P3s, other alternative financing on Alberta government’s radar

The Redford government's promise to keep building Alberta despite budget woes and bitumen bubbles could lead the province to embrace alternative financing to pay for high-priority construction projects.

Premier Alison Redford and high-ranking cabinet ministers have said repeatedly since last fall they will borrow to bankroll critical infrastructure projects such as the twinning of Highway 63 to Fort McMurray.

Some of that debt could come in the form of public-private partnerships — an alternative method of building, maintaining and paying for major public works projects often referred to by the acronym P3.

"I think we've been pretty clear, we're not only going to be using P3s, but we're going to be using the capital markets for infrastructure and only when it makes financial sense to do so," Finance Minister and Treasury Board president Doug Horner said in an interview last week.

The 2013-14 budget to be delivered March 7 should add clarity. But if the province decides to use P3s to spread out construction costs, it will build on a decade of experience with the format.

Since 2003, the government has used the financing method to build large sections of Edmonton and Calgary's ring roads, as well as 41 schools and a water and sewer treatment plan in Kananaskis.

Under a P3, a government signs a contract with a private partner who agrees to design, build, maintain, and sometimes operate, the project over a period of time. That private company finances some or all of the project, and the government repays the company, with interest, over a set term of several years.

As an example, the northeast leg of Anthony Henday Drive, scheduled to open in 2016, is a $1.81-billion P3 project that will be repaid over 34 years.

Redford has made no secret of her interest in P3s. When she became honorary chairwoman of the Canadian Council for Public-Private Partnerships in November, she said in a statement she was pleased to work with the council to champion P3s across Canada.

After last week's Alberta Economic Summit, Redford described discussions related to P3s as "fundamental."

"There was much comment about the fact this isn't about incurring debt, this is about assuming risk," she said. "That these are still assets that continue to be publicly owned, but they allow us to build them in a more effective way."

Still, the subject of borrowing to pay for schools, roads or housing projects — always contentious in a province that wore its debt-free status like a badge of honour — becomes even more complicated when discussing P3s.

Advocates praise them as an efficient way of building and transferring risk from the public to the private sector. The P3 for the northeast leg of the Henday means the 27-kilometre stretch of road will be finished three years faster than through traditional channels and for $340 million less, according to the province.

Critics, however, pan P3s for their lack of flexibility and contractual secrecy.

NDP MLA David Eggen pointed to the complaints that surfaced in the first round of P3 schools that opened in Edmonton and Calgary in September 2010. Those schools, built on a standard design, faced many restrictions on how they could be used.

Alberta Education said last March they adjusted the contracts for the next round of P3 schools to allow outside groups to lease space for things like child care programs or community events.

Alberta Federation of Labour president Gil McGowan said he was disappointed to hear Redford focusing on P3s after the summit. He believes they do not provide better value for taxpayers.

"We now have more than three decades of (international) experience with P3s and what that experience shows us is that P3s are a shell game that almost never works for citizens and taxpayers," McGowan said.

"P3s are helpful to politicians in the short run because it allows them to move upfront costs for large infrastructure projects off the books in the short term, but over the long term we end up paying at least as much, if not more."

Wildrose leader Danielle Smith said P3s are simply another form of borrowing, which her party opposes in all forms. "We simply do not believe that once you start down the track of borrowing money that a government will ever stop," Smith said.

Anthony Boardman, Van Dusen professor of business administration at the University of British Columbia's Sauder School of Business, studies P3s. He said experience indicates that if a project is complicated, it may be better to keep it within government.

"Over time, what's happened is some governments are better at managing them, although there's still a fair amount of evidence we pay too much for them," Boardman said.

There are ways the government can make sure a P3 is a good fit, he said. One important step is to have an independent evaluation process looking not just at the financial impact of a P3, but also the social costs.

Governments often fail to take the social consequences of P3s into account, such as limits the arrangement might impose on community groups' use of a school building.

"That's a problem," Boardman said. "The reason why they don't is because it's not easy. But instead of doing the wrong thing because it's easy, on all projects we should devote the resources to getting it right."

The government also needs to be as transparent as possible, Boardman said.

In Alberta, the provincial government publishes more information today about new P3s than it did for the first P3s a decade earlier. Alberta Transportation's information about the northeast leg of the Henday includes a value for money report and contract information. (http://www.transportation.alberta.ca/3787.htm).

It also consults with the Advisory Committee on Alternative Financing, a panel of private-sector experts that examines the business cases for P3s and gives its opinions to Treasury Board.

Committee chairman Tim Melton, executive chairman of Melcor Development's board of directors, said P3s can be an excellent way for government to build but are not the best fit for every project.

Whether the government uses P3s, traditional bonds or cash to pay for construction, Alberta's finance minister said the province will take the advice Albertans have been giving to act more like a business when it comes to deciding how to pay for infrastructure.

"Money-in-the-mattress mentalities don't work," Horner said. "It certainly doesn't create value for future generations of Albertans.

"We have growth in this province and that makes us different than almost every jurisdiction in the country and we have to manage for that."

The Edmonton Journal, Monday, Feb. 18, 2013
Byline: Sarah O'Donnell

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