Friday, February 06, 2009

Lots of questions on Port Mann project

Eight months ago, the government said twinning the Port Mann bridge would cost about $1.6 billion, with not a penny from provincial taxpayers.
A private consortium would build the bridge and maintain it in return for the future toll revenue. Good deal.
But now, the cost is $3.3 billion.
Taxpayers are on the hook for $1.2 billion in financing.
Oh, and the bridge isn't being twinned anymore. The existing bridge will be pulled down after a new 10-lane bridge is built.
There is a good case for another bridge to get people across the Fraser River. Traffic is a mess for large chunks of the day. (Though the question of what happens to the thousands of additional cars when they get off the bridge is still largely unanswered.)
But this announcement by Premier Gordon Campbell does not inspire confidence.
The government said the soaring cost is caused by inflation, the decision to tear down the existing bridge and a more realistic look what's involved in the project, like feeder roads.
Still, a doubling of costs before the first shovel of dirt is moved is hardly reassuring. Especially from the government that stuck taxpayers with $500 million worth of surprise overruns on Vancouver's convention centre.
That's far from the only worry.
The government has said the initial toll will be $3, rising with inflation. With a modest increase in traffic, that would produce $150 million a year for the bridge operators. (Toll collection will be high-tech. Electronic devices would log regular users crossings and deduct the toll from an account.)
When the bridge was to cost $1.6 billion, $150 million in revenue wasn't bad. That's about a 9.5-per-cent return.
But at $3.3 billion, the return is down to 4.5 per cent. The consortium is not likely to go ahead - especially not with the risks of construction cost overruns, shortfalls in revenues and interest cost - without more revenue.
So what will the province - that is to say, you the taxpayers - pay to keep the private companies committed to the project? Will it be $100 million a year, on top of the tolls, or more?
And then there's the whole question of the $1.2 billion taxpayers are advancing to pay for the project.
It's apparently a loan, at commercial rates. If it's repaid, the government should make money given its low borrowing costs.
The project is being funded with $1 billion from the construction consortium, which includes Macquarie Group, an Australian investment business that has done well in its dealings with government, but hit tough times. The province is to put up $1.2 billion; other lenders another $1.2 billion.
The theory is that provincial taxpayers are protected. The consortium, with $1 billion at risk, has a big incentive to make sure the project is completed.
But no other lender, no bank or pension fund around the world, could be found to provide the $1.2 billion in financing. That's why the province stepped forward.
OK, it's a skittish time for lenders.
But does that mean taxpayers have to take on the risk? Or should the government have waited for a year, developing a clearer assessment of the risks and a realistic business plan?
Transportation Minister Kevin Falcon, who has championed the bridge and other Lower Mainland road projects, says traffic delays cost B.C. $1.5 billion a year in lost productivity. If the Port Mann cuts that problem by 25 per cent, it's a good investment.
But that's not clear. And the government's leap into this megaproject is looking a little blind. It's hard not to worry that the desire to get a deal done before the provincial election is encouraging too much haste.
It's been tough to get information about other private-public partnerships. This time, the government should recognize the legitimate public concern and answer all the questions before the deal is done.
Footnote: The project is popular, mostly, in the Lower Mainland. But Liberal candidates in the rest of the province might find it a challenge to defend going ahead with another Vancouver-area megaproject even as cost estimates soar.


Anonymous said...

Private partners can justify their profits (and the cost to the government of shifting the risk) only on the basis that the risk that is transferred is worth it to the government.

The fact is that in P3's, given the nature of the products, the government cannot, for public policy reason let the projects fail, so the government really cannot shift the risk, and therefore the amount paid to cover the private partner's profit is unjustified.

The government's real motives are simply to move government debt off the books 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.

NRF said...

The government's motives may be even worse than simple partisan politics. By locking transportation projects behind a sort of Chinese Wall, they prevent public examination of financial matters. Unregulated business, as the USA has learned, is a breeding ground for fraud and theft. Based on nothing more than the sale of BC Rail, we cannot trust the BC Liberal Party and Gordon Campbell's government.

Anonymous said...

A timely P3 article in yesterday's G&M by Andre Picard - it ends: As Canadian comic and aspiring politician Greg Malone has said bitingly: "P3s should be called P12s - Public Private Partnerships to Plunder the Public Purse to Pursue Policies of Peril to People and the Planet for all Posterity."

The Auditor General of Ontario's report on the Brampton Civic Hospital P3, by Auditor General Jim McCarter, that Picard bases his article on can be found in .PDF form here [23 pages / 370KB].

Anonymous said...

Looking on the bright side of life, I gotta say that B.C. citizens have been earning their Ph.D.s in political flim-flammery ever since we started losing our hydro system, our rivers, forests, fish, our railway, ferry systems, ferries, jobs, and our faith in the political process. What with poor CanWest collapsing, they can't fool us anymore. We can identify a scam at first whiff.

So trashing a bridge in order to build another bridge in the current world-wide economic crash sure looks, walks, talks like a scam.

Thank you, Dr Willcocks and all other PhD.s. And for a little post-doctoral refresher, here's something Dave Schreck said on "Strategic Thoughts today:

You might remember Campbell's promise not to expand gambling. In 2000-2001 the government's take from gambling was $414 million; in that fiscal year its income from MSP premiums was $895 million. This year the Campbell government expected to receive $1.1 billion from gambling (up 265%) and $1.57 billion from MSP premiums (up 75%). Campbell forgot to tell you about his plans for gambling and MSP before the vote in 2001.

The same shell game will be played in the 2009 election as was played in 2001. One thing will be said during the campaign and something completely different will be said the day after. [He said he wouldn't sell BC Rail, either.]