It really is sad. Taxpayers in Canada and the United States are being ripped off by their own Governments in favour of foreign P3 operators who are going to be given guaranteed availability payments to carry out projects that normally Governments undertook on their own.
I’ve never understood why Governments are in favour of this kind of financing tool when the costs are much higher than Governments borrowing the money themselves to complete the project. Governments borrow at the lower rates of interest and don’t make money, a profit, on the amount that they invest which can be as high as a return of 10 to 15% or more on a tollroad.
In Ontario, the Auditor General just completed report that said that taxpayers have been ripped off for $8 billion by the P3s entered into by the Province. It is not the first time that the AG has slammed Ontario P3 projects.
In British Columbia, as Windsor Square readers know, the Port Mann bridge project failed as a P3 when the P3 operator could not get funds to complete the project requiring the Government to take it over. It wasn’t such a bad deal for the Government since it saved a billion dollars using the same contractors that the P3 operator was going to use.
In a report in October 2014, the British Columbia Auditor General also slammed P3s in this respect:
“Debt and interest rates on P3 capital projects
The $41.7 billion of taxpayer-supported debt shown on the consolidated statement of financial position includes $2.3 billion of debt generated from P3 (public private partnership) projects. This includes 16 different P3 projects in seven different government organizations and two ministries as shown in Appendix A. The interest rates on this $2.3 billion of P3 debt range considerably, from 4.42% to 14.79%, and have a weighted average interest rate of 7.5%. Over the last two years, government had a weighted average interest rate on its taxpayer-supported debt of about 4% as shown in note 18.”
In other words, the borrowing costs are almost twice as much for a private P3 deal!
Oh, but Infrastructure Ontario demonstrated to their satisfaction at least that P3s save so much money that in almost every case they are the smarter way to go. That worked until the Auditor General ripped apart their rationale as I have demonstrated before. The way it is done is by playing with numbers and making a determination as to the value of the risk transferred to the private party so that the P3 always wins.
Hold on there you might say, a private accounting firm provided a letter demonstrating that everything is perfect. Of course the AG treated that assertion in the same way that Windsorites treated the so-called “audits” produced under the Francis regime when they were in fact nothing more than mere “reviews.” The AG ripped that part as well in the following way:
“Since 2006, Infrastructure Ontario has conducted over 200 VFM assessments for 74 of the 75 infrastructure projects noted in Figure 3 that, based on an initial assessment, it had deemed suitable for AFP delivery. None of these VFM assessments has shown a negative VFM from using the AFP model. In other words, all of these VFM assessments concluded that the delivery of the projects would be cheaper under the AFP approach than the public sector. The assessments are accompanied by a letter from an accounting firm that acknowledges that the assessment was prepared in accordance with Infrastructure Ontario’s methodology. However, all letters contain a disclaimer by the firm that it has not audited or attempted to independently verify the accuracy and completeness of the information used in the calculation of VFM.”
As I wrote, that is how easily $8 billion of your tax money disappeared!
Of course the accountants are going to get the “right” answer with respect to the value of a P3 project when they are forced to use infrastructure Ontario’s methodology. In addition, as we were told in Windsor as well, the terms of reference were limited so that the accounting firm ” has not audited or attempted to independently verify the accuracy and completeness of the information used in the calculation of VFM.”
Here is the pretty little drawing that the accounting firm used to show how worthwhile the P3 method of financing was in comparison with the traditional approach:
The P3 will always win because of the way the “risks retained” are calculated. The difference is over $700 million using the IO methodology. Note however that the project costs are over $400 million more for the P3!
For your amusement, I’m enclosing a copy of the KPMG report for the DRIC road.
By the way, note this comment:
That seems pretty laughable now doesn’t it.
Since the project is way behind schedule for a variety of reasons including the girder fiasco amongst others and the fact that the DRIC bridge will not be completed until 2023 at the earliest, I wonder who has to pick up the extra costs for the DRIC road.
Silly me, taxpayers of course!