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
Peter Braid Conservative Kitchener—Waterloo, ON
Very good. Is that one reason you very much welcome the new public transit fund that was announced in the recent budget?
Vice-President, Strategic Development, Canadian Urban Transit Association
The new transit fund will do two things. Really, it's the first time we'll have a dedicated and ongoing fund, which is really good at the federal level, so it's important. The other thing is, right now, for the next five years, it will help us close that gap, and then we'll be looking at what it does as well for the next 10, 15, and 20 years as the population grows.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
We have the initial general description of the new public transit fund in the budget document. More details will be shared in the coming weeks and months.
You're here today. You have the opportunity to provide your input, your feedback, in terms of how you'd like to see that fund operated. Do you have any specific suggestions?
There's no charge for this.
Vice-President, Strategic Development, Canadian Urban Transit Association
Thank you very much for the opportunity. I think one of the keywords is flexibility. Mr. McBride mentioned that in the budget they talk about alternative funding and financing, including P3s. To answer Mr. Kellway's question, there is a broad range of alternative funding tools. As a matter of fact, last year we organized an international conference in Montreal, to which we brought international experts from everywhere—Asia, Europe, and the Americas—on that specific point. P3 was only one of the presentations.
In about a month we will launch a report that details about 25 alternative funding tools. What we're looking for in this fund is not to be restrictive in nature. It's really to be flexible so that municipalities can look at the different programs they want to put together and the different mechanisms, and make sure that they can submit projects that will respond to their needs and the needs of their citizens. That's one thing, and I already mentioned the increase in the cap for federal contributions from 25% to 33%. That's another thing we're engaging.
Conservative
Ed Komarnicki Conservative Souris—Moose Mountain, SK
Mr. McBride, if there are a lot of questions on P3s, I guess it's because many of us are not quite familiar with how they might work.
From a conceptual point of view, I note that some small communities undertake to develop their own lots, service them, and attempt to sell them. Some get developers to do them. In the normal course of events, they're more practised at doing them. Of course, you might be able to get the cost down by using the private sector.
If the risk gets passed to the private sector in P3s, and if they have to raise their initial capital, I guess there's a cost to that. Is there some sort of formula that say, on a given project of x dollars you have to allow a certain rate of return or percentage to the private sector for (a) assuming risk, (b) raising financing, and (c) contributing funds to the project? I have a number of questions in there.
At the tail end of it, if you're going to operate it for 20 or 25 years, there's a certain amount of risk, a certain amount of management fees, and a certain rate of return that it would be reasonable to get. There must be something you factor in for that when you're going through a project. When you add all that up, it must be less than the risk assumed and then the overall cost, because you've never done it before, or for any variety of reasons, such as, you haven't thought about the design, or you haven't thought about maintenance. I mean, you're thinking about all these things, but there's a cost to them.
Can you answer those questions? You don't necessarily have to answer them in that order, but you get the drift.
Chief Executive Officer, PPP Canada Inc.
I do. In fact, it sounds like you would make a great employee at my organization.
Chief Executive Officer, PPP Canada Inc.
It's exactly the kind of analysis you need to go through, because there are costs and there are benefits. There are benefits of them taking on the risks of cost overruns, of them taking on the risks of design flaws, of them taking on the risks of catastrophic issues or operating problems, all of those risks that in another way would be the government's. You have to do a risk evaluation of those kinds of things.
Against that you have to put the cost, because there will be a premium to the private sector finance. If they're going to take on risk, they're going to expect return. The question in a P3 is to allocate the risk to those who are best able to manage it. In that way, you have to do an evaluation. We do what we call a value for money evaluation on what is the right model on every single project that we would consider. We would not do it unless our analysis, which is very rigorous, concludes that it's the right thing. That's why I said that only in about 15% of the cases do you conclude that.
Are there rules of thumb? We will do a deep dive, but are there rules of thumb where we say that we wouldn't even do a deep analysis on one, but on another one, probably. You need to have something that has scale. It has to be $50 million to $100 million, depending on the sector. Why is that? You need to attract the private sector interest. If the private sector is going to bid on one of these things, that means they need to do design work. They have to invest millions of dollars in the bid process in order to think through how they will handle this, to get that innovation—
Conservative
Ed Komarnicki Conservative Souris—Moose Mountain, SK
How do you decide that this is value for money? Is there a formula, or is there a basis to say—
Chief Executive Officer, PPP Canada Inc.
We have a methodology, which is published on our website, about the process we go through. We will go through all the risks of a project—which are appropriately transferred to the private sector, what we evaluate them to be worth—and on the other side of the equation we will take a look at transaction costs and financing costs and then we'll conclude.
We'll also conclude at a screening level, even at a high level, whether or not something is even worth doing a deep dive on. If we think that yes, it has a chance, we will do a very granular, quantitative, analytical process to determine whether we think it's the right approach.
Conservative
Ed Komarnicki Conservative Souris—Moose Mountain, SK
In effect, then, you're saying there's a certain level of return that would be expected for the industry, a certain level of return on the financing and on the management operations side, that you would be able to tell would be far better spent than having it done the traditional way, where people aren't concerned about those very issues, such as the rate of return, the operating costs, and all of that.
Chief Executive Officer, PPP Canada Inc.
We would benchmark, say, financing costs against parallel transactions that have already been executed in the market.
Conservative
Chief Executive Officer, PPP Canada Inc.
We do that kind of analysis. It's very deep analysis on those kinds of things. We're talking about projects that are hundreds of millions and billions of dollars. To spend the time to do that analysis is well worth it.
Conservative
Ed Komarnicki Conservative Souris—Moose Mountain, SK
In some cases the third party invests funds to add to what the contributions are on the federal, municipal, or provincial side, or is that not...?
Chief Executive Officer, PPP Canada Inc.
The private sector will put in financing, but I haven't found private financing that doesn't want to get paid back.
Conservative
Ed Komarnicki Conservative Souris—Moose Mountain, SK
Right.
You put it in, but it's really not funding. It is leveraging a greater amount of money to have on the project's budget.
Chief Executive Officer, PPP Canada Inc.
It brings discipline. I put my money behind the fact that I'll deliver the project. If I don't deliver, you don't have to pay me. I'll put $500 million behind the fact that I'll deliver. That focuses the mind.
Conservative
Ed Komarnicki Conservative Souris—Moose Mountain, SK
It does focus it, for sure.
Now I'll move to the mayor.
I'm not sure if I have a lot of time or not, but it's interesting to see that you've at least taken the time to see what your infrastructure needs may be going forward and what your deficiencies might be. You're taking some measured steps to try and overcome it, although maybe not to the degree that you would like.
It was interesting to hear both from the transit side and from something you said, that there are needs you have priorities for and you'd like to have addressed. I noticed the gas tax fund, along with the GST rebate, runs in significant dollars. It would be in billions of dollars.
What's your view of the fact that there's almost no strings attached to a fund that gives you the decision-making process as to where you put it?
I know the cities have asked for it. We've increased it and we've tagged it to inflation, so there's an inflation factor to it. Is that a good way of using a set amount of dollars by saying to the municipalities, “You don't have to apply for the project, but here's what you'd get based on your population”?
Perhaps the mayor could make a comment and Mr. Leclerc.
Mayor, City of Gatineau
I think that is very good news.
It was an excellent decision.
That is one of the programs we prefer, precisely because the cities have a certain leeway that allows them to choose their priorities. We consider ourselves a local government and as such, we are closely watched by the media, our citizens and an Auditor General. We are accountable to our population. The fact that the program has very general criteria is an advantage for us.
Certain cities invested a lot in waterworks and sewers. We invested considerable amounts in our water treatment plants. Most of our gas tax revenue was allocated to our water treatment plants. In five or six years, water will no longer be a priority, since we will have made the necessary investments, but this may not be the case for other cities.
Since cities are extremely different from one region to another, it is in our opinion essential that we have a certain leeway.
NDP
The Vice-Chair NDP Hoang Mai
Thank you very much.
We don't have any more time for your round. Maybe one of your colleagues could ask those questions.
Mr. Sullivan, for five minutes.
NDP
Mike Sullivan NDP York South—Weston, ON
Thank you, Mr. Chair, and thank you to the witnesses.
I'm not a fan of P3s, in part because I believe what we're doing is just turning infrastructure into a profit centre for some in the private sector. Let me give you an example of something that happened in Toronto and that happened in my riding. It was originally to be a P1, in that it was to be private sector completely owned, operated, and managed. It's the airport rail link that David Collenette announced in 2003 would not cost the taxpayer one nickel. Now, $1.4 billion later, the private sector partner pulled out because they couldn't make a profit, or for whatever reason, I'm not sure, because they weren't telling us why, but they did pull out. The provincial government pulled in.
Now the project is going to be produced and the trains are apparently going to run in June. They're incompatible with GO trains, so they can't be on the same platform as a GO train, even though they're running on the same tracks as a GO train. They're not electric; they're diesel. For whatever reason, the fares are going to be much higher than the private sector was going to charge. The fare will be $27.50 a ride. It's public money, the $1.4 billion, but the public won't be able to afford to ride it. This is an example of a project gone completely screwy. The private sector clearly wasn't prepared to do it. The trains are going to run only one-tenth full, but that's going to be termed a victory.
Where is it in Canada that we should be building transit like this? Should this have been something that should have been done in a different way? Does anybody have an opinion?
No. Okay, I'll leave that.
I believe it was Regina, but somewhere in Saskatchewan, there was a city that wanted access to federal funding, but could only get it if it was a P3 project. They had to convert their project into a P3 in order to have access to federal funding, even though they might not have been desirous of using the P3 model.
Is that one of the difficulties of what you have to administer, Mr. McBride? Is it that the money is only available if it is a P3?
Chief Executive Officer, PPP Canada Inc.
We are a P3 fund. With your example of Regina, the Regina city council unanimously endorsed a P3 approach to doing it—if you're referring to their waste water treatment plant, which we did support—based on an analysis they did that determined, based on the costs and the benefits, a P3 approach would be a better value approach to their delivering it. It was supported by the mayor and the council, who made an application to us to do that project as a P3. I didn't force them to do it as a P3, but that was something that the council.... They also put it out to a public referendum, which also succeeded. The general public also wanted it to be a P3 because they believed, in the analysis of the council, it would produce better value.
NDP
Mike Sullivan NDP York South—Weston, ON
My issue is not whether or not the council ultimately went that way. The issue is whether there is a restriction in some federal funding that is only applicable to a P3 project regardless of whether that may in fact be the wish of the city, or the council, or the municipality. If council had decided not to go with a P3, they couldn't have had access to federal money.