P3 projects a huge cost to taxpayers, report suggests

By Joe Fries
Penticton Herald


Embracing private-sector partners to fund and build three major infrastructure projects in the Okanagan has cost taxpayers $226 million, according to a report published this week.

Keith Reynolds, a researcher at the Vancouver-based Columbia Institute, spent years collecting data through freedom of information requests to the B.C. government.

Included in the 17 projects he analyzed are three in this region: the Kelowna and Vernon hospitals project; the Penticton hospital upgrade; and the Okanagan Correctional Centre in Oliver.

The Okanagan Correctional Centre would have cost $393 million, but will instead set back taxpayers $466 million.
In each case, Reynolds found it would have been cheaper for the government to borrow the money and manage the projects itself through a traditional procurement process, rather than find private-sector partners to fund and build the projects in exchange for 30-year repayment and operating agreements.

Going the P3 route does, however, allow governments to undertake expensive infrastructure projects without adding debt, while at the same time passing on the risk of things like construction delays to the private-sector partners.

It’s those advantages to which Partnerships BC — a Crown corporation found in 2014 to be in a conflict of interest as both an adviser to government and promoter of P3s — assigns complex discount rates that seem to tilt the scales in favour of P3s.

But as the report notes, auditors in other parts of the world have found the assumed risks and associated discounts have little basis in reality.

Reynolds’ analysis therefore removes those discount rates from value-for-money calculations and compares dollars to dollars.

 

“If you just look at the number of dollars that are spent, before you get into the arcane methodology of discounting… then there are significant savings for doing traditionally procured projects,” he explained.

In straight dollar terms, the Kelowna and Vernon hospital project would have cost $1 billion via public procurement, rather than $1.15 billion as a P3.

The Okanagan Correctional Centre would have cost $393 million, but will instead set back taxpayers $466 million.

And the new Penticton Regional Hospital tower and parkade, with additional renovations in the old building to follow, could have been done through traditional procurement for $581 million, while the P3 method will lift the price to $583 million.

In total, Reynolds found the 17 projects will cost B.C. an extra $3.7 billion by going the P3 route – and the analysis only covers about half of the projects in existence.

The report further details how P3s were seemingly forced on the public sector by the B.C. Liberals beginning in 2003, and concludes with a call for the NDP government to put a moratorium on new P3s, plus review existing contracts and consider buying them out.

Reynolds is also hoping B.C.’s auditor general looks into the matter, as colleagues in Quebec and Ontario have done.

Partnerships BC falls under the Finance Ministry, which declined comment Thursday.


Joe Fries is an editor and reporter with the Penticton Herald. OsoyoosToday and the Herald share an informal editorial use agreement.

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