Stephen Rees's blog

Thoughts about the relationships between transport and the urban area it serves

Financing fears grow over P3 projects

with 13 comments

Jeff Nagel

The world’s financial house of cards is tumbling down, but “Partnerships BC CEO Larry Blain said he is “pretty relaxed” “. So that’s alright then. There is no contract yet signed for the Highway #1/Port Mann twinning or the SFPR

Blain said the financial market upheaval may affect the P3 business moving forward.

He expects a continuing active market for smaller projects, but said that may not be the case for large ones on the scale of the Port Mann where many firms and banks must join forces.

“There’s some evidence around the world those types of projects are difficult to do,” he said.

The South Fraser Perimeter Road is one project that is still early in the procurement process, with bidders not yet identified.

The situation will stabilize at some point, Blain said, and at that time banks will be attracted to infrastructure projects that can count on B.C. taxpayers as long-term stable customers.

You know, at this stage it is not the banks and their future need for stable customers that is my greatest concern. The BC Liberals have decided to tie their fate to freeway expansions and road building – even though these two schemes alone will pretty much offset any benefit that might reasonably be attributed to the carbon tax. Though that effect is in fact very small, and is far overshadowed by the effect of a period of very high gas prices, the expectation of higher gas prices in future – oh and the little blip of a major world wide recession.

Because they are still committed to P3s there is actually no money freed up by the potential cancellation of both projects. And certainly there is not enough money to proceed with the transit projects that have been needed in the region for years and which the BC Liberals regard as a much lower priority. Or rather, that could be the case, but given the way the government has already started work on both road projects the reliance on private financing may well turn out to be as mythical as the promised environmental mitigation.  And we cannot know because all of this is wrapped up in commercial confidentiality. So we will not actually know how much we are on the hook for until it is far too late to do anything about it other than pay up.

UPDATE On October 9 the Sun ran a story on its front page headed “Local large-scale projects feel shock of global credit crisis” which pointed to funding problems experienced by some of the P3 partners of the Golden Ears Bridge

Written by Stephen Rees

October 8, 2008 at 1:57 pm

Posted in Gateway, privatisation

Tagged with , ,

13 Responses

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  1. Just like the Canada line P3 is NOT a P3,the taxpayers are on the hook for the 1 billion dollar plus cost overrun.
    Campbell will force the Taxpayer to fund the Gateway project and still call it a P3.

    BCers will pay the financing charges,BCers will pay the tolls,BCers will not get any of the profits!

    BC liberal corruption is alive and well in BC

    Grant G

    October 8, 2008 at 2:59 pm

  2. Perhaps you could provide a source for this startling figure

    Stephen Rees

    October 8, 2008 at 3:16 pm

  3. Thank you – and once is enough

    Though David Berner is a journalist I would trust the statement “Canada Line by all accounts at a BILLION dollars over the budget” is not his but from Susan Heyes in a letter to the editor of the Province. And “by all accounts” is not the same thing as a source that can be checked.

    Stephen Rees

    October 8, 2008 at 4:10 pm

  4. You can be a skeptic if you want Mr.REES –Has anyone been able to get imformation on the BC Liberals on say—BC Rail, Richmond oval–Sea to sky–Abbotsford hospital–Bill Bennett bridge–The olympic security budget—Freedom of imformation department has been gutted!
    So go ahead,believe the spin,everything is on time on budget and Ken Dobell isn`t a lobbyist,Pat Kinsella isn`t a lobbyist.
    Don`t forget there is also the most ligit, honest,thorough enviromental assessments in BCs history!

    Grant G

    October 8, 2008 at 4:32 pm

  5. Don’t be silly.

    I am simply applying the same standard to comments as I apply to myself. I would not make a claim like this without a reliable source that I could reference. It may or may not be true. I have no way of determining that from the information provided.

    Stephen Rees

    October 8, 2008 at 4:40 pm

  6. Well there was a story I was looking for in cyberspace that was run in either the SUN or PROVINCE last spring–The Worksafe BC surplus had lost 700 million in their stock portfolio,it still had at that time about 11 billion, down from almost 12 billion!

    This BC Liberal hides everything,we will never get the numbers until we boot them out of office!

    Gordon Campbell a few days ago made a speech to some Montana business men,who were here in BC, Montana wants to bid on a olympic games (2018)–Campbell went on to say to this group that they would be best to bid on a winter games,their cheaper,Campbell went on to say that China spent over 40 billion on the summer games and we in BC our olympic costs are only 1.2 billion!
    How is that for honesty! Our security bill will cost more than that.
    Have a good day Mr. REES

    Grant G

    October 8, 2008 at 5:09 pm

  7. The RAV/Canada Line was first costed at about $1.3 billion some years ago. I was interviewed by Charlie Smith and I recall, I said that this estimate was nonsense, especially for subway construction. According to DoRavRight, the cost of the RAV/Canada Line is now almost $2.5 billion not including debt servicing.

    The P-3 is questionable because When SNC Lavalin went to the international banks to get funding for the P-3, they said Nada. It was about at this time SERCO, SNC’s partner is the P-3 disappeared from the process.

    In desperation, the Campbell government borrowed money from the public sector pension plan (which is insured by the province) funnelled it through InTransit BC to SNC, to give an appearance of the P-3, but SNC could walk away from the project at any time without financial penalty because it was provincial monies they were playing with. Some P-3!

    Now the Campbell government is injecting over $50 million to cover, best described as, unforeseen circumstance.

    Susan Hayes, who is suing TransLink and the province, has done her homework and her lawyer has done much research and when the suit comes to trail, may prove very embarrassing to the RAV folks.

    The one thing that P-3 have done is cloud the project in secrecy and until there is an independent and open audit of the project, we may never know the full extent of the truth.

    Malcolm J.

    October 8, 2008 at 6:51 pm

  8. Thanks for that Malcolm. It is well laid out and sourced on the Do RAV Right site – and that is linked from my weblog – and in most cases the specifics are in links to original documents. But also, as you say, since the whole thing is less than transparent it is hard to be certain they have the whole story there.

    The other thing we should not lose sight of is that the project specification was also considerably reduced after the deal was signed, so we are getting less than we thought we would initially.

    Stephen Rees

    October 8, 2008 at 8:57 pm

  9. Exactly! As RAV’s costs escalated the project specification was reduced to reduce costs – hence cut and cover construction (without compensation to merchants) was done instead of bored tunnel, to further reduce costs. A conventional metro was chosen, again to reduce costs of the more expensive SkyTrain.

    It is my belief that the added cost of the reaction rail was the reason why SkyTrain was left at the starting gate.

    The real question I have: “Was the winning consortium given a tip-off to provide the cheapest project, based on inside information?”

    We now get a 21st century subway, that as built, will achieve less capacity than if LRT was used on the Arbutus Corridor!

    Malcolm J.

    October 9, 2008 at 6:44 am

  10. Remember that the public sector contribution to the Canada Line is fixed (save for changes in scope of work under the contract, such as the addition of Olympic Village Station, the bike path on the North Arm Bridge, etc.). Aditional funding to cover cost overruns is the responsibility of the contractor.

    InTransitBC found such funding and brought in the two pension funds as investors (just like pension funds invest in many other ventures, whether public or private – i.e. who owns Cadillac Fairview (owner of Pacific Centre mall, TD Centre in Toronto, Eaton Cnetre in Toronto and numerous shopping malls and office buildings?). From the Cadillac Fairview website: “Cadillac Fairview is wholly-owned by the Ontario Teachers’ Pension Plan, which invests to secure the retirement income of 300,000 active and retired teachers in Ontario.” That’s analogous to ICBC purchasing Surrey Place Mall and building the Central City office tower under the provincial NDP government. Pension money is invested – that’s how it grows. It’s a positive result that after analysis, the pension funds were confident enough in the Canada Line venture that they invested in it.

    Ron C.

    October 9, 2008 at 11:38 am

  11. Ron c

    I think thats the point, its not a p3,why the secrecy?

    Did the BC goverment divulge to the pension plan and its members that they were investing in a transit line that will lose money for many many years!

    How does that formula put any responsability on the builder?
    That formula that you espouse actually promotes cost overruns,the more it costs,the more the builder makes.

    If that is the formula for BC P3s –We would be better off paying for these projects with provincial surpluses.
    Unless you corrupt the process in a secret insiders release allowing the finacial backers to buy up all adjacent lands along the line before any announcement is made!
    Just like what happened in the BC mineral rights.
    Just like what happened in selling 2000 rivers to private power companies for 5000 dollars per river,without ANYONE FROM THE PUBLIC KNOWING THEY WERE FOR SALE! GIVE YOUR HEAD A SHAKE RON C (with respect)

    Grant G

    October 9, 2008 at 12:45 pm

  12. Exactly, why the secrecy? With the Nottingham and Dublin P-3 LRT projects and Docklands as well, the public know what banks and/or financial organizations involved, what percentage is public and private money is invested. RAV is mystery surrounded by an enigma.

    Malcolm J.

    October 9, 2008 at 1:20 pm

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