Sunday, August 19, 2012

NELSON: P3s are good.. for hiding government debt

FACE TO FACE: Are P3s a good way to build public infrastructure projects?

When we need a new bridge or hospital, it sounds comforting to know that it will be built through a public-private partnership, or P3.

It sounds so sensible: government partnering with a big, experienced company whose vast ingenuity and innovation will share the risk and inevitably save taxpayers millions of dollars in infrastructure costs.

But B.C.?s P3 projects don?t seem to be either saving us much money or transferring much risk to private partners.

We didn?t save money on the Sea-to-Sky upgrade, where, a P3 model was chosen despite Partnership B.C.?s report that a normal procurement model would have been up to $86 million cheaper than the P3 model chosen.

We didn?t share the risk on the Golden Ears Bridge. Toll revenue was $33 million lower than projected in 2011. Under the P3 share-the-risk agreement, TransLink is required to pay the builders $500,000 per month in 2009, $4 million per month in 2011 and $4.8 million per month from 2015 to 2041. The private partner shares no responsibility for the revenue shortfall.

The Port Mann Bridge project was supposed to be a P3 but no more. Even B.C.?s P3 pusher, Finance Minister Kevin Falcon, couldn?t rationalize supporting McQuarrie, the private partner, who couldn?t borrow the money required.

And that?s really the nub of it. P3s don?t save taxpayers money because private companies pay up to 2% more to borrow money than do governments. According to economists, that 2% difference in borrowing costs can result in 50% to 70% higher project costs.

So why even consider P3s? Why spend millions to negotiate with project partners who face this kind of funding disadvantage? Can?t we tap the unquestioned experience, ingenuity and innovation of the private sector by simply hiring them to build or operate things for us? Why do we want them as ?funding partners??

Perhaps it?s because money owed to P3 partners are not called government debt but, rather, ?contractual obligations.?

The B.C. government?s ?contractual obligations? have tripled from $34 billion in 2005 to more than $96 billion in 2011, according to B.C. Public Accounts.

So despite flowery assurances that P3s save taxpayers money and help share risk with the private sector, their real value is to help conceal a burgeoning and alarming government debt.

Face to Face columnist Jim Nelson is a retired Tri-City teacher and principal who lives in Port Moody. He has contributed a number of columns on education-related issues to The Tri-City News.

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Source: http://www.tricitynews.com/opinion/166474616.html

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