P3 financing a “bad deal” for governments: report

Public private partnerships (P3s) waste public money because it costs substantially more to raise capital for public infrastructure indirectly through a P3 than directly through public borrowing, according to a report released Monday by the Ontario Council of Hospital Unions (OCHU/CUPE).

“The fact is that even when the corporations that build and manage P3 projects can borrow, they can only do so at a significant premium over direct government borrowing costs, and those increased costs go straight to the bottom line,” said economist and author Hugh Mackenzie. “P3 advocates inside and outside government have benefitted from the extreme secrecy surrounding the finances of P3 projects. They have also capitalized on a carefully cultivated public confusion about the impact of what appear to be relatively small differences in interest rates on the total financing cost for a project.”

Mackenzie said a difference of 2 to 3 per cent in interest costs translates into a 50 to 80 per cent higher financing cost for the project, adding “governments across Canada are accumulating financing obligations through their P3 agreements that are far in excess of what those obligations would have been under conventional public financing. And those greater financial obligations inevitably mean that less public infrastructure will be built.”

“The ideal public private partnership is one that brings together the strengths of the private sector’s design, construction and project management expertise with the public sector’s unequalled capacity for raising debt capital cheaply and efficiently and its ability to spread risk over an entire population,” said Mackenzie in his report Bad Before, Worse Now: The Financial Crisis and the Skyrocketing Costs of Public Private Partnerships (P3s).

“The government of Ontario has taken the political heat…for putting all of its eggs into the P3 basket for its massive investment in hospital renewal in communities across Ontario. Now, the political and economic stakes for the Ontario government have stepped up considerably, if it continues with this policy.”