The future looks bright for Canadian public- private partnerships in the wake of recent elections
When the dust settled on the spate of provincial elections held in the past two years, public-private partnerships appeared to be among the big winners.
Best cases in point? Premier Doug Ford’s Conservative Party victory in Ontario in 2018 and Jason Kenney’s United Conservative Party’s follow-up in Alberta earlier this year.
“Very often, a change of government brings a little bit of uncertainty,” says Mark Romoff, the Toronto-based President and CEO of The Canadian Council for Public-Private Partnerships. “But from the outset, Ford and Kenney announced that infrastructure was among their highest priorities and that they were both advocates of the P3 model.”
Right-leaning governments also took power in Québec, where François Legault and his Coalition Avenir Québec triumphed in 2018; New Brunswick, where Blaine Higgs’ Conservatives formed a minority government in 2018 after the Liberals fell on a non-confidence vote; and Prince Edward Island, where Dennis King emerged with a minority Conservative government earlier this year.
They joined Scott Moe’s centre-right Saskatchewan Party, now serving its third term, and Manitoba’s Progressive Conservatives, firmly ensconced under the leadership of Brian Pallister.
The outliers are Stephen McNeil’s Liberals in Nova Scotia, in power since 2017; Dwight Ball’s minority Liberal government, elected earlier this year in Newfoundland; and John Horgan’s minority NDP government in British Columbia.
With P3s recently on the rise in Atlantic Canada, BC may represent the only place in Canada where the outlook for P3s is not optimistic. But even with a federal election on the horizon, that’s not likely to change — barring an NDP or Green Party upset.
“Both Conservatives and Liberals are strong, vocal proponents of infrastructure and P3s,” Romoff says.
All of which is not to say that changes in government or in governing party leadership don’t create bumps in the road for P3s.
“Whenever there’s a change in leadership or party, there is a change in approach that at the very least can result in some delays in the pipeline,” says Tim Murphy in McMillan LLP’s Toronto office. “These delays, however, don’t necessarily reflect philosophical differences about the viability of P3s but rather differences in tweaking the process to suit the new government’s ideology.”
Justin Trudeau’s Liberals, for example, while remaining committed to infrastructure and P3s, put their own stamp on the process by replacing Stephen Harper’s P3 Canada Fund with the Canada Infrastructure Bank, a move that no doubt contributed to the funding delays for which the Liberals have been criticized.
Similarly, the Ontario pipeline remains sluggish as the Ford government gets its bearings.
“Apart from investment in rural areas and smaller projects, we’re still waiting on the P3 pipeline in Ontario,” Murphy says. “But what that wait represents is a hiccup rather than a change in philosophy by the government.”
Sharon Vogel, a lawyer in Singleton Urquhart Reynolds Vogel LLP’s Toronto office, is of similar mind.
“There was a period of uncertainty before the Ford government said what it would do with P3s, especially in light of the Auditor General’s criticisms,” she says. “But throughout we saw the continued development of alternative financing and procurement projects, like the Hurontario LRT and the GO Rail Expansion project.”
As it turns out, Ontario has benefitted from a long Liberal reign that allowed Infrastructure Ontario (IO) to become a global model for P3 procurement. “Over the past eight years, IO has been involved in more than 120 projects worth $50 billion,” Romoff says.
Still, despite rallying to the P3 banner, Ford’s government is taking a hard look at the methodology. “The Conservatives are more ruthlessly focused on outcomes than the Liberals were,” Murphy says. “There’s also more of a focus on exporting our expertise internationally.”
Doubtless, some of the impetus for caution may have been the Ford government’s desire to avoid more criticism about Ontario’s P3 program from Auditor General Bonnie Lysyk, whose list of systemic problems included the higher costs associated with private financing, significant conflicts over maintenance contracts and a lack of evidence to justify certain projects going ahead as P3s.
Arguably, however, Lysyk’s comments were taken out of context by critics and many media outlets. “What the Auditor General said was that if the Ontario government could deliver its projects on time and on budget on its own, it would have saved $8 billion,” Romoff says. “But governments have shown they can’t do that, and that’s why you need P3s — in fact, the same report praised Infrastructure Ontario for its accomplishments as a world leader.”
Murphy agrees that Lysyk’s criticisms had little effect, politically or otherwise. “There was some backlash, but that subsided when the TD Bank and others issued scathing assessments of the report, describing it as an inaccurate summary of what’s actually going on,” he says.
The point, Romoff argues, is that P3s get into trouble when they’re regarded as panaceas, proceeding without the value-for-money screen used by IO. “That’s what happened in the United Kingdom, where the country has paid a price for the mandated use of P3s across the board, making it very difficult for the program to get traction going forward,” he says. “But Canada has done much better on that front.”
Indeed, the future of the P3 pipeline in Ontario crystallized when the Conservatives’ April 2019 budget committed $144 billion to infrastructure over the next decade. Transit is clearly the focus of the plan, with $66.7 billion allocated to public transit and $22.1 billion to highways.
“Ontario’s commitment remains very clear, and we’re working closely with the government to move projects to the market,” Romoff says.
Alberta's promising P3 future
The future for P3s looks equally promising in Alberta.
“Jason Kenney’s election significantly increases the likelihood that infrastructure models will be developed along the P3 model,” says Geoff Stenger in Bennett Jones LLP’s Calgary office. “The Premier is on record that his government will be very aggressive in pursuing P3 projects, which he believes represent the most efficient way to develop large infrastructure.”
P3s, of course, also help Kenney pursue another priority, namely the immediate reduction of the province’s debt while maintaining his commitment to infrastructure.
To be sure, there was what Stenger calls a “P3 hiatus” under Rachel Notley’s NDP rule. But previous Conservative governments did resort to P3s to build about 40 schools, the ring roads in Edmonton and Calgary, a wastewater treatment plant and a composting facility in Calgary, among other projects — and Stenger expects Kenney to pick up where his Conservative predecessors left off.
“The most immediate shift will likely be from the social housing developments to which the NDP committed to more development under P3 models,” Stenger says.
Romoff is confident that the Kenney government’s fall budget will feature a “significant role” for P3s, encouraged no doubt by a P3 consortium’s recent completion of the $1.6 billion Fort McMurray to Edmonton transmission line. The consortium not only financed the project through the largest P3 bond in history, but completed the project on budget and three months ahead of schedule. Also on time and on budget was the Stoney CNG Bus Storage and Transit Facility in Calgary, a P3 project led by Plenary Infrastructure.
“When the Premier says he’ll move on P3s, P3s will move,” Romoff says.
Québec P3s flourish
So, it appears, will P3s continue to flourish in Québec.
“There’s a history of P3s in the province and the recent budget continued to identify infrastructure as a high priority,” Romoff says. “In fact, the Coalition Avenir has confirmed that it would procure the new dome on Montréal’s Olympic Stadium as a P3.”
And if there’s any doubt that public-private partnerships are beacons of innovation, the emergence of Montréal’s $6.3-billion Réseau express métropolitain (REM), which brings a new P3 model to market, should silence the skeptics.
The model is the brainchild of the Caisse de dépôt et placement du Québec and its subsidiary CDPQ Infra. What makes the REM model unique is that CDPQ Infra is taking on the entire risk of the project, mitigating it only by hiving off interests to other investors. No portion of the project resides on government balance sheets. But the government has an important role, serving as guardian of the public interest by identifying the public’s infrastructure needs. Once the government does so, it is the private sector that does the initial planning and investigation to determine the project’s commercial viability. It then proposes alternatives to government, which decides on the proposal that suits its purposes best.
Competing with the REM as Québec’s star project for the time being is the recently completed Champlain Bridge reconstruction. Although it’s a federal P3 endeavour, some of the REM transit traffic will pass over the bridge — demonstrating what collaboration between federal and provincial governments can achieve when properly executed.
Ambitious east coast projects
Elsewhere, both Nova Scotia and Newfoundland and Labrador have ambitious healthcare and highway projects on the go.
“Neither of these provinces have a strong history of P3s, so the latest developments are very encouraging,” Romoff says.
And even in the far north, P3s are thriving. The Northwest Territories has brought several projects to market, including the Mackenzie Valley Fibre Link and the 97-kilometre Tlicho all-season road connecting Yellowknife to Whati, now for the most part a fly-in community.
Critical to the P3 scenario, of course, is the federal government’s plan to invest $180 billion in infrastructure over 12 years. Although critics have lamented what seems to be a slow flow for the funding since the program’s announcement in 2016, it’s perhaps understandable because the process required bilateral agreements with all the provinces, something that has now been achieved.
“Even after that, it’s a two-way street because the provinces must identify the projects for which the funding will be used before the federal government will release the money,” Romoff says. “But the alignment is now good with the feds ready to move the money out.”
And the P3s in — except in BC, which seems to be parting ways with the rest of the country. “Premier Horgan and his cabinet are not particularly strong P3 supporters,” Romoff says. “But they’re still moving ahead with infrastructure, including a couple of design, build, finance projects that don’t include a maintenance component, which they are reserving for the public sector.”
Going forward, Romoff can best be described as wistful about the future of P3s under the NDP.
“We continue working with the BC government and trying to demonstrate how P3s are advantageous,” he says. “But we’re pragmatic as to the number of projects in the province that will come to fruition on a P3 model.”