Evidence of meeting #56 for Transport, Infrastructure and Communities in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was infrastructure.
A recording is available from Parliament.
Conservative
The Chair Conservative Larry Miller
I will call the meeting to order. We are starting three minutes early as everybody is here, so we will finish three minutes early.
I would like to welcome and thank all of our witnesses for being here today. Presentation time for each of you is 10 minutes or less. We have a number of you here, so try to keep it to that.
With that, we are going to start with Mr. McBride from PPP Canada Inc.
Thank you for being here.
John McBride Chief Executive Officer, PPP Canada Inc.
Thank you, Mr. Chair.
It is my pleasure to be here today on behalf of PPP Canada to speak about P3s and the Canadian market.
As members of Parliament, you are acutely aware that Canada faces a great need for infrastructure. As a consequence, governments across Canada are pursuing ways of getting better results for their infrastructure dollars. Many have recognized the value of engaging private sector expertise and innovation through public–private partnerships, more commonly known as P3s. P3s are a means to inject greater accountability, whole life-cycle cost optimization, and financial discipline into governments’ contractual relationships with the private sector.
P3s can refer to an umbrella of concepts related to the role of the private sector in procuring public infrastructure. In Ontario, these types of arrangements are known as AFP, or alternative financing and procurement. In the United Kingdom they are known as PFI, or private finance initiatives.
PPP Canada defines P3s as a long-term, performance-based approach for procuring public infrastructure where the private sector assumes a major share of the responsibility in terms of risk and financing for the delivery and the performance of the infrastructure, from design and planning to long-term maintenance.
In practice, this means that governments only pay for the infrastructure once it has been completely built. A substantial portion is paid for during its life cycle, if it is well maintained and if its performance is adequate. The costs are known in advance for the entire life cycle of the asset in question. This means that taxpayers are not financially responsible for cost overruns, delays or performance issues during the life cycle of the infrastructure.
Imagine for instance that the business that built your house were also responsible for all of the repairs and maintenance for the duration of your mortgage loan of 25 years. Since the amount you would pay each month would be determined before the construction of your house, your payments would not increase if there were some breakdown or some components in your house had to be replaced. For that reason, the builder would consider the most financially effective way of building something. He might choose a metal roof rather than tile. Moreover, if your air conditioner broke down and was not repaired in the agreed upon time frame, you could deduct that from the next payment you owed him.
Concretely, P3s do not mean privatization; they are, rather, a contractual relation with the private sector in order to design, build, fund and maintain public infrastructure. The public sector continues to own the infrastructure.
P3s, quite simply, are a tool in the tool box to deliver the public infrastructure investments Canadians need. They are not always the right solution, but when applied to the right projects, they can provide many benefits, including greater value for money for taxpayers, on-budget and on-time delivery of public infrastructure, greater consideration of the whole life cycle of a project, and fiscal planning certainty. The involvement of private sector finance is critical to achieving the benefits as it ensures risks are transferred, and the disciplines and incentives to achieve better results exist.
There are benefits and there are costs to P3s, but P3s are the right solution when the benefits exceed the costs. This requires thorough analysis. Our experience is that this up-front work produces better projects even if a P3 approach is not the preferred option, as it requires a more systematic consideration of costs, risks, and performance expectations. In general, P3s are more suitable for larger, more complex projects where performance expectations can be clearly specified and are stable over time.
Canada is recognized as a global leader in P3s. Increasingly, people everywhere are looking to the Canadian experience. It has a diverse and growing pipeline. The strong historical deal flowing from leading provinces in the areas of health care, education, and highways is now being supplemented with projects at the federal and municipal levels.
The use of P3s is also broadening to new asset classes, such as water and waste water treatment facilities, local roads and bridges, public transit, and solid waste disposal. This growing and diverse pipeline is increasing in experience and is attracting more competition, which results in lower costs for taxpayers.
PPP Canada's mandate is to improve the delivery of public infrastructure while increasing the rapidity of execution, strengthening accountability and obtaining more for taxpayers' money. PPP Canada is committed to working with all levels of government to ensure the best value added for Canadian dollars invested into infrastructure. Our organization is knowledge-based; we have developed tools and equipment to support our work and the work of our clients.
The organisation has established relationships with the procurement authorities at all levels of government so as to share lessons learned and experience.
PPP Canada is looking for opportunities to increase knowledge and capacity while working to mold the P3 Canadian market by promoting a culture that encourages P3s and the sharing of best practices.
PPP Canada has hands-on experience reviewing and providing advice on more than 300 projects for the P3 Canada fund, the federal P3 screen, and the new building Canada fund P3 screen. We work with our clients to assess projects for P3 suitability and advise on P3 procurement practices to assist in delivering quality public infrastructure assets on time and on budget that meet the needs of Canadians and deliver better value for tax dollars.
To date, over $1.3 billion in P3 Canada fund investments have been announced to support more than 20 P3 projects across eight provinces and territories, including 13 municipalities. These investments will in turn leverage more than $6.5 billion in public infrastructure investments across the country.
In addition, economic action plan 2015 proposed the creation of a new public transit fund to be managed by PPP Canada. While the government intends to announce further details on the program parameters at a later date, we do know that the fund would provide $750 million over two years, starting in 2017-18, and $1 billion per year ongoing thereafter to public transit projects. Federal support would be allocated based on merit to projects that would be delivered through alternative financing and funding mechanisms involving the private sector that demonstrate value for money.
PPP Canada's experience is also facilitating the consideration of P3 procurements at the federal level. Our most established federal advisory engagement to date is the new bridge for the St. Lawrence project.
Throughout 2014, PPP Canada played an important advisory role, collaborating with Infrastructure Canada and Public Works and Government Services to ensure the successful procurement of the government's largest infrastructure project.
As the Government of Canada's source of P3 expertise, we'll continue to lead federal efforts in encouraging use of P3s where they can generate better value for money.
Thank you. I look forward to your questions.
Conservative
The Chair Conservative Larry Miller
Thank you very much, Mr. McBride.
We will now move to the Canadian Urban Transit Association. Mr. Leclerc and Mr. Maheu, you have 10 minutes or less, please.
Patrick Leclerc Vice-President, Strategic Development, Canadian Urban Transit Association
Mr. Chair, members of the committee, first I want to thank you for the invitation to appear today before the Standing Committee on Transport, Infrastructure and Communities.
We are very pleased to have this opportunity to express our views in the context of your study on updating infrastructure in Canada.
The Canadian Urban Transit Association is the collective and influential voice of public transportation in Canada, dedicated to being at the centre of urban mobility issues with all orders of government. We represent that vast majority of Canada's urban transit systems from coast to coast to coast, from small-town bus services to 21st century commuter rail and intermodal metropolitan transit networks.
CUTA also represents some of North America's most innovative transit manufacturers and suppliers of high tech buses and trains, as well as world-class engineering and information technology companies.
I would like to begin by recognizing the government's commitment to provide dedicated, long-term funding for public transit in the 2015 federal budget. By committing an additional $1 billion per year of federal money, the government is setting the wheels in motion to unlock funding for major infrastructure projects across the country. Investments will be made through the new public transit fund and will be on top of current funding programs already included in the new building Canada plan.
Public transit ridership continues to show strong growth in Canada. Year after year we have observed an upward trend, with ridership growing significantly faster than Canada's urban population. This higher demand for public transit mixed with the growing need to tackle traffic congestion in our densely populated cities has led to a surge in government investment over the past decade. In 2013 the amount of transit infrastructure capital funding from all orders of government reached $4 billion. Over the last decade, the federal government has invested or committed more than $8 billion in funding for transit infrastructure across the country, nearly $1 billion per year.
A closer review of recent federal contributions shows funding coming from a variety of programs. For example, $2.5 billion from the federal gas tax fund has been accessed by Canadian municipalities for transit projects over the last 10 years. In fact, five of Canada's largest cities—Toronto, Vancouver, Ottawa, Calgary, and Edmonton—have directed most of their federal gas tax fund allocations to public transit.
In addition to the gas tax fund, there have been three funds dedicated specifically to public transit, totalling $1.8 billion, between 2004 and 2010. Furthermore, the federal government has established Canada's first long-term infrastructure investment plan, which will have injected more than $80 billion in provincial, territorial, and municipal infrastructure through the two building Canada plan funding programs over a 17-year period.
These federal investments in public transit are collaborative in nature and are incremental to local, provincial, and territorial funding. In fact, on average, every federal dollar invested in transit generates at least two additional dollars in co-funding. For example, Ottawa's Confederation Line, a new 12.5-kilometre electric light rail system, will provide fast, frequent, and convenient transit service to Ottawa residents. This project was made possible through a partnership between the Government of Canada, the Province of Ontario, the City of Ottawa, and the private sector.
The investments required and injected into public transit do not all amount to billions of dollars. Federal investments made possible the purchase of buses in Cornwall, Prince Edward Island. They have also meant that Whitehorse, Yukon was able to acquire a fleet of buses that are completely accessible to persons with reduced mobility.
These investments have a real impact and lead us in the right direction. However, we all know public transit projects in small, medium and large cities that do need additional investments before they can move forward. Moreover, CUTA regularly surveys its members so as to determine infrastructure needs, both for systems management and for new projects to increase ridership.
Our data show that the total five-year need for transit infrastructure is estimated at about $56 billion. Two-thirds of this amount is already covered through current funding programs. That leaves about $18 billion worth of projects for which the industry needs additional funding, which in turn represents $1.2 billion per year for each order of government over the next five years.
The case for governments to invest in urban transportation is straightforward: job creation; economic growth and productivity; support to the transit manufacturing sector; environmental and health benefits; and most important, quality of life. All these aspects contribute to the well-being of Canada and the people living in all communities across the country.
While the greatest share of transit infrastructure need is in large urban areas, mobility needs of Canada's small and medium-sized cities remain critical in keeping our communities vibrant and ensuring that no one is left behind. Transit investments required in these communities are relatively small but their impact is huge, which makes for a real return on investment, on quality of life, and builds vibrant communities.
To give you an example, Transit Windsor has buses from the 1980s still in operation. These buses are not accessible to people with disabilities. They pollute more, and they are becoming very costly to maintain. Unfortunately, Windsor is not alone. In fact, 28% of Canada's transit infrastructure needs are for rehabilitation or replacement.
While the needs related to maintaining our infrastructure in a state of good repair may not be as attractive as building new light rail transit projects, they are nonetheless critical to ensuring the efficiency of our systems and offering high-quality service to our customers.
We understand quite well that the government cannot by itself meet all of the infrastructure needs throughout the country. A partnership-based approach, and collaboration with all orders of government and the private sector is essential if large infrastructure projects are to be brought to fruition.
And in fact, this approach is increasingly present in the funding and execution of large public transit projects. Alternate funding methods such as public-private partnerships bring a whole new dimension to the design and execution of projects.
The urban transportation industry is open to alternative funding and financing sources such as P3s; in fact, we are seeing more and more projects being implemented through P3s in our sector. However, it is critical that the P3 projects and models remain flexible in their implementation and in sync with the project needs and the context in which the project takes place.
One component of the current P3 model that we believe could be improved is the 25% limit to the federal contribution to the total cost of the project. While participation from the private sector is really important, P3s are a financing and not a funding tool. Capping the federal contribution to 25% instead of 33% leaves municipalities, provinces, and customers with a more substantial share of the project costs in the long term.
As the federal government works on the program parameters of its newly announced public transit fund, it can count on our full support and collaboration in making this fund a great success.
In conclusion, Mr. Chair, Canadians strongly support transit investment. They understand and experience the real benefits of efficient public transit and integrated urban mobility, and based on several polls on the increasing demand for transit, they want more of it. Optimizing the economic, environmental, and social benefits of public transit will require continued investment in these systems through long-term and sustainable investment streams from all orders of government.
With secure funding in place, our members can go about their business of effectively planning and building transportation systems that will serve not only our generation, but most importantly, the generations to come.
Thank you, Mr. Chair.
Conservative
The Chair Conservative Larry Miller
Thank you very much, Mr. Leclerc.
We'll now move to the City of Gatineau, and I believe to Mayor Pedneaud-Jobin. The floor is yours for 10 minutes or less, please.
Maxime Pedneaud-Jobin Mayor, City of Gatineau
Mr. Chair, ladies and gentlemen members of the committee, thank you very much for this invitation.
I'm accompanied by Mr. Patrick Robert-Meunier, who works in my office, as well as by Mr. Gilles Carpentier, who is the chair of the Société de transport de l'Outaouais, vice-chair of the executive and municipal councillor; and by Mr. Denis Tassé, chair of the capital assets and budget committee of the City of Gatineau. He has been a municipal councillor for many years and has been closely involved in the infrastructure dossier during his political career. Do not hesitate to put questions to them during the question period. They know the file as well as I do.
The state of municipal infrastructure is one of the main threats to the financial health of all of the cities of Quebec and Canada. The cost to be paid for years of negligence is huge. The repairs are going to cost more and more, and the retrofit work to be done is increasing constantly. The weight of this budget item is increasingly strangling other essential municipal missions such as libraries, social development, leisure activities, sports or economic development. The objective of today's presentation is to give you a picture of the situation in Gatineau, and especially of Gatineau's reaction to this fundamental issue.
Some five years ago now, the City of Gatineau completed a rigorous and well-documented project to identify and precisely quantify its infrastructure needs. We prepared master plans for each of the relevant areas, that is to say waterworks, sewage, asphalt, the water purification plant and buildings, which exercise allowed us to assess our infrastructure deficit at $1.1 billion. This means that in Gatineau alone, we need to invest $1.1 billion to bring our infrastructure up to an acceptable level.
We are going to table a certain number of documents with the committee, that is to say our long-term financial plan, which was prepared at that time and sets out our needs specifically and rigorously. To deal with this situation, Gatineau made some massive investments. We allocated 100% of all new sources of city revenue since 2005 to infrastructure. Every year since 2012, we have levied a special 1% infrastructure tax. This tax is added to the usual taxation so that we maintain our services. This was a courageous decision on the part of the council. In 2017, the envelope created by that decision will represent a recurring fund of $20 million a year that will be allocated once again only to infrastructure.
We also implemented a strict policy to increase the debt, essentially to take advantage of federal and provincial infrastructure programs. The greatest part of the increase in our debt since the municipal fusion which took place 12 years ago is due to that decision. Our public works department is the only department whose budgets are automatically indexed on a yearly basis because its workload increases considerably every year. We put in place a committee to review expenditures and services and we want to realize recurrent budgetary savings. However, that only involves our other mandates because we want to protect our investments in infrastructure.
In order to stop what we call a hemorrhage, we have created a life-cycle reserve where we take 2% of the cost of each new infrastructure. We put this in a fund so that we can maintain them when they begin to age. We don't want to repeat what was done in the past, that is to say build infrastructure without having any means to maintain them.
We also imposed development charges on all new developments. This is a type of fee that is well-known in the rest of Canada but that is not used much in Quebec. Gatineau is on the cutting edge of that debate in Quebec. The principle of these charges is that growth pays for growth. When a new neighbourhood is built, we impose charges that allow us to expand our plants and do the work related to that new development.
With regard to infrastructure, the necessary catch-up work in Gatineau alone was quantified five years ago at $1.1 billion. We did an update in 2014 and today, despite our massive investments, the cost of the retrofit has increased to $1.3 billion. We are good students. We shoulder our responsibilities and we make sacrifices. I would add that we have shown political courage. Despite all of that, the gap is growing. For instance—and this is a figure I constantly have in mind—the number of kilometres of streets in an unacceptable condition has gone from 195 kilometres in 2005 to 356 kilometres in 2011. I'm talking here about our entire road network.
All of the catch-up work to be done on our infrastructure basically monopolizes all of our fiscal capacity. This has negative consequences. Almost all of the increase in our debt is also allocated to infrastructure.
All of the tax increases on new investments are channelled into our infrastructure. Over the past years our taxation level has often been below the rate of inflation. Our recent tax hikes were limited to the rate of inflation, plus the infrastructure tax. For a growing city like ours this means that the increase in our service offer has to be accomplished through a compression of the services we already offer or through efficiency gains.
These rigorous principles have major repercussions on municipal mandates aside those that are infrastructure-related. For instance, for 12 years now we have made no investments in our library network. Although the population of Gatineau is growing steadily, and knowledge and culture lead to innovation, and we know quite well that our economic and social future depends on our children's grey matter, we have had to neglect our libraries in order to meet immediate infrastructure needs.
To illustrate the gap between that budget item and the others, over the next four years we are going to invest $67 million in projects for parks, bicycles paths, the downtown area and our libraries. During the same period, we will invest $480 million in our infrastructure.
The choices that the state of our infrastructure imposes on us are jeopardizing our capacity to prepare for the future. We feel that that is not an overstatement. Although investing in infrastructure allows us to reduce maintenance expenses, those same infrastructures do not create long-term wealth, do not stimulate innovation and do not contribute to quality of life, as do for instance our libraries or our downtown core.
There are several possible solutions. The fundamental problem is that the urban design of our city is in a way a fiscal error. We have low density, and that low density means that for each street we do not have sufficient tax revenue to pay for the property services and individual services that come with urban development. We have adopted a new development project. We are trying to tighten up construction in our city. We are also grappling with that reality. Our development charges are also a response to that because those fees force densification.
There is also a problem with funds and revenue. In Quebec, cities manage 58% of public infrastructure—that is the other figure I never forget— but they only have access to 8% of the taxes paid by Quebeckers as a whole. The math is implacable. Even with the best will in world, as we have in Gatineau, and even if we invested all of the budgets allocated to other municipal mandates, it is impossible to meet the needs.
Moreover, when federal and provincial governments invest in infrastructure, they obtain a significant return on their investment, which is not the case for municipalities. According to the general perception, governments contribute one third each. However, a study carried out by Deloitte in 2012 on the state of municipal infrastructure in Quebec revealed that taking into account the tax income the other governments enjoy, the net contribution by municipalities to the maintenance of infrastructure and construction is on the order of 76%. This has nothing to do with our capacity to pay.
The financial problem is even greater because the only thing we control is our own budget. There is a great temptation to invest more to solve the problem, which can in some ways be a mistake. We cannot expect today's Gatineau residents to carry the full weight of a problem that was created over several decades. There is also a limit to property taxes and that is our main revenue in Gatineau. It represents 87% or our revenue. It is a tax that is less fair than income tax and that we cannot avoid, as opposed to consumption taxes that we may avoid by consuming less.
The dedicated tax, our life cycle reserve and our policy to increase the debt already weigh heavily on our fiscal capacity. It would be ill-advised to add to the tax burden of Gatineau residents. However, the problem has to be solved, and in my opinion the solution has to come from a better sharing of the resources at the disposal of municipal, provincial and federal governments
I do in fact want to take advantage of this opportunity to highlight the important progress made by cities thanks to the help of the federal government. By putting in place infrastructure funding programs and making them more predictable and permanent, the federal government has greatly facilitated things for us.
I will conclude by saying that we have to build our cities differently, and that is what we are trying to do. We also have to invest massively in public transport because this contributes to reducing the pressure on our infrastructure. M. Carpentier could give you some details regarding our needs in that area.
Finally, we do indeed need greater financial resources. You have already heard that type of comment. This ratio of 58% of the responsibilities and 8% of the income has to be changed. It is a ratio that puts cities in an impossible situation. If the proportions stay the same, the substance of the problem will not change.
Thank you.
Conservative
The Chair Conservative Larry Miller
Thank you very much.
We'll now move to questioning.
You have seven minutes, Mr. Kellway.
NDP
Matthew Kellway NDP Beaches—East York, ON
Thank you to the witnesses for coming today and providing your testimony to the committee on a very important subject, obviously.
Those words you ended with, Mr. Mayor, are obviously of great concern, an untenable situation. Let me come back to that.
If I could, I'll start with you, Mr. McBride, about P3s, and I think a simple question of definition.
The language of the government's recent budget, with the new public transit funding, seemed to suggest that P3s are a kind of sub-universe of a broader universe of alternative financing. Is that the case? Am I to understand that correctly?
Chief Executive Officer, PPP Canada Inc.
It's difficult for me to speak to what the government's planning in its new public transit fund, but P3s are an umbrella term. P3 is different approaches to packaging together the design, build, financing, operation, and maintenance of an infrastructure into a procurement. You can have different combinations of those approaches. P3 is not a single thing; it's a family of procurement options with the private sector.
The other thing that's notable is it's not alternative financing, but it's also alternative funding. I think we'll hear more from the government about what they also meant by the funding side of alternative financing and funding.
NDP
Matthew Kellway NDP Beaches—East York, ON
This is probably too complicated for today, but I'm wondering if P3 Canada has something set out that identifies that family. That would provide us with some ability to understand the different models, when they're best used, and essentially what the differences are ultimately in the costing of the different models. Is that something you could provide to the committee?
Chief Executive Officer, PPP Canada Inc.
We could, ranging from what's called traditional, which is referred to as design-bid-build, through the various combinations of the family of procurement options. We could easily do that for you.
NDP
Matthew Kellway NDP Beaches—East York, ON
That would be great. Thank you very much.
Mr. Leclerc, you discussed the 25% versus 33% of federal share when the P3 model is triggered. Have you costed that out, or do you have a model that could show us the difference between a 33% federal share under a P3 model versus a 25% share?
Vice-President, Strategic Development, Canadian Urban Transit Association
You would look at the contribution on a project. I don't have the numbers right now, but we could do this on a project-by-project basis.
NDP
Matthew Kellway NDP Beaches—East York, ON
Do you have some general modelling? I imagine getting a project-by-project assessment is difficult to provide to the committee, unless you have some examples from some of the municipalities you represent. I'd like to see the cost difference between the 25% and 33%. If that could be provided to the committee, that would be very much appreciated.
Mr. McBride, I think the thing about the P3s that is a concern to a lot of people is that when we look at public transit, capital costs, operating costs, whatever one wants to call them, at the end of the day, they're not fully covered by the money that the rider pays to get on the train or the bus or whatever. Clearly, the private sector is interested in engaging in these projects for the purpose of profit. How is that profit ultimately accounted for in the fare?
Chief Executive Officer, PPP Canada Inc.
That's a common misconception of a P3. A P3 is how you package together the contractual relationship with the private sector. Almost all of the P3 arrangements in Canada are what's called availability payment arrangements, where the private sector is paid based on the availability of the infrastructure, and the payee to the private sector is the government itself. It's not based on user fees.
The question of whether or not to have a user fee is independent of whether or not to have a P3. You can have P3s with user fees and you can have P3s without user fees. Those two concepts are completely distinct in the discussion. I'll give you an example.
Many hospitals in Ontario are built as P3s. Obviously, there's no fee paid by patients when they go to the hospital. The private sector says, “I'll design and build you that hospital, and I'll maintain it over its life. In return you'll pay me if I succeed.” The private sector takes the risk of designing and building the hospital, and I don't pay the private sector a nickel until it's built. The private sector partner takes all of the risk of designing and building that hospital, and you don't pay him anything until it's built. That gives you an advantage. It's like when you're renovating your own bathroom. Do you like to pay the contractor at the beginning, along the way, or at the end? You pay at the end because the risk is his and then you're paying him over the life of the asset if it performs well.
It's performance-based payments to the private sector.
NDP
Matthew Kellway NDP Beaches—East York, ON
In the case where there's a fare involved and the fare doesn't change, but ultimately the government is the payee, then—
Chief Executive Officer, PPP Canada Inc.
The fare can go to the government or to the private sector. That's a question—
NDP
Matthew Kellway NDP Beaches—East York, ON
It's a government to private sector issue. Do you have examples that you can share where this is ultimately cheaper for the taxpayer?
Chief Executive Officer, PPP Canada Inc.
We would not do a P3 project unless we thought it would produce value for money. It's a question of whether the risks the private sector takes on are worth the value of engaging the private capital that is involved.
NDP
Matthew Kellway NDP Beaches—East York, ON
How do these things work out in the end? Have you run a P3 through the process enough to know over the life cycle this is the way it works?
Chief Executive Officer, PPP Canada Inc.
Yes. There are lots of examples. We have $6 billion worth of them in various stages of procurement, construction, and the rest of those kinds of things. On average they produce value for money of somewhere between 5% and 15%.
I would underscore, though, that only about 10% to 15% of capital projects make sense as P3s. You have to do an analysis to see whether it's the right tool. It is the right tool in complex projects you don't do very often, where private sector engagement is helpful and where you can tell the private sector player precisely what you want. It is not the solution for every project, but when it is the right solution.... It's kind of like a screwdriver. You can't be against screwdrivers, but if you want to hammer a nail in, then a screwdriver is not the right tool. You have to make sure you know you're using the tool in the right place and in the right circumstances.
Conservative
Liberal
Francis Scarpaleggia Liberal Lac-Saint-Louis, QC
To follow up on Mr. Kellway's line of questioning, I'm trying to wrap my mind around how P3s work.
I think we all understand the basic concepts. What's the difference between a P3 and a government going out and saying to a company, “Build me something turnkey. We'll go in and take it over, and we'll charge whatever rider fees are necessary”, if we're talking about transportation systems. Is it really the idea that with a P3 the government doesn't have to make a big initial outlay of money? Is that the issue? That's sometimes the way it's portrayed, as a method for governments to obtain financing at a time when government budgets are tight and governments are looking to balance budgets, although I'm not sure that makes a real difference because there are all kinds of accounting practices that I suppose can allow you to spread out the costs.
It's sort of the common perception that P3s are great because the government doesn't have to put up all the money right away, forgetting about who's assuming the risk. Could you comment on that?
Chief Executive Officer, PPP Canada Inc.
That's not what P3s deliver. P3s in Canada are on budget. They're on the balance sheet; they're not a way around it. If you're doing P3s because you're trying to do off-balance-sheet financing, you're doing P3s for the wrong reason.
Why P3s? P3s grew out of an analysis of the problems of traditional procurement. There were three or four main problems that people identified in the way things were procured, and they tried to find solutions for them.
What were those problems? One problem was that the government would pay for something and then it wouldn't get what it wanted. Then the money is already paid, and governments are terrible at getting their money back. If you don't pay until they deliver, then you know that the risk is theirs. Also in that world where, if you have to build a major piece of infrastructure and you have to go to the capital markets and borrow $500 million, let's say, from investors to execute the project, and those investors are only going to get paid back if they're successful in delivering the project, the oversight that comes from those types of creditors is a discipline on the project that is incredible. Private capital brings discipline.
Liberal
Francis Scarpaleggia Liberal Lac-Saint-Louis, QC
I understand the concept. Have there been other examples of P3s where the government has kind of walked away and said, “You built this hospital, and we don't like the way it's built and we're washing our hands of it, and do something with it now”?