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Archive for the ‘privatisation’ Category

Taxpayers cannot afford private financing

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This blog has long railed against what in BC is called “P3” and in Britain “PFI”. My objection started with the observation that while private finance appears beneficial because the debt disappears from the government accounts, this is merely a book keeping legerdemain. The debt is still real, still gets paid off by us, and gets higher simply because the private sector cannot borrow at the same rate as the government. The interest on private sector borrowing is higher.

The Guardian headline today comes as no surprise.

Taxpayers to foot £200bn bill for PFI contracts – audit office
Cost of privately financing projects ‘can be 40% higher’ than using public money

This news comes hot on the heels of the Carillion debacle.

I had hoped that, by now, our new provincial government would have made some announcement on unwinding BC’s disastrous P3 initiative. If it has, I must have missed it. But then Mr Horgan seems as enamoured as Christy with Site C and LNG so I would not be at all surprised if he is not also dead keen on pumping yet of our money into these rip offs too.

Jeremy Corbyn is now committing the British Labour Party to abandoning outsourcing altogether.

I was going to suggest that, at the very least, BC adopt what most other countries now insist on – a public sector comparator, since I believe that, in most cases, the need for the private sector to make profits makes them uncompetitive against the public sector, but I must also insert a plea for some recompense against some of the more corrupt practices here such as insisting that we pay for electricity we do not need from private sector companies that are large contributors to the BC Liberal Party. If anything P3 – BC style –  has probably been worse than the UK PFI.

Written by Stephen Rees

January 18, 2018 at 11:27 am

Posted in privatisation

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Privatizing Canada’s Ports

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DSCN4588

The federal Liberals seem to be turning out to be neoliberals – not that much different to the Harper Conservatives Canadians so soundly dismissed. The fact that privatisation has generally failed to deliver on its promises – except for enriching a few exceedingly wealthy men – is always ignored by the ideologues of the right. And that is who the C D Howe Institute are. It annoys me that the CBC runs the headline “New report says privatizing Canada’s ports could generate significant revenue” as though it came from an authoritative source, as opposed to yet more conservative propaganda. As usual the only thing that gets discussed is how much money is supposed flow – as though that will somehow benefit us.

What is ignored is that ports in Canada though supposedly under the authority of the federal government are in fact a law unto themselves, and have performed very poorly in terms of their impact on the environment and local communities. It is very significant that south of the border, no local community has permitted the expansion of coal exports through their ports. They have also successfully held back expansion  of LNG and methanol simply by insisting on adequate safety provisions. Things are different here. We still have a provincial government gungho for LNG and a port only too willing to expand thermal coal exports. Somehow Canadians do not deserve anything like the protections that US west coast communities enjoy. Privatising the port will only make matters worse. We are already losing the battle to protect the tiny percentage of land in BC capable of growing vegetables, being airily assured that we can continue to import all we need as though climate change and water shortage is not already damaging California’s ability to farm as it once did.

It was recently revealed that the Fraser Institute has long been funded by the Koch Brothers – something hotly denied up to now. C D Howe is just such another “think tank” set up not to promote objective policy research but rather to proselytize the Hayek philosophy, quite uncritically. Such studies always seem to be able to discount anything that does not produce profits for corporations. Considerations for ecosystems, or climate, or even equality are dismissed as irrelevant.

Written by Stephen Rees

June 20, 2017 at 3:13 pm

“Bad News for P3 Loving BC Liberals”

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The Tyee opinion piece is based in a report that went to the government just before Christmas. This blog has long been a critic, not just of P3s in principle, but also the way that Partnerships BC is supposed to work.

“There is a concern that Partnerships B.C. is potentially biased towards certain procurement methodologies because it is mandated to be both a self-sustaining organization and an advisor to government. This creates the perception that Partnerships B.C.’s advice may be biased towards revenue generating opportunities for the organization.”

You can read the press release which carries its own naturally laudatory title “Crown review finds Partnerships BC fulfilling its mandate” or the Partnerships BC Crown Review Report:

http://www.fin.gov.bc.ca/ocg/ias/pdf_docs/Review%20of%20PBC.pdf

and the Steering Committee Recommendations Letter:
http://www.fin.gov.bc.ca/ocg/ias/pdf_docs/PBC%20Steering%20Committee%20Recommendations.pdf

But actually I think just reading the Tyee is more likely to steer you right: for instance

While the report specifically says it did not examine the methodology that justifies the use of P3s, some of its findings touch on this methodology. For example, Partnerships B.C. says it bases its decision on whether or not to use a P3 by comparing the cost of a P3 with a public sector comparator. However, PBC frequently uses what it considers to be the most expensive possible method of public procurement (Design/Bid/Build), ignoring less expensive methods of public procurement such as Design/Build, which even the Canadian Council for Public-Private Partnerships (C2P3) considers public procurement.

In a final irony, the report itself may be a conflict of interest. Partnerships B.C. is a private company owned by the Ministry of Finance, thus the Ministry of Finance is reviewing its own agency which raises its own conflict of interest issues.

Written by Stephen Rees

January 8, 2015 at 2:45 pm

How could they get it so wrong?

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There’s a very entertaining piece on the Port Mann Bridge by Neil Salmond on Strong Towns. It is all about what people do when faced with a choice between a fast, tolled route and a slower, untolled route. Or rather, what they say they will do. Apparently in Ohio drivers said they would drive out of their way to avoid a toll. Which, of course, is exactly what they are doing here: driving over the Patullo instead of the Port Mann. Even though the extra cost in gas alone is often going to be about the same as the toll, as demonstrated by a neat little gizmo put together by Todd Littman and the Sun. There’s also the fact that traffic forecasts in general seem to have made a fundamental error by simply extrapolating from the past. Just like steering a ship by staring at the wake, this method has some fairly obvious shortcomings. When circumstances change, so should expectations.

This blog has often berated transportation models – and modellers – for the shortcomings of the standard models. This particular issue is one that is often key to making decisions about choices for the future. How do you assess the willingness of people to choose a new route or mode which is currently not available?  Two methods are in use: Revealed Preference (RP) and Stated Preference (SP).

The first one, RP, makes some generalizations about trip behaviour as a combination of time and money known as “generalized cost”. Data is collected about trip making and this is examined in terms of the trips made and the way they get distributed between routes and modes. This gets quite sophisticated as we know that travel time is not valued by users the same way in different modes. People prefer to be moving rather than waiting, and prefer to be seated and  in vehicles under most sets of circumstances. So the values ascribed to time are different: people who are stuck in traffic or waiting for a bus are conscious of wasting time. People riding comfortably as passengers on public transport can use that time to do other things – read, use their cell phones and so on.  With enough data about trip making on different routes and modes, it is possible to extrapolate what the new route/mode will be worth to its users in terms of time savings or greater comfort and convenience. It’s not hard, for instance, to compare High Speed Trains to airlines for city pairs and come up with a general rule that shows the threshold at which one will be preferred over the other. RP is only reliable for as long as the values assigned to the parameters do not change between the time the data was collected and the new project opens.

SP uses consumer surveys to get people to consider alternatives and tell the surveyor which one they prefer. It is widely used for all kinds of decision making – the appeal of new products and services, or even political preferences. And again it can get quite sophisticated in getting people to make comparisons and choices which are largely conjectures based on synthetic alternatives. And has a varied track record in accuracy of forecasting what choices get made in the real situations.  In a region where there were no road tolls, it is quite surprising to me that the reported response to tolls for a bridge in Ohio were so negative. When people who used the free Albion Ferry were asked if they would be willing to pay a toll for a bridge, they said yes. And given the multiple sailing waits experienced at peak periods, the value they put on their time could also be measured in terms of the length of the trips they would otherwise have to make – crossing the old, congested Port Mann or the much more remote Mission Bridge. In any SP survey, people want to impress the surveyor with their rationality and decision making ability. In good ones, this well known issue is taken into account.

The traffic forecasts for the new Golden Ears Bridge were wildly optimistic. Traffic has so far failed to meet the expectations of the bridge builder/operator. A similar mistake was made with the Port Mann. And this being BC where we design P3 projects to shift money from the pockets of the public to private sector companies, we now pay through taxes for these errors. The bridge builder/operator faces no revenue risk.

In the case of the Port Mann there was already a good reason to doubt the traffic forecast. There was no bus service over the old bridge. It would have been easy to provide one, that would avoid the congestion of the bridge approaches by using bus lanes on the shoulders of the freeway. The 555 could have been running years ago – but that was avoided as it would have reduced the perceived “need” for freeway widening. And actually much potential new transit traffic could also have been won by running a direct bus between Surrey and Coquitlam instead of relying on an inconvenient, out of the way combination of existing SkyTrain and bus routes.

There has been a secular change in perceptions of the value of time and willingness to pay tolls that has not been taken into account by the forecasters. And that is that real personal incomes have been stagnant or declining for a long period of time. Moreover, the expectation that things will get better in the future – which seemed common for most of the post war period – has evaporated. Tax cuts have benefitted the wealthy disproportionately, since they have been replaced by all sorts of fees and charges which are levelled instead: they are applied with little or no consideration of ability to pay. The toll across the Port Mann Bridge is the same for the office cleaner and the CEO.

The other thing that has to be noted is the reliability of the data that is being collected. I have observed many times how this region collects far less travel data in terms of sample size than other cities: and this is orders of magnitude difference. But some of the most reliable data on trip making came from the census – at least for the journey to work mode choice over a very long time scale.

And then there is this

“The workplace has been overwhelmed by a mad, Kafkaesque infrastructure of assessments, monitoring, measuring, surveillance and audits, centrally directed and rigidly planned, whose purpose is to reward the winners and punish the losers. It destroys autonomy, enterprise, innovation and loyalty, and breeds frustration, envy and fear. Through a magnificent paradox, it has led to the revival of a grand old Soviet tradition known in Russian as tufta. It means falsification of statistics to meet the diktats of unaccountable power.”

http://www.theguardian.com/commentisfree/2014/aug/05/neoliberalism-mental-health-rich-poverty-economy

 

 

 

Written by Stephen Rees

August 6, 2014 at 9:39 am

The Great Train Robbery

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South West trains at Waterloo 2008_0704

I have often used British Rail on this blog as an example of what can go wrong when governments decide to privatize a pubic corporation.  It has long been a shibboleth that the public sector is necessarily inefficient, and that private enterprise, subject to market forces, will always produce a better outcome. The real question – often never asked – is “better for whom?”

Last week the Trades Union Congress published a report of independent researchers on the performance of railways in Britain since privatization. Unsurprisingly the researchers conclude that not only has public support for railways increased, but that the public has not been well served. Shareholders, and other “stakeholders” have done well, at public expense, but the supposed benefits have not been achieved. This has long been the view of objective observers. The TUC, of course, includes railway workers among its members. It is important to note the TUC recognized that “this final report would inevitably diverge from the Unions’ position when it came to analysis and recommendations.”

Two other points I want to make up front, which stand in stark contrast to the way things are done here. First there are indeed independent, publicly funded researchers able to conduct such studies. That used to be the case in Canada too. Our present government seems determined to put a stop to that, both by cutting funds for essential data collection (such as the long form census) and secondly ensuring that any publicly funded body is put under close surveillance to ensure that it toes the party line.

The TUC issued a trenchant press release – but they also made the entire research report available free on line.  That also seems to be exceptional here. Though I do want to acknowledge the great improvement we have seen in Translink’s data provision recently.

The BC Liberals will continue to promote their own version of selling off public assets at fire sale prices, and ensuring that private corporations and their shareholders continue to profit while public services are reduced. We can expect to see a continuation of promotion of the P3 as the key to all that is worthwhile, and all kinds of manipulation to ensure that the private companies do well even when the case for a P3 cannot be supported – as with (just to pick two from many) the Port Mann Bridge or BC Place. I confidently expect that there will be yet more contracting out of public services, to ensure that workers get lower pay, “customers” get less service but shareholders and executives see increasing rewards without any risk at all. Fees and charges of all kinds will continue to be imposed on those whose real incomes are declining – all the while telling us how lucky we are to be in a free enterprise economy with “the lowest taxes”. There will be no mention at all – as is also the case with the TUC – of the damage to the environment.

POSTSCRIPT and, of course, it’s not just our problem “The almost comical level of fraud and bribery …”

The Great Train Robbery looks at many of the key objectives behind the decision of John Major’s government to privatise the railways in 1994. The report questions whether any of these have been achieved:

  • Cost effectiveness – train operating companies are entirely reliant upon public subsidies to run services. The top five recipients alone received almost £3bn in taxpayer support between 2007 and 2011. This allowed them to make operating profits of £504m – over 90 per cent (£466m) of which was paid to shareholders.
  • Extra investment – the report shows how the average age of trains has risen since rail privatisation, from 16 years in 1996 to 18 years old today. Just £1.9bn was spent on rolling stock between 2008 and 2012, compared to £3.2bn between 1989 and 1993 (the four years before privatisation.)
  • Over 90 per cent of new investment in recent years has been financed by Network Rail (the taxpayer funded body responsible for rail infrastructure), and comes mainly from taxpayer funding or government-underwritten borrowing, says the report.
  • Significant upgrades to infrastructure, such as the development of the West Coast Mainline, have been paid for by Network Rail.
  • Passenger comfort – the report says while there has been a 60 per cent increase in passengers since 1994/95, there has only been a 3 per cent increase in new carriages, resulting in serious overcrowding on many routes.
  • Innovation – even where there has been private sector investment in new technology, such as Virgin’s tilting trains, it has been underwritten by the state through subsidies to train operating companies and guarantees to rolling stock leasing companies.
  • Added value – The Great Train Robbery shows how train operating companies paid Network Rail just £1.59bn in track access charges in 2012, compared to £3.18bn paid to its predecessor Railtrack in 1994. This represents an ‘indirect subsidy’ from taxpayers as train companies are getting track access on the cheap. It also means that the full extent of taxpayer subsidy is far greater than is often reported.
  • Investment in infrastructure has largely been funded through borrowing by Network Rail which now has debts of over £30bn, and is spending more on repaying this debt than on railway maintenance, says the report.
  • Competitive fares – the UK has the most expensive rail fares in Europe. Long distance, day return and season tickets are all around twice the price of similar tickets in France, Germany, Italy and Spain, which have publicly-run rail systems. Average train fares in the UK increased at three times the rate of average wages between 2008 and 2012.
  • More passengers – the report dismisses claims that privatisation has helped increase the number of people travelling on the railways.It says that passenger growth has mostly been down to rising GDP and changes in employment patterns rather than because of privatisation.

Written by Stephen Rees

June 11, 2013 at 8:27 am

Financing the Evergreen Line

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MAJOR construction works on Vancouver’s Skytrain Evergreen Line are set to begin by the end of the month after the provincial government of British Columbia signed a finance-design-build contract for the $C 1.4bn ($US 1.39bn) project with the EGRT consortium, which is led by SNC-Lavalin.

That comes from The International Railway Journal – but my question to the readers of this blog concerns just one word. “Finance“. Why do EGRT need to finance anything?

If my understanding is correct, the funds for building this project come from three levels of government – Canada, BC and Translink. The good thing about government funded projects is that there is almost no risk – since the loans needed to pay for the outlays can all be “underwritten” by the taxpayers – you and me. That means that when governments go to the financial markets for loans, the interest rates they have to pay are lower than commercial activities.  You can buy so called “gilt edged” bonds, but the rate of return will not be anything like as great as if you buy commercial bonds or, even riskier, buy equities. The return won’t be great but it is (almost) certain. Governments of places like Canada, or BC or even Metro Vancouver do not normally welch on their obligations, because they have the power to raise taxes. Of course if there is a violent revolution then the bonds you bought will become worth very little: some people do sell  Chinese railway bonds from pre-revoltionary times.

You probably recall that the Port Mann Bridge was going to be a so called “private sector partnership” but they could not finance it. So it had to built using more conventional public sector financing – which, like I say, was cheaper.

So can someone please explain to me why we have to pay EGRT to finance this project as well as design and build it? I do understand that there are economies of management when contracts to design and build are let. And sometimes – but not in this case – operate and maintain too (like the Canada Line). But since this is an extension of the existing SkyTrain system, the operate and maintain bits are still with the Translink subsidiary British Columbia Rapid Transit Company Ltd.  And while the Translink web page is open about its operating companies, there are other companies it owns that do things that provide much better value for money than going to outside commercial ventures. Their own insurance, for instance. A nice little earner is also the sale of rolled coins – where Translink beats the banks, if you need lots of rolled change.

While right wing politicians have long made it an act of faith that the public sector is inefficient and wasteful, the reality is quite different. Some places do indeed compare P3s to public sector comparators – and the private sector doesn’t always win. Our own Partnerships BC has a quite different method of operations – “Our mission at Partnerships BC is to structure and implement partnership solutions which serve the public interest”  and indeed the Evergreen Line is one of their projects. You won’t find a public sector comparator on their site.

In case you missed the announcements, in the same edition of IRJ is the announcement of the 47km extension to RER Line E in Paris/Ile de France  for €2bn and of a recommended second Cross Rail project in London for £12bn. Now that’s what I call transit investment. The only equivalent size projects here are, of course, highways.

Written by Stephen Rees

February 7, 2013 at 11:09 am

Can We Count On Toll Revenue Forecasts?

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Clark Williams Derry on Sightline Daily (a really useful resource that I recommend you subscribe to if you don’t already)  has a very useful series on declining traffic. No 37 in that series picks up a story from the Orange County Register which he headlines “Southern California toll road debacle raises questions for the Northwest”.

The reason for this contribution to the discussion is that he apparently thinks that the states of Washington and Oregon are all that makes up the North West – and we in BC actually have a slightly different reason for caring. So read what he says first and then come back, because while what he says is all well and good for them, our very peculiar P3 system  – and the even weirder Port Mann set up – makes this a much more immediate concern. We have an election this spring and here is further reason to change our provincial government, if we didn’t have reason enough already.

Here’s the pictures

San-Joaquin-275x275 Foothills-275x262

The conclusion drawn from this data

The toll route is generally free-flowing, but drivers prefer parallel, toll-free alternatives, even if they’re clogged with traffic.

That is very important  but entirely consistent with what we have seen on the Golden Ears Bridge.

The traffic forecasts for the Southern California roads were made by the same consulting firm—CDM Smith, formerly Wilbur Smith—that performed the investment-grade bond study for Washington’s SR-520. And that firm was recently contracted for similar study on the Columbia River Crossing connecting Portland, OR with Vancouver, WA. CDM Smith has a good reputation—but that didn’t protect them from producing projections that went badly awry.

Now this is where we part company with “The North West”. Our projections are done by a different company, but while I have not looked in detail how either forecast was done it does not matter. As Jeff Tumlin pointed out, four step transportation models are no better than tarot cards at forecasting anyway. Or, as Clive Rock who looked after traffic forecasting at the GVRD and Translink liked to say, “You can’t steer the ship by staring at the wake”. They do this with personal finance too – past performance is no guarantee of future performance – is the caveat entered in every prospectus. But that is way all traffic forecasts are still done.

We do not fund transportation expansion by raising bonds the way they do in the States. Equally, we do not transfer risk to the private sector the way they have done in Australia. This got them some very large bits of infrastructure for free when the contractor operators (DBMO = design build maintain operate) went bust. The people who owned the companies’ shares and debts caught a cold, but the public sector was not on the hook. Here, if a DBMO gets the forecasts wrong, the risk is transferred to the tax payers. So we are now picking up the lost revenue on the Golden Ears. As we will on the Port Mann – which is no longer a P3 as no-one was daft enough to want to lend that turkey money, and the government was forced to admit that public sector borrowing was cheaper than private sector borrowing. As it always is, when the taxpayers can be expected to back the debt.

So we can now add the Port Mann “widest bridge in the world” to the long list of public sector projects that were supposedly safe in BC Liberal hands but have proved to be financially disastrous. BC Hydro was doing very well – until it had to subsidize run of the river private sector projects. BC Rail actually had been making money but was sold to CN (the “lease” idea is simply spin) for much less than it was worth. BC Ferries thought they could raise fares without worrying too much about price elasticity. PAVCO had to replace the roof – and never thought it needed a business case – which was just as well as there is no business model where that kind of investment makes any sense financially. Even well run stadia are subsidized – usually on the argument that it brings free spending punters to the area. Even casino operators now recognize that this mostly just cannibalizes other enterprises. The tv adverts currently running which talk about the economic models of unspecified other places assert that somehow BC has a different model. Actually, this is just another lie. Public sector spending and the running up of the debt of the public sector has been out of control CORRECTION A reference here to the Auditor General has been removed due to this tweet from the CBC “Christy Clark asks AG John Doyle to stay on 2 more years”

Please understand that I have no problem at all with using the public sector to stimulate the economy when that is required. Trying to balance the budget was what caused the Great Depression of the 1930s – and all of FDRs programs only mitigated that slightly. It was only the huge public spending of the second world war that got America working again. It was only the Marshall Program that resurrected Europe – and the reason the UK fell so far behind was that it was not covered by that plan and had to pay back all the dollars it had borrowed before trying to start repairing the damage. BUT that does not mean I support public sector spending on any and all projects. Indeed, as an economist working in or for the public sector for all of my career, reviewing forecasts and critically examining “business cases” (then called cost benefit analysis, which looked a bit further than just profits for banks) project selection was always the most important task to get right. What project – and where – and how its done, were all looked at carefully and objectively. Only when I came to BC did I come upon a system which said, in effect, the current political party has a bee in its bonnet about some idea or other, and your job is to make this idea look good. Actually that is not fair . As a consultant, I found that it was also the practice of at least two banana republics and one religious hegemony. Just substitute that words “current political party” with whatever they called their leaders at the time.

But what we have now – and what the US has had and to some extent still does – is a right wing party that says it will balance the budget, control spending and reduce the debt, but actually does exactly the opposite. And does that not because stimulating the economy and providing growth will make the population as a whole better off (“the rising tide floats all boats”) but simply to funnel ever larger sums from the public coffers to their friends and supporters – mostly corporations who owe no loyalty to any jurisdiction they operate in.

No we cannot count on toll revenue forecasts, but the corporations can indeed count on tax revenues collected for them by a compliant government.

Written by Stephen Rees

January 15, 2013 at 9:53 am