Public-private Partnerships P3s In Canada

Running Head: PUBLIC-PRIVATE PARTNERSHIPS (P3S) IN CANADA 1

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PUBLIC-PRIVATE PARTNERSHIPS (P3S) IN CANADA 2

Introduction

Everywhere in Canada, the government is persistence on infrastructure. Over the next ten

years, the government has planned to spend over $125 on infrastructure (Siemiatycki, 2015).

Consequently, the process to procure public infrastructure has become adequately important than

other interests. The Canadian government has adopted several definitions of Public-Private

Partnership (3Ps). First, it is defined as a venture between private and public sectors, that is a

design on the experiences of all stakeholders to meet the defined needs of the public though

suitable allocations of rewards, funds, and risks. It is also described as corporation between

private and public sector to provide infrastructure services to the citizens. Another definition is

that it is a contract between the government and a private company under which: a private

company finances, constructs and manages some element of a public service; the private

company charges over several years, either through fees paid by users, or through payments from

the public authority, or a combination of both. It is good to have the good and sufficient

infrastructure in a country; however, developing an inclusive strategy can only be the solution to

the situation.

Background

Before embarking on the debate whether the Canadian government, should use Public-

Private Partnerships (3Ps) to build public infrastructure or not, it is essential to explore the main

reason for the use of 3Ps by public owners. One major reason is concerns available delivery

models. There are great concerns with public owners over infrastructures’' costs and overruns.

The so-called "conventional" delivery models have also led to disappointments with the

operation, maintenance, and performance of assets in the past. Publics owners have raised

PUBLIC-PRIVATE PARTNERSHIPS (P3S) IN CANADA 3

concerns that conventional delivery is insufficient in performance and costs are in most cases

higher than anticipated.

Moreover, many conventional delivery models fail to adhere to industrial practices and

hence turning out to be adversarial with owner-construction contracts and client-engineer

agreements. They do not focus on modest investments in the capital costs and design that has

high returns over the life of the asset through operations and maintenance efficacies but solely

focuses on capital cost.

Canada is not distinct in experiencing this kind of frustrations with the conventional

model. Similar frustrations were experienced in the UK in the late 1990s (Strongman, 2015). To

solve the issue, the UK government developed a plan and henceforth set up a Task-force to give

a solution. The task force comprised of industry representatives and other leaders who were

obliged to provide another perspective according to their experience. The Task Force was to

identify good practices and right actions that would assist in attaining efficiency in construction

that would give customer satisfaction and quality, value for money, and timeliness in delivery.

The Task Force came up with a report in 1998 that had over ninety recommendations. These

recommendations can be applied in Canada as well. However, the 3Ps should be well structured

and aligned to individual business strategies to attract interest from consulting engineering

companies.

Research, Supporting Data and Analysis

There is a strange contradiction between the euphoria for so-called public-private

partnerships (3Ps) and the poor results achieved with these instruments over the years. The

PUBLIC-PRIVATE PARTNERSHIPS (P3S) IN CANADA 4

Canadian government still resort to public-private partnerships in the hope that the private sector

will finance infrastructures and public services. Privatization is about to become the official

Canadian policy. Experience with 3Ps, however, demonstrates that it is fundamentally fallacious.

The "Why Public-Private-Partnerships Do Not Work" report by Public Services International

Research Unit (PSIRU) evaluated the experience of 3Ps in rich countries as well as poorer

countries (Siemiatycki, 2015). It concludes that 3Ps is an expensive and ineffective way of

financing infrastructure and services because they obscure public debt and at the same time offer

private companies long-term government guarantees for profits.

The research reveals the low transparency of 3Ps practices, largely kept secret and hidden

behind confidential negotiations to protect trade benefits (Merlin-Brogniart, 2014). There are no

public consultations, but many false promises and extremely complex business contracts, all

studied to protect business profits. The Canadian government is strongly influenced by a

powerful lobby comprised of major financial services, consulting and law firms, which seeks to

benefit from primary public services such as health, water, and energy. We need to keep in mind

that private sector companies need to maximize profits if they want to survive. This is

incompatible with the need to ensure universal access to quality public services, especially for

those who are unable to pay those profits.

Projects under 3Ps have diversified benefits to the public. Some projects have high cost

that the benefits they have to the public. The government incur a lot of resources in debt than

gains while private organization enjoy the hefty pay from government. In most cases, the

government do not have expertise to access the value of a project and hence the private

organizations take advantage to hike their prices. If the government continue to use the 3Ps in

PUBLIC-PRIVATE PARTNERSHIPS (P3S) IN CANADA 5

building public infrastructures, private organization will continue to maximize their profits.

Another hitch is that 3Ps is a long term contract and hence the government cannot terminate the

projects without consent of the developers. Therefore, the effects of these projects will have long

term effect to the economy of the country as well.

3Ps do not 'Provide Extra Money.'

Many advocates of 3Ps state that they contribute additional private resources to public

services or the infrastructures. Somehow, the population, or public authorities, do not have to pay

for schools or hospitals developed by 3Ps, so the government or municipality will have more

money to spend on other services; 3Ps, therefore, represent a reduction in indebtedness.

However, in 3Ps for services such as hospitals or schools, the government pays the cost of this

3Ps by collecting taxes - paying the cost of construction, and then the cost of operating the

service. Therefore, the 3Ps are borne by the public sector in the same way that projects are

carried out directly by the public authorities (Merlin-Brogniart, 2014). In case the 3Ps is financed

at least partially by user fees, for example, of water or energy, they continue to pay the same

rates whether they are under a 3Ps or a public provision direct.

In both cases, the money is taken from the same financial institutions: banks, pension

funds, and others investor since 3Ps do not open access to 'new' special sources of funding. 3Ps

can split the cost of a new building for many years, like any form of indebtedness, but it does not

reduce the overall cost represents, for example, the construction of a hospital: they only expand it

over time, as does any form of indebtedness.

PUBLIC-PRIVATE PARTNERSHIPS (P3S) IN CANADA 6

In fact, during the period of validity of a project, a 3Ps will always entail a greater public

investment than a traditional project. This is because of the higher capital costs and because, in

practice, it is not possible to increase the efficiency (Merlin-Brogniart, 2014). And private

operators charge users higher prices since they have a monopoly. So, the alternative of a

conventional public sector project that would have an internal service would mean, in general, a

lower public investment.

Risk transfer

The notion of 'risk transfer' plays an important role in the justification of 3Ps. It has been

used, especially in the United Kingdom, to justify the use of 3Ps that could not demonstrate that

they were more profitable than a public sector option. And the transfer of risk is a key element in

the accounting rules that they decide if a debt is left out of a government accounting balance. But

the transfer of risks is not free. 3Ps contracts normally transfer the risk of construction delays to

the contractor - but these 'turnkey' contracts cost around 25 percent more than conventional

contracts.

The transfer of risk is not necessarily the best political option either. Governments are not

like business. Many public services involve governments taking risks for the rest of us because

this works better - the risks of illness or unemployment. A recent general analysis of the risks

and the 3Ps concluded that; it is more efficient for demand risk to remain with governments, in

place with the private sector, even in the case of a 3Ps - so it would be a waste of money to pay

for transfer this risk to the private sector (Merlin-Brogniart, 2014).

PUBLIC-PRIVATE PARTNERSHIPS (P3S) IN CANADA 7

Conclusion

Dilapidated infrastructure has become the country's most pressing economic problem. For

years, far too little has been invested in roads, bridges, and schools in Canada. This message has

arrived in politics. The toll was an attempt to raise extra money for such investments. 3Ps can be

considered failed. Because even if the coalition partners bring a bill on the way, the levy in its

present form will not bring much.

Therefore, the problem should now be solved in another way: the government can

mobilize private capital for the infrastructure. The thing can go wrong though. And what is

touted as a counter model to the toll threatens to end like this in a disaster. The plans of the

government seem at first glance like a brilliant move. According to experts, around seven billion

dollars are needed each year for the rehabilitation of transport routes alone. However, the plan

has failed the government, and there need to develop another strategy that would address the

limitations brought in by the 3Ps model.

However, all models have a serious disadvantage: they are at the end associated with

sometimes considerable additional costs. A private company has to pay significantly higher

interest rates for a loan than the Canadian government with its top rating at the rating agencies.

Although the government may seem to be saving and attaining quality through the use of 3Ps, in

a real sense the achievements are minimal (Strongman, 2015). Therefore, the government should

substitute the 20 years program that has attained below the set target or redesigns it fit the set

objectives. If the program is being redesigned, the more radical variants should be at the center

of the considerations.

PUBLIC-PRIVATE PARTNERSHIPS (P3S) IN CANADA 8

References

Merlin-Brogniart, C. (2014). Improving understanding of the innovation process in innovation-

oriented public-private partnerships. Journal of Innovation Economics, 15(3), 117.

Morasch, K., & Toth, R. (2008). Assigning Tasks in Public Infrastructure Projects: Specialized

Private Agents or Public Private Partnerships? SSRN Electronic Journal.

Siemiatycki, M. (2015). Public-Private Partnerships in Canada: Reflections on twenty years of

practice. Canadian Public Administration, 58(3), 343-362.

Strongman, L. (2015). Understanding the ‘Public and Private' of Public and Private

Partnerships. International Journal of Civic Engagement and Social Change, 2(2), 20-33.

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