P3 shit storm

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Brachina
P3 shit storm

http://diablogue.org/2014/12/09/eight-billion-reasons-why-we-were-right-...

 Billions and billions mispent, makes the gas plant scandal look minor in compareson.

 Billions flushed down the toilet. Then right after its revealed that billions of revenue have basically been given to the Beer Store by the LCBO, than to a lack of competition, out of the public purse, which btw are major donors to both rightwing parties.

PrairieDemocrat15

Its funny how the private-sector consultants who are hired to do "value-for-money" audits of P3 schemes always say they're awasome, but numerous A-G reports always say the opposite.

abnormal

There seems to be a fundamental misconception about why governments get involved in P3's in the first place.  It has nothing to do with saving money.  The one thing that P3's do, and they do it very well, is change the accounting treatment of the capital project in question.

For example, suppose government wants to build something and the cost is going to be $500 million.  If they do it themselves (i.e., without the partnership) they have to go to the capital markets and borrow the money and pay it off over time.  They've just increased government debt by half a billion dollars as well as increasing the portion of tax revenues that go to service that debt.  However, if they do the same project via a P3 all that shows up on the accounts is the annual payment to the private half of the partnership.  Note that's not the present value of the future stream of payments - it's only the current year's payment.  No increase in debt (at least on the government's balance sheet) just a regular stream of individual payments.

janfromthebruce

abnormal wrote:

There seems to be a fundamental misconception about why governments get involved in P3's in the first place.  It has nothing to do with saving money.  The one thing that P3's do, and they do it very well, is change the accounting treatment of the capital project in question.

For example, suppose government wants to build something and the cost is going to be $500 million.  If they do it themselves (i.e., without the partnership) they have to go to the capital markets and borrow the money and pay it off over time.  They've just increased government debt by half a billion dollars as well as increasing the portion of tax revenues that go to service that debt.  However, if they do the same project via a P3 all that shows up on the accounts is the annual payment to the private half of the partnership.  Note that's not the present value of the future stream of payments - it's only the current year's payment.  No increase in debt (at least on the government's balance sheet) just a regular stream of individual payments.

exactly

 

Aristotleded24

janfromthebruce wrote:
abnormal wrote:

There seems to be a fundamental misconception about why governments get involved in P3's in the first place.  It has nothing to do with saving money.  The one thing that P3's do, and they do it very well, is change the accounting treatment of the capital project in question.

For example, suppose government wants to build something and the cost is going to be $500 million.  If they do it themselves (i.e., without the partnership) they have to go to the capital markets and borrow the money and pay it off over time.  They've just increased government debt by half a billion dollars as well as increasing the portion of tax revenues that go to service that debt.  However, if they do the same project via a P3 all that shows up on the accounts is the annual payment to the private half of the partnership.  Note that's not the present value of the future stream of payments - it's only the current year's payment.  No increase in debt (at least on the government's balance sheet) just a regular stream of individual payments.

exactly

The problem is the public and private sectors have completely different goals and objectives, in particular the importance of making a profit in the private sector. They will do what they have to in order to make profits, while money left over from a public funding scenario can (in theory) be funneled towards other projects. That's why P3s don't work, because of conflicting models.

abnormal

Aristotleded24 wrote:
The problem is the public and private sectors have completely different goals and objective ...

True, but the public half has little, if anything, to do with "profits" to the other half - it's completly about hiding borrowing costs.  Nothing more, nothing less.

 

Rokossovsky

Sure it does, for one thing the interest rates of private borrowers are substantially higher that those charged to government, so in fact's bank improve their profit margins on capital investment loans, which are then passed on to the government as "payments" on services. A key cost inflationary aspect of AFPs and P3s is the higher rate of interest charged to the private partner, costs for which are covered through payment to the P3 partner.

Moreveover, when the government is covering a deficit, the payments themselves increase the unfunded liability, because of the higher cost.

It is a direct transfer of public funds toward private profit on projects that are often capitalized through the sale or transfer of hard government assets, which is just another "conversion" of public wealth.

PrairieDemocrat15

Why is it that the Liberal defenders on Babble are so active on the polling threads but not the threads that discuss actual government policies?

Michael Moriarity Michael Moriarity's picture

abnormal wrote:

Aristotleded24 wrote:
The problem is the public and private sectors have completely different goals and objective ...

True, but the public half has little, if anything, to do with "profits" to the other half - it's completly about hiding borrowing costs.  Nothing more, nothing less.

 

Do you think it is good that governments which claim to represent the people should do such things? In my mind, there could not be a clearer case of government corruption to benefit private sector cronies, with the added advantage of making this year's deficit numbers better. Do you agree?

sherpa-finn

This thread has focused on domestic Public - Private Partnerships. But some of you may remember the CIDA initiative under Bev Oda to 'invest' Canadian aid funds in projects linked to the activities Canadian mining companies in countries of the global south.

Here's a good write up from the Toronto Star today on one of the three "innovative pilots" launched by this Gov't. This one linked Rio Tinto to WUSC (an NGO) in Ghana with CIDA $. Read it and weep / sigh / fume.

Ghana: Canadian aid project goes off the rails

Development money went to Ghana because of a Canadian mine. Neither succeeded....

http://www.thestar.com/news/world/2014/12/08/ghana_canadian_aid_project_goes_off_the_rails_1.html

 

abnormal

Michael Moriarity wrote:

abnormal wrote:

Aristotleded24 wrote:
The problem is the public and private sectors have completely different goals and objective ...

True, but the public half has little, if anything, to do with "profits" to the other half - it's completly about hiding borrowing costs.  Nothing more, nothing less.

Do you think it is good that governments which claim to represent the people should do such things? In my mind, there could not be a clearer case of government corruption to benefit private sector cronies, with the added advantage of making this year's deficit numbers better. Do you agree?

I don't think that in the vast majority of cases it has anything to do with benefiting "private sector cronies", at least not intentionally.  It's all about making the accounts look better. And of course, it makes it look like the politicians in charge have done a good job of safeguarding the public purse which makes it more likely that they'll be re-elected. 

And I suspect that you're overestimating the financial sophistication of many (most?) of the politicians that are making these decisions.  All they're told is that "You can go to market and borrow $500 million or you can do this deal and all it will cost you is $20 million a year in operating costs ..."  It become the governmental equivalent of the guy that wants to buy an expensive car and says "it doesn't matter if you can afford the car as long as you can afford the payment!"

In some cases it may be justified - it's not difficult to imagine a government that can't go to the markets to borrow money [they've already tapped out their ability to borrow for whatever reason - think Detroit for example] so this allows them to build that $500 million project - something that they wouldn't be able to do otherwise.  [And, if that project is really needed, a new hospital say, it's a good thing.  It may be an expensive thing, but it's still a good thing.]

BTW, creative accounting by governments is hardly unique to P3's or to Canada.  The one that comes to mind is the American claim that Clinton had a surplus.  Fact is he didn't really - the US debt increased every year under him but, by borrowing from a number of "off balance sheet" accounts he managed to make the "official" budget looked like it was in surplus.

Rokossovsky

Someone said, I think it was Rosario Marchese, at the outset of the last provincial election, that one should always be wary of a government that freely admits that it is incompetent to efficiently organize and execute large scale public projects and programs.

Moreover, privatization, is an explicit end point goal of neo-liberal economic theory, and if some politicians are merely stooges, and not active proponents of converting the taxpayers money into private profit, or can not see the effect or corrupting influence of these deals, they really should not be elected.

Rokossovsky

Quote:
That’s a huge insurance bill. But the government insists P3s are a great deal. And it uses a very curious argument: its own incompetence.

Here’s how it works: the government calculates how much a project should cost. Then it guesses how badly it might screw up the job, typically adding a 40-60 per cent “risk assessment” on top of the project’s base cost. If a “Value-For-Money” (VFM) comparison shows that a hypothetical private partner can beat this inflated public comparator, then AFP it is!

People should worry when their government bets on its own incompetence. Such governments tend to win that bet, and it is the public who pays out.

Ontario’s private-sector gamble is another sucker’s bet