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Transportation P3s help get you there

by Michael Wilson

Increasingly, public authorities worldwide are delivering transportation infrastructure projects through innovative procurement techniques, including privately financed public-private partnerships (P3s). Despite the handful of transportation projects completed since the early 1990s by non-traditional means, such as the Confederation Bridge, Ontario Highway 407, Nova Scotia Highway 104 and New Brunswick's Fredericton-to-Moncton Highway, there has not been a widespread adoption of innovative procurement structures by Canadian public authorities.

In Canadian urban centres and less populated areas, government fiscal policy since the 1970s has either deferred major maintenance in favour of new services, or been unable to adequately fund either in the face of strained budgets.

Governments can accelerate infrastructure delivery and implement the philosophically defensible user pay principle by accessing private capital and assigning long term management and operations experience to private consortia (Highway 407 is an example). This message - repeated for years and supported by successful experiences in Canada and worldwide - seems to be well understood by both senior bureaucrats and elected officials.

There appear to be several reasons that prevent the wider adoption of innovative procurement structures in our domestic market. In the case of transportation projects, some of these reasons include:

  • The absence of a firm policy commitment at (especially) the provincial level to changing the role of government from owner of transportation infrastructure to regulator;
  • Inevitable delays that accompany the transportation planning and approval process (measured in years and not months);
  • Governmental accounting convention that records capital expenditures entirely in the year in which they are made;
  • The limitation on future transportation planning and the ensuing approval process that government budgeting conventions inevitably affect;
  • The lack of sufficient revenue-generating authority for municipalities, and their consequent dependence on future grant funding from senior levels of government (which further delays the planning and approval process);
  • The absence of a detailed appreciation of and methodology for assessing the benefits and disadvantages of risk transfer in innovative procurement, with the resulting fixation on the comparative cost of public sector versus private sector borrowing; and
  • A philosophical and cultural reluctance to contemplate an expanded role for private sector service providers in the delivery and management of public infrastructure.

Transportation planning in Canada requires needs assessment and preliminary costing, financial approval (the reconciliation of competing budget priorities based on full cost accounting of capital expenditures in the year in which they are incurred), land assembly/acquisition and environmental approval, which can require between three and ten years to complete. These steps are appropriate and necessary, but undertaken sequentially they tend to "ration" the delivery of future infrastructure based on government revenue forecasts, and other demands on the public purse. Under the dominant assumption that governments are responsible for fully funding transportation infrastructure procurement, delivery of needed infrastructure will be intermittent and piecemeal. .

Canadian governments, assuming they are convinced of the benefits of innovative infrastructure procurement strategies, have failed to persuade their constituents that the timely delivery of public services is a concern that outweighs the identity of the service delivery provider. Public services in Canada are rightly viewed as being in the public interest. This concept has been confused with public sector service delivery. Interest groups have successfully demonized potential private sector service providers as serious threats to personal safety and the Canadian social fabric, all because of the profit motive. This position has been largely unchallenged and significantly inhibits the prospects for early remediation of current transportation infrastructure capacity problems.

Let's question the alleged inappropriateness of privately financed and operated road and rail services by considering the case of passenger aviation. Government safety regulation is a prevailing fact in North American aviation, and no one questions that it should be otherwise. Would anyone seriously dispute that government safety regulation would not equally affect other privately operated transportation services, or that in competitive and private aviation environment (the United States being a better example than Canada), the public interest is served and risks to public safety minimized? This experience can be realized in other transportation sectors.

Transportation infrastructure is a critical "old economy" service on which the continued and future prosperity of Canada depends. In major urban centres, material reductions in productivity, efficiency and quality of life are being experienced as service levels decline. "Wiring" Canada for the future is a visionary strategy but, as one telling recent television commercial illustrates, when the e-business orders multiply beyond all anticipation, the realization dawns that unless the products can get to the market, the business will fail. Traditional government procurement of transportation infrastructure will not solve problems developed over the last 30 years. Courage and conviction is required to convince the Canadian public that privately financed and managed infrastructure, supported by either user pay or some form of pay-per-use government fee, is necessary and appropriate.

Canadians are a sophisticated electorate open to rational persuasion. Ten years ago Canadians endorsed a historic free trade agreement with the United States by a strong, but not overwhelming, majority where today, according to polls, it would be a landslide endorsement. Canada is no less Canadian because of free trade, and it will be no less Canadian for permitting the private sector, which already prepares and cooks our food, builds our cars, flies us in aircraft and provides us with high quality consumer goods, to provide basic transportation infrastructure.

This article has been prepared drawing on the expertise and advice of Liam Raffety, head, Project Finance Group, Société Générale (Canada).



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