallace, Conservative, Burlington, ON]

Okay. Thank you very much.

[The Chair, NDP, Pat Martin]

Thank you, Mike.

Next we have John McCallum.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

My question is for Mr. Theodoropoulos.

You were talking about the three aspects of risk: construction, maintenance, and the cost of capital. You talked about the construction and the maintenance phase as being valued on a risk-adjusted basis. Can you explain how that is done? How do you figure out the risk premium?

[George Theodoropoulos]

I must admit that it's not really an area of my expertise. I really get involved in the P3s when government has decided to take the path of P3. That question is best suited for the consultants who help government make its decisions. I think Ms. Mullen is one of them. I know that she does that type of work.

I just don't have the answer. I could try to answer it but it wouldn't be very helpful.