Saturday, February 28, 2009

Falcon wrong; taxpayers will pay for Port Mann

No to appear smug, but when the government announced a few weeks ago that the Port Mann bridge cost had doubled to $3.3 billion and that taxpayers would loan more than $1 billion to the public-private partnership because no private lender would take the risk, I raised some concerns. One was that the numbers no longer made sense - that the $3 tolls, rising with inflation, would not be enough to cover construction and operating costs and taxpayers would end up subsidizing the private partners.
No way, said the enthusiastic Transportation Minister Kevin Falcon. Full speed ahead.
Now the public-private partnership has fallen apart, because - in large measure - the companies didn't think the future tolls would cover their cost. (Which raises the question of how I could do the numbers and Falcon couldn't.) Either tolls wil be higher, or taxpayers will be paying for the bridge, contrary to Falcon's repeated commitments.
Public-private partnerships can be a sound choice. The costs are potentially higher, but the risks of overruns and delays - the norm in megaprojects - can be largely transferred to the private partners.
But if the private sector walks away from the projects with too much risk, questions can be asked about whether government should be looking harder at traditional approaches for projects - even large ones - where risks are manageable.
One area of debate about public-private partnerships has been the extra cost of corporate borrowing compared to the government's low rate. Jeff Nagel nailed down the premium in this case and learned interest costs will be reduced by $200 million now that the Port Mann is not a P3. Again, that could be a worthwhile investment in risk reduction in some cases, but not for every project.

11 comments:

Gazetteer said...

"(Which raises the question of how I could do the numbers and Falcon couldn't.)"

Uhhh.

I assume you're joking about that Mr. W....

Aren't you?



_____
And thanks for pointing us in the direction of Jeff Nagel's piece. It's a good bit of reporting & analysis all in one package.

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Anonymous said...

We have a $3 000 000 000 bridge and a toll of $3. That's 1 000 000 000 trips across the bridge. That's
3 000 years it will take to pay for the bridge if there are 1 000 000 crossings a year. Something seems out of whack with this project. Perhaps the gov't is using the accounting techniques outlined in the cartoon "Non Sequitur" for Feb. 28, shown here,

http://www.gocomics.com/nonsequitur/

NRF said...

"Public-private partnerships can be a sound choice. The costs are potentially higher, but the risks of overruns and delays - the norm in megaprojects - can be largely transferred to the private partners..."

Can you point to a number of P3s that have been successful recently? More than have been failures?

DPL said...

Falcon is a yes man so the blame reaches higher up than him. King Gordo wants a 10 lane bridge, so he gets one, no matter what it will cost the BC citizens. The tolls will rise, the cost will rise and we all will pay for the thing. Now the one in place will cost a bundle to remove it, or does Gordo have plans for it as well?

Anonymous said...

Public-private partnerships can be a sound choice. The costs are potentially higher, but the risks of overruns and delays - the norm in megaprojects - can be largely transferred to the private partners.

I think, uncharacteristically for you Paul, that you have been drinking the Kool Ade on this one.



With P3's, given the nature of the product, the government cannot, for public policy reason let the projects fail (e.g. close down the bridge once it is built, halt constuction of the hospital, etc) so the government really cannot shift the risk, and therefore the amount paid to cover the extra cost from raising capital from the private sector is unjustified.

The government's real motive in entering P'3's is simply to move government debt off the books and hide it for partisan political reasons. It is a scam not dissimilar to the banks securitizing debt and selling it to obscure the reality of their balance sheets. We all know how well that has worked out.

Anonymous said...

I think NRF above is being way too hard on PW, asking for "a number" of examples of successes. How about just one or two.

Anonymous said...

I think NRF above is being way too hard on PW, asking for "a number" of examples of successes. How about just one or two.

NRF said...

Surely, not too hard. Such a marvelous organizational structure must be used all over the developed world. There should be countless good examples.

Perhaps I should check out arena building in Guelph, convention centres in Hamilton or the Channel Tunnel in Europe. Maybe, Iraq - their infrastructure was to be rebuilt by P3s with everything paid for by oil production. How is that going anyway?

deanbc said...

There are well over 1 million crossings of the Port Mann every year. Currently I believe there are more than 100,000 per day over the highly congested bridge. The government estimates that by 2015 with a new bridge there will be almost 160,000 crossings per day, or almost 57 million per year.

The reality is that tolls can pay for this bridge, but if we let the government charge them for 35 years, the public will pay for this thing many times over.

You can see the projections of traffic volumes at http://www.th.gov.bc.ca/gateway/reports/Analysis_of_Tolling_Options.pdf

Anonymous said...

I think it would be fiscally prudent to add the Skytrain infrastructure during the initial construction rather than waiting.

This will also give future provincial administrations some added incentive to add the needed connecting Skytrain lines.

Dawn Steele said...

P3s - the great "heads you win, tails I lose" scam.

Like many of the other articles of faith inherited from Reagan and Greenspan, the much-touted benefits to taxpayers are based more on ideology than on evidence.