Joint ventures initiated to tackle infrastructure needs.
During the next few years, British Columbia’s Ministry of Transportation and Highways will place increasing reliance on public-private partnerships (P3s) to meet the growing demand for intermodal infrastructure.
B.C.’s highway infrastructure is in desperate need of billions of dollars of capital expenditures and P3s are viewed as one possible solution. The provincial debt, as announced in the recent budget, stands at about $36 billion, $40 billion if you include debt incurred for revenue-generating assets. And, according to Finance Minister Colin Hansen, that number will continue to grow past $40 billion in the next few years.
One of the first acts Premier Gordon Campbell carried out when elected four years ago was to create Partnerships BC, an agency to champion P3 projects. It has an outstanding, knowledgeable and well-seasoned team headed by CEO Larry Blain, a former managing director of RBC Capital Markets, as well as chief project advisor Steve Hollett. Both Blain and Hollett have been longtime advocates of the benefits of P3s, and I had the pleasure of working with Blain in 1992 when hosting the first provincial business symposium on public-private partnerships.
Why should we undertake public infrastructure projects using a P3 model? Synergy. Synergy is achieved by cost savings, risk-sharing, improved levels of maintenance or service, greater efficiency in implementation and economic growth. Potential risks that must be examined by both parties include the level of government control, cost implications, political risks, public accountability, service reliability, service and maintenance quality, selection process transparency and bias, and labour issues.
If the partnership is crafted correctly, the project will provide greater value for money than if undertaken by the public sector alone. This additional value is achieved by exploiting the strengths of both the public and private sectors. If the project does not contain synergy, then the initiative is not a viable P3 candidate.
The P3 model has generated a storm of criticism. Many argue that public assets should not be put into the hands of the private sector.
Indeed, there is evidence in some sectors that P3s are not a panacea. Former British prime minister Margaret Thatcher, who in the early 1980s shifted her country’s economy toward deregulation, privatization and greater globalization, was an early proponent of P3 projects in Britain. But in health care, practitioners in Britain have since recognized that the P3 model does not work in their acute-care systems.
However, one of the few areas that P3s can find the fertile ground is in the construction of highway infrastructure.
In the early 1990s, then-B.C. premier Glen Clark reluctantly recognized there was merit in the P3 concept and initiated several small P3 highway projects. Clark and others who have followed – cognizant of the growing provincial debt – are motivated to build infrastructure with private-sector dollars to keep additional debt off the books. In fiscal 2004-2005, about 17 percent of the province’s total capital projects involved P3s.
The provincial highways department is well into the process of crafting a P3 contract for the Golden Ears Bridge (also known as the New Fraser River Crossing) that is expected to open in 2008.
The need has been recognized for almost 15 years to establish this link between the communities on the north side, Maple Ridge and Pitt Meadows, and the communities on the south side, Surrey and Langley.
The department anticipates that this P3 will be a design-build-finance-operate-maintain project, with the private sector recovering its costs through tolls.
But I believe one of the fundamental precepts of public-private partnerships is that there must be an alternative route for those who do not wish to pay user fees to support the new infrastructure. In this case, it’s expected that most motorists will opt to save 20 to 30 minutes by paying the toll rather than taking the longer route.
A similar P3 highway project, also due to open by spring 2008, is Phase 2 of the Kicking Horse Canyon Project between Golden and Lake Louise. The project calls for replacing the Park Bridge and upgrading highway approaches.
In addition, another P3 project will create a new five-lane replacement at Kelowna’s Okanagan Lake Bridge, now considered to be one of the most congested areas outside the Lower Mainland and southern Vancouver Island. Instead of tolls, the private-sector partner will receive a performance-based payment from the highways department to recover the building costs and a reasonable return on investment.
Other P3s include the Richmond-Airport-Vancouver Rapid Transit Project, a link predicted to move 100,000 riders per day and the Sea-to-Sky highway upgrade in time for the 2010 Olympics.
For British Columbia’s highway infrastructure needs, guided by Blain and his professional team, P3 is the right model at the right time. Press on!
Note: This article was originally published in 2005.
