Public-Private Partnerships in Canada in 2005
This article surveys the evolving Canadian experience with public-private partnerships (P3s) and the opportunities that are developing across the country in health care, energy and infrastructure.
Canadian provinces and territories are increasingly recognizing the benefits of partnering with the private sector to build and restore
P3 activity in
Just prior to the release of Ontario's 2005 Budget, the Honourable David Caplan, Ontario's Minister of Public Infrastructure Renewal (MPIR), delivered a well-publicized speech promoting private sector investment in public facilities under the AFP banner. Minister Caplan also announced the creation of Ontario Infrastructure Projects Corporation, a new agency that will oversee "new, large, alternatively financed" infrastructure projects.
To support the development and implementation of the Ontario government's new infrastructure strategy, the MPIR released Building a Better Tomorrow: An Infrastructure Planning, Financing and Procurement Framework for Ontario's Public Sector in July, 2004.2 It established clear guidelines for planning, financing and procuring public infrastructure assets based on the following principles: (i) public interest is paramount; (ii) value for money must be demonstrable; (iii) appropriate public control/ownership must be preserved; (iv) accountability must be maintained; and (v) processes must be fair, transparent and efficient. These principles were re-affirmed in the 2005 Budget. The
On May 25, 2005, the Ontario government announced that over the next five years, the government and its partners will invest more than $30 billion in public infrastructure, including:
• approximately $5 billion for health care projects, including 105 hospital projects;
• more than $10 billion to improve elementary and secondary schools and to renew postsecondary facilities; and
• about $11.4 billion to improve public transit, highways, border crossings and other transportation systems.3
Approximately $2.3 billion of the overall $30 billion investment will come from alternative financing and procurement arrangements for large-scale projects such as hospitals, the justice sector and other areas. The government also stated that it has reformed the systems used to plan, build, finance and manage public infrastructure to get better use of existing facilities, to ensure that new projects are completed on time and on budget, and to provide the promised public benefits.
In late 2004, the Canadian Council for Public-Private Partnerships (CCPPP) released survey results of 2,000 Canadians and their attitudes on the infrastructure deficit and appetite for private sector involvement in the delivery of public services. The survey reported that almost 90% of Canadians believe that governments at all levels are having difficulty meeting infrastructure needs and approximately 60% of Canadians support the use of P3s as an infrastructure solution.4 With the increasing willingness of governments to test the merits of P3s and the positive experience to date, the support for P3s in Canada will likely increase. In summary, there are more P3 projects than ever across
A CANADIAN DEFINITION OF P3s
P3s encompass a range of models involving different degrees of private versus public participation and risk. Few involve true legal partnerships. In
The CCPPP broadly defines a P3 as:
a cooperative venture between the public and private sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.5
This definition is broad enough to encompass the Ontario AFP model contemplated in MPIR's policy papers,6 the Ontario Budget and ReNew
P3S IN THE HEALTH CARE SECTOR
The federal government funds
Transfer payments are made under the Federal-Provincial Fiscal Arrangements Act and are targeted to specific areas like health care. Recipient provinces must adhere to the principles of the Canada Health Act (CHA), which require provinces to provide comprehensive universal coverage for all "medically necessary" hospital and physician services. "Extra billing" and user fees are prohibited for insured services. Any province permitting them is penalized through a reduction in cash transfers.
The CHA affects the development and scope of P3s in health care. It forces a distinction between "clinical" (i.e., those directly provided by regulated health care professionals) and "non-clinical" services. To date, P3s have related to "bricks-and-mortar" and non-clinical services such as maintenance, food services and certain technologies.
In January 2002, an Alberta Advisory Council on Health released "A Framework for Reform," recommending fundamental changes to
A report issued in October 2002 by a Senate Standing Committee concluded that "
Countrywide, the non-covered portion of health spending is rising faster than the portion covered by the CHA. An Ontario Hospital Association (OHA) survey found that
UNIVERSITY HEALTH NETWORK (
University Health Network (UHN), Canada's largest acute care teaching hospital, completed a five-year redevelopment project in 2003 partially financed by a $281 million public bond issue, the first Canadian hospital "finance-only" P3. UHN's 25-year amortizing bonds are secured by charges on the hospital's assets but are not guaranteed by the province. Given the success of this project, the finance-only model may become an attractive alternative to P3s in
WILLIAM OSLER HEALTH CENTRE AND
In 2001-2002, the former
The WOHC entered into an agreement with The Healthcare Infrastructure Company of Canada (THICC), a private consortium, for the development of a new $536 million, 608-bed facility. While WOHC will continue to own the land, over a 25 year period, THICC will design, build, finance, operate, manage and maintain the new hospital and provide certain non-clinical support services. Construction is scheduled to be completed in July 2007.
On July 23, 2004, an agreement was entered into with THICC to build the ROH, a 399,178 square foot psychiatric hospital and research institute. Under the arrangement, the ROH project will cost $256 million over the course of a 20-year 8-month period. The hospital will own the land and the facility while THICC will design, construct, develop, lease, service and deliver certain non-clinical services. Construction is scheduled to be completed by the end of 2006.
With the release of
In May 2002,
The Academic Ambulatory Care Centre (AACC) will be a 365,000 square foot facility at
Partnerships BC is overseeing all aspects of the
The B.C. Health and Social Services Delivery Improvement Act (introduced in 2003) allows B.C. health sector employers to (a) contract out "non-clinical" services (laundry, maintenance, etc.), (b) reorganize services by transferring employees within a work site or to other work sites within a 50-kilometre radius, and (c) ignore certain employment security contract terms. This Act is expected to facilitate P3s in the health care sector. A constitutional challenge by the unions was dismissed by the B.C. Supreme Court and leave to appeal was granted by the Supreme Court of Canada in April 2005.
In November 2003, the B.C. government passed the Health Sector Partnerships Agreement Act which applies to health sector employers that enter into agreements with the private sector to build or renovate health care facilities. The Act allows employers to contract outside of collective agreements with trade unions for the provision of non-clinical services and prohibits actions for damages or compensation against the government or any person because of this Act. The Act applies to Abbotsford as well as five senior care facilities which have been designated under the Act by the B.C. Health Care Facility Designation Regulation. The Act is intended to facilitate the development of new P3 health care facilities and increase the capacity of B.C.'s health care system.
In June 2004, the Calgary Health Region (CHR) opened the South Calgary Health Centre,
The CHR has also approved a $23 million P3 parking project for the Foothills Medical Centre. The consortium Foothills Parkade Ltd. will lease land from the
There has been much debate over the use of P3s for the building of two proposed "superhospitals" in
While CHUM is in the preliminary stages of planning, the Québec Health Minister announced that construction on the MUHC could start as early as spring 2006. The commission predicted that the buildings would be completed by 2010.
The MUHC and CHUM were not mentioned in a list of P3 projects that were included in the Québec Treasury Board's recent progress report on the government's modernization plans. Their absence from the report has lead to further speculation as to how the projects will proceed. A review by the government is expected to take place in 2005 to determine whether and how P3s could be utilized in the superhospitals.
In December 2004, the Québec government adopted Bill 61, An Act respecting the Agence des partenariats public-privé du Québec, all sections of which were in force as of May 18, 2005. The Act creates a new agency that will be responsible for: (i) advising the Québec government on P3 related matters; (ii) operating P3 knowledge centres; (iii) informing the public on the use of P3s for public management; and (iv) providing expert services related to the evaluation of the use of P3 projects, selection of partners and the negotiation and management of P3 contracts.
OTHER CANADIAN JURISDICTIONS
P3 OPPORTUNITIES IN ELECTRICITY
Historically, the generation, transmission and distribution of electricity in most provinces was the preserve of provincial and municipal governments. Over the past few years with varying degrees of conviction, some have opened the way for P3s and other forms of private sector involvement.
In October 2003, the Liberal Party came to power, inheriting a provincial electricity system that had undergone huge changes since a restructuring initiated by the Progressive Conservatives in 1998. The intended movement to a competitive market had been fitful and highly controversial.
In generation, Ontario Power Generation (OPG), one of the successors to the provincially-owned Ontario Hydro, had "decontrolled" only two assets by 2003. In May 2001, the 6,000 megawatt Bruce nuclear plant was leased to a consortium led by British Energy. This innovative transaction, valued at $3.2 billion, was structured as an 18-year renewable operating lease held by a limited partnership. At the end of the term, designed to coincide with the remaining life of the generators, the plant reverts to OPG, which will be responsible for decommissioning. In February 2003, British Energy, under financial pressure at home, disposed of its majority interest in Bruce Power so that the facility is now leased by an all-Canadian consortium. The transaction has been successful on many fronts. When the private sector consortium first took over, four of the eight units had been laid up. Since then, two have been returned to service and Bruce Power has recently reached a tentative agreement with a negotiator from the
The second OPG "decontrol" transaction was the sale to Great Lakes Power of the 490 megawatt Mississagi hydroelectric system in 2002.
The Province has issued four RFPs: the first is for 300 megawatts of renewable power; the second is for 2,500 megawatts of new generation (excluding renewables, coal and nuclear) or demand side management or demand response initiatives; the third is for up to 1,000 megawatts of new renewable energy supply; and the fourth, seeking up to 200 megawatts of new renewable energy supply, will be issued in draft around June 2005. The first RFP has concluded and 10 renewable energy projects have been announced. The second RFP is remarkable in that it combines new supply and demand side projects into a single RFP. The Province received 33 proposals for this RFP and has recently announced the first four winning projects, with a collective capacity of 1,675 megawatts, including a cogeneration project, a demand response programme, and two combined-cycle natural gas-fired generating plants. Two further projects, totalling 560 megawatts of gas-fired power, were commenced on May 30, 2005. All six projects are expected to be in service by 2008.
The counter-party is a new government-controlled entity called the Ontario Power Authority (OPA). While the OPA is not a government, or Crown, credit, as of March 16, 2005, it has been assigned an issuer rating of Aa2. The OPA has issued two RFIs with respect to new electricity generation and/or demand reduction projects in York Region.
A further impediment to private investment in generation in
In transmission, the
In April 2002, a joint venture of
Most electricity generated in
In late 2002, the B.C. government began a major restructuring of its electricity sector. BC Hydro, previously an integrated generation, transmission and distribution company, is now divided into two publicly-owned Crown entities. BC Hydro continues to be responsible for generation and distribution, while British Columbia Transmission Corporation operates the province's transmission grid.
Although these two companies will almost certainly remain in government hands for years to come, significant private sector opportunities do exist. Virtually all new generation is undertaken by independent power producers, who have historically benefited from firm "take-or-pay" power purchase agreements with BC Hydro. A new round of independent power projects is well under way.
The Energy Marketing Services Alliance of Manitoba (ESAM) was formed in 2002 with the goal of developing and using sustainable sources of energy worldwide. The ESAM is a P3 between private
The largest single project on the horizon in the
Highway 407 serves the
On January 6, 2005, the Ontario Superior Court upheld the previous decision of an arbitrator and ruled against the
Partnerships BC is currently overseeing five highway projects, all of which are in different stages (as indicated in brackets): (i) the Kicking Horse Canyon Project (Phase 2), which involves the replacement of a bridge and an upgrade to 5.8 kilometres (km) of highway (RFPs due June 2005, completion expected for 2009); (ii) the Golden Ears bridge, a new six-lane bridge across the Fraser River (RFPs due June 2005, completion expected for 2008); (iii) the Okanagan Lake Crossing, a new five-lane bridge (proposal received, completion expected for 2008); (iv) the Sea-to-Sky Highway Improvement Project, which will improve the highway linking West Vancouver and Whistler, in preparation for the 2010 Olympics; and (v) the Sierra Yoyo Desan Road, a 188 km multi-user road aimed at resource companies for industrial activities (completion expected for December 2005).
Partnerships BC is also overseeing the Richmond-Airport-Vancouver Rapid Transit project, a rapid rail line linking
Construction is set to begin in spring of 2005 on a $493 million project for an 11 km section of the
WATER AND WASTEWATER
The need for significant improvements in
It is expected that these cost recovery plans will compel municipalities to look for new ways of reducing costs, perhaps including private sector investment.
To date, one of the main participants in
Overall, the prospects for private sector involvement in water and wastewater in
Partnerships BC is overseeing two projects with respect to improving its water and wastewater infrastructure: the first is a $27.2 million partnership between the Province's Ministry of Sustainable Resource Management and EPCOR Water Services Inc. to operate a water treatment plant at the abandoned Britannia Mine site beginning in the fall of 2005; the second project involves the revival of the wastewater management system in Whistler. The
THE PORT LANDS -
The largest development site in
TEDCO has already issued a request for expressions of interest for a major film studio creating up to 7,000 direct and indirect jobs and with an overall construction value of $150 million.
The MPIR has announced that a new courthouse facility in
Construction has begun on a $300 million courthouse facility in downtown
On May 31, 2005, the first official P3 Québec project of substance ($125 million) was announced with the Government of Québec inviting four consortiums to make proposals in connection with the construction, management and operation of a new facility to house the Montréal Symphony Orchestra.
Successful P3 projects such as those discussed above continue to demonstrate that private sector funding and innovation can contribute significantly to vital infrastructure. The recent endorsement of the P3 concept under the new AFP banner in
1 The authors wish to thank Diane Yu and David Cummings of Gowlings'
3 See above, note 2.
4 The Canadian Council for Public-Private Partnerships, online: http://www.pppcouncil.ca/pdf/p3poll.pdf.
5 The Canadian Council for Public-Private Partnerships, online: http://www.pppcouncil.ca/faq.asp.
6 See above, note 3
8 M. Gurbin, "Capital Investment in
9 Mark Mullins, "2028 or Bust:
10 RT Associates Ltd., Opportunities for Infrastructure Partnerships: Discussion Paper (2003) at 43, online: Government of the Northwest Territories Municipal and Community Affairs