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.
Chief Executive Officer, PPP Canada Inc.
In the middle of them, there are a lot of examples where there are deductions in the payments. Deductions in the payments to the point where you would actually kick the contractor or the developer out and they would lose hundreds of millions of dollars don't happen because they don't want to lose hundreds of millions of dollars. It brings financial discipline.
There are a couple of other problems it also solves. Another one is that governments' traditional approach has tended to not look at the whole life cycle. It tends to focus on the build part, but doesn't think about the overall life cycle of an asset. It will design it in a way that's difficult to build and build in a way that doesn't think about operating and maintenance. The mayor mentioned how operating and maintenance is a significant part, and not thinking about the operating and maintenance is a significant part of what's got us into some of these kinds of problems.
When you think about a long-term piece of infrastructure, you have to think about how to design and build it, but you also have to think about how you're going to operate it and maintain it over 25 years. If you put the same accountability to the person where they have to design it and they're accountable for building it and they have to operate and maintain it, they think about that in a whole life cycle way. There is a huge number of examples—I can point you to lots of them—where somebody designed it, and then the builder is building it and he says, “I don't know who did this design for you, but the cost of building this thing is way more than he said it was going to be”, and when it goes to be operated and maintained, that's one single person. There's no, “Well, gee, I didn't design it, I didn't build it, I didn't operate it.”
Liberal
Francis Scarpaleggia Liberal Lac-Saint-Louis, QC
I'm wondering, just as an aside, the Champlain Bridge in Montreal only lasted 50 years. I read somewhere that the design might not have been the best for the climate and so on and so forth.
Liberal
Francis Scarpaleggia Liberal Lac-Saint-Louis, QC
Yes, it will be now, I guess.
In Quebec, just to follow up on this, the Quebec government seems to be using the argument that they don't have any money right now to do these things for P3s by having, for example, the Caisse de dépôt step in for public transit projects.
Chief Executive Officer, PPP Canada Inc.
There are only two ways to pay for public infrastructure: users have to pay for it, or general tax revenues have to pay for it.
Liberal
Francis Scarpaleggia Liberal Lac-Saint-Louis, QC
You made a distinction between funding and financing. Could you elaborate on that? I think I understand it.
Chief Executive Officer, PPP Canada Inc.
The funding is the sources of revenue that are going to pay for something. It's not to say there aren't ancillary sources of revenue for public infrastructure other than general tax revenues and users. You could build a Tim Hortons at a transit station. There are ancillary ways of doing this, but they're not frankly material to the overall cost of a public infrastructure. If you think of revenues as your income, but financing as your debt, you can finance something, but eventually you need revenues to pay that financing off.
Liberal
Francis Scarpaleggia Liberal Lac-Saint-Louis, QC
Mr. Leclerc, you referred to the fund the government created. In the last budget, it did announce the creation of a $1 billion fund over three or four years. An amount of $1 billion may indeed seem like a large sum, although a few years will be needed before that amount is actually reached.
According to some, those funds are not what the country needs; it is what the government can offer currently in the context of the financial framework it has created for itself.
For instance, some say that a city subway station can cost more than a quarter of a billion dollars. That is a lot of money and is appreciated in some respects, but when we hear Mayor Pedneaud-Jobin talk to us about his infrastructure needs and we see...
Conservative
Liberal
Francis Scarpaleggia Liberal Lac-Saint-Louis, QC
I'm not a regular member, so I'm not familiar.... Anyway, sorry about that.
Conservative
The Chair Conservative Larry Miller
If somebody wants to respond very quickly to that, I'll allow that, but we do have to move on.
Vice-President, Strategic Development, Canadian Urban Transit Association
Certainly. Thank you, Mr. Chair.
There are two things that are of note concerning that billion dollars. First of all, it is added to investments that were already announced, involving Building Canada and the other investments. Moreover, this is the first time that we have a federal, dedicated and recurring public transit fund. That is unprecedented. It allows more predictability for projects.
Conservative
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Thank you to all of our witnesses for being here today.
Mr. McBride, I'll start with a couple of questions for you regarding P3s.
You've done an excellent job, I think, of explaining in what situations P3 projects are appropriate and in what situations they are not.
When a project is procured as a P3, could you explain what the benefits to the taxpayer are?
Chief Executive Officer, PPP Canada Inc.
Mr. Chair, for projects procured as a P3, there are a lot of risks that are transferred to the private sector. What do I mean by those risks? That's where private finance comes in, because a risk is actually transferred if it happens and you don't pay for it. What value do you get out of that? I talked about whole life cycle optimization. By making a single person accountable, you get greater accountability to the taxpayer for the whole life cycle of the asset. It is one person. There is no pointing at who designed it, who built it, who is operating it. It is one person, and that person has backed up that accountability by putting his or her money on the line.
You get greater discipline by having capital market oversight. I have a tough organization, but I'm telling you the people who lend you hundreds of millions of dollars are tough on the contractors in a way governments just can't be. You get that discipline.
You get innovation. I didn't speak to that, but in a P3 procurement, you specify what you want rather than how to achieve it. You can say that you want it to do a certain outcome, but not that you want six inches of gravel and two inches of asphalt. You enable the private sector to think through the best way of drawing on global best practices to deliver that infrastructure. We're seeing that in terms of the prices we get back. In almost all cases, they're 10% to 20% less than what we even expected.
When you enable that innovation, you provide that discipline and you think of the whole life cycle. The whole life cycle is about the timing of it. Governments can sometimes say that they will do the maintenance next year, but the maintenance next year costs twice as much as the maintenance this year, because things that you push off cost more. On our $1.3 billion of investments to our $6.5 billion of projects, we have an estimated incremental savings of $860 million to taxpayers.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
You also explained that by definition a P3 project has “private capital” involved. What do you mean by that, and how is private capital involved?
Chief Executive Officer, PPP Canada Inc.
Depending on the model, private capital is engaged in both the short term and the long term. If you're in a long-term arrangement, because a P3 can be just a matter of design, build, and finance through construction, in that world, if they're building a piece of an extension to a subway line and you're not paying them until it's built, they have to raise the capital and put their money at risk to pay to build that line. If you're engaging them in a long-term arrangement, which includes design, build, operate, and maintain, you keep their capital at risk over the whole life of the asset, so that at any time, if you're not satisfied that they're meeting the performance expectations set out in the contract, you stop paying them.
It's not just that they're losing the opportunity; they're going to be losing their capital, and they're not going to be able to pay back the people they borrowed the money from. That's not just a matter of having a bad deal with the government. That means putting their whole company at risk, and this is serious. That private capital brings serious discipline to the execution of these projects.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
By virtue of private capital being involved, then, would you define the private sector, in the case of a P3, as being a funding partner?
Chief Executive Officer, PPP Canada Inc.
No, I'd distinguish between financing and funding, as I would distinguish income statements, expenses and revenues from sources of capital and balance sheets.
People who need to be paid back are not funders. People use those terms interchangeably, but in my head, to keep it simpler, financing means you're providing capital that's expected to be repaid if it performs. Funders are the ones who are either using the infrastructure or investing in it for a public policy purpose.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Very good. Thank you very much.
Monsieur Leclerc, if I heard you correctly, you mentioned in your opening statement that currently there is a funding gap for major public transit projects in the country. The funding gap is how much?
Vice-President, Strategic Development, Canadian Urban Transit Association
It's $18 billion for the next five years.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
You broke that down in terms of how you would apportion it to each level of government. Could you elaborate on that?
Vice-President, Strategic Development, Canadian Urban Transit Association
When we survey our members, we ask what their plans are for rehabilitation and replacement and for expansion of ridership. Then we ask them what portion of that has funding committed to it and what portion would need additional funding.
Really, the gap is the $18 billion. What we are seeing is that if you go with this assumption of one-third, one-third, and one-third, that would be roughly $1 billion per order of government each year for five years. That's assuming that full one-third of this.