PRIVATE-PUBLIC PARTNERSHIPS:

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PRIVATE-PUBLIC PARTNERSHIPS PANACEA OR PANDORAS
BOX?
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MAY 2004 TD ECONOMICS REPORT, MIND THE GAP

• Four guiding principles to eliminating the
  infrastructure gap
• A greater tilt towards user-pay model
• Giving cities the right tools for the job
• A bigger role for the federal government
• More fully engage the private sector

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P3S/AFP FORM PART OF THE SOLUTION (NOTABLY DBFO)
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POTENTIAL BENEFITS OF P3s/AFP

• Taxpayer benefits
• Frees up government to do what it does best
• Improved care of public assets
• Maintain service quality through innovation
• Shifting risk from taxpayers to private sector
• Synergies from combining components of a capital
  project
• Private sector
• Access to long-term business investment
  opportunities
• Develop niche that can be exported
• Infrastructure investments well-suited to pension
  funds and other institutional investors.

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PUBLIC CONCERNS HOLD BACK P3 DEVELOPMENT IN CANADA

• Following oft-repeated assertions either not
  valid or over-simplify the true picture
• P3s equal privatization
• P3s are more costly than traditional procurement,
  especially cost of borrowing
• P3s lead to lower levels of service
• P3s are ways of government to avoid booking
  liabilities
• Effective way to bust public-sector unions, lower
  pay

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P3s NEED TO BE USED WITH CAUTION

• P3s can be risky
• Private-sector delivery not always more efficient
• Taxpayer can be left worse off
• Complex transactions that can be long-term in
  nature
• Contract must be well-structured with proper risk
  allocation
• Transparency and accountability can be eroded
• Proper monitoring of service quality required
• Ineffective risk assessment and project analysis

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CREATE WINNING CONDITIONS FOR P3S

• Develop a robust P3 model
• Start with projects more amenable to P3s
• Federal government involvement a plus

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NEEDED A ROBUST MODEL FOR P3s

• A solid P3 model main reason why UK model has
  achieved success
• Some models in Canada hold promise
• B.C. first out of the gate
• Ontario, Alberta and Quebec also moving forward

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BCS MODEL WORTH LOOKING AT
BC has modeled P3 program after UK

• Partnerships B.C a centre of expertise
• Adopted model to help evaluate risks (CAMF)
• Focus on transparency and accountability
• BC government has demonstrated commitment

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BCS MODEL WORTH LOOKING AT
Success achieved to date

• Over past year, seven deals reached financial
  close (i.e., S2S, RAV among others)
• Several others currently under consideration in
  several sectors
• Recipient of a number of P3 awards (2004 Project
  Finance Magazine)
• ABN Amro and Macquarie Bank set up offices in
  Vancouver

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ONTARIO IS FOLLOWING SUIT
Ontario moving forward with AFP program

• Somewhat different approach than B.C
• Infrastructure Ontario established
• Major focus on health care
• Forging ahead with more than 30 AFP projects

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BARRIERS IN THE WAY OF P3S EVEN GREATER AT THE
MUNICIPAL LEVEL

• P3s have been used successfully in a number of
  jurisdictions (i.e., Hamilton, Halifax, Canmore,
  Port Moody, Edmonton, etc.)
• Still, a number of major impediments hold back
  their use by local governments
• Governance Issues
• Legal Restrictions
• Few champions
• Planning deficiencies
• Lack of resources
• Some high-profile P3 disasters

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WISE STRATEGY TO FOCUS ON PROJECTS MORE AMENABLE
TO P3S

• Large in scale and capital intensive (100
  million)
• Require technical challenges, innovation or
  capabilities which exceed that inside government
• Have an identifiable revenue stream and
  measurable results
• Try hand first with projects that are more
  publicly palatable

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FEDERAL GOVERNMENT NEEDS TO STEP UP TO THE PLATE

• In Canada, emerging provincial models raise risk
  of a fragmented P3 market.
• Better aligning provincial procedures would
  increase certainty and lead to lower bid costs
  and a better functioning market
• Learn from experience in the UK and Australia
• Federal government needs to become a national
  champion for P3s
• First, Ottawa must undertake P3s in its own back
  yard (i.e., learn by doing).

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PRIVATE SECTOR NEEDS TO CLIMB LEARNING CURVE

• Interest to date dominated by European and
  international players
• Canadian capital markets lack depth
• Canadian banks getting more involved in secondary
  roles but still do not typically lend on a
  long-term basis

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TD Economics
www.td.com/economics