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Financing Infrastructure: P3 Policy in Alberta, Canada

Financing Infrastructure: P3 Policy in Alberta, Canada. Definitions & Background P3 Markets – Global & Canadian Canada’s Infrastructure Deficit P3 Policy Debate and Drivers Why the debate matters P3 Policy Framework P3 Case Study Design & Methodology Conclusion & Discussion.

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Financing Infrastructure: P3 Policy in Alberta, Canada

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  1. Financing Infrastructure: P3 Policy in Alberta, Canada • Definitions & Background • P3 Markets – Global & Canadian • Canada’s Infrastructure Deficit • P3 Policy Debate and Drivers • Why the debate matters • P3 Policy Framework • P3 Case Study Design & Methodology • Conclusion & Discussion

  2. Financing Infrastructure: P3 Policy in Alberta, Canada Transportation Infrastructure • Roads • Bridges • Rail systems • Airports • Seaports Research Focus – Edmonton Ring Roads

  3. Financing Infrastructure: P3 Policy in Alberta, Canada Early history of Public-Private Collaborations • British Trusts – 1830s • British Roads & Turn Pikes • American Turn Pikes • French Concessions • Others Research Focus – Edmonton Ring Roads

  4. Financing Infrastructure: P3 Policy in Alberta, Canada What are P3s (UK: PFIs, Europe/Australia: PPP) “A co-operative venture between the public and private sectors, built on the expertise of each partner that best meets clearly defined needs through the appropriate allocation of resources, risks, and rewards.” Source: Canadian Council for PPP – http://www.pppcouncil.ca April 24, 2012.

  5. Financing Infrastructure: P3 Policy in Alberta, Canada Background to P3 Policy • Originated in the early 1990s in Europe • UK’s Conservative Government - first to adopt P3s • P3s now popular in the UK, EU, Australia, & Asia • Canadian and US P3s are growing – number & value

  6. Financing Infrastructure: P3 Policy in Alberta, Canada Global Market Share – Major P3 Countries by Value Source: Infrastructure Journal, 2008 & 2009

  7. Financing Infrastructure: P3 Policy in Alberta, Canada Source: European PPP Expertise Center

  8. Financing Infrastructure: P3 Policy in Alberta, Canada P3 Market Update (2010) • UK continues to lead the P3 market • Globally there are 3,300 P3 projects valued at $1.54T* • Transportation P3s make up 1,867 or $712B (57%:46%) • P3s are now 10-20% of Canada’s infrastructure expense** • AB has 6 P3s – 3 completed, 1 On-going, 2 Approved*** [6 Transportation - Edmonton & Calgary Ring roads; 2 Education - ASAP 1 & 2. ] • Investors are attracted by the return on investment Source:* Public Works Financing, October 2010, Vol. 253. **Conference Board of Canada, December, 2010 Report ***Government of Alberta, Budget 2011

  9. Financing Infrastructure: P3 Policy in Alberta, Canada Canada’s Infrastructure Deficit • Evidence suggests an ageing infrastructure • Life expectancy of 80% of Canadian infrastructure is exhausted* • TD Bank Economics estimates C$50-125B needed (2004) • Canadian Council for PPP estimates C$350-400B needed (2009) • Proposed infrastructure deficit bridging models: • Devolution of tax authority • Adoption of a “User pay” model • Partnership with the private sector * Project Finance Journal, September, 2010

  10. Financing Infrastructure: P3 Policy in Alberta, Canada Source: Vancouver Board of Trade

  11. Financing Infrastructure: P3 Policy in Alberta, Canada The P3 Policy Debate: Pro – P3 • P3s frees up government to focus on what it does best • Better performance – on-budget and on-time • Leads to improved care of public assets – whole life cycle approach (construction/maintenance/retirement) • Maintain service quality through innovation • Risk is transferred to private sector partners as applicable • Non-financial benefits from time savings and other efficiencies

  12. Financing Infrastructure: P3 Policy in Alberta, Canada The P3 Policy Debate: Pro – Conventional Procurement • P3s represent another name for privatization • P3s are more expensive than traditional procurement • P3s are a way for governments to avoid reporting debt • P3s are weak in accountability and transparency (Governance) • P3s lead to public sector job losses and lower benefits • Private partners sacrifice quality to maximize profits

  13. Financing Infrastructure: P3 Policy in Alberta, Canada P3s • Emphasize partnership in asset acquisition & maintenance • More private capital engaged • Risk is shared with the private sector • Adopts a whole-of-life cycle • Mainly delivers on-time & on-budget • Taxpayers purchase a bundle of services Traditional (Conventional) • Fragmented arrangements • Less innovation & competition • Prone to cost and time over-runs • Public borrowing for new assets • Taxpayers purchase assets • Inefficient procurement process • Has several players sometimes with conflicting interests P3 vs. Conventional Procurement - Features

  14. Financing Infrastructure: P3 Policy in Alberta, Canada P3 Policy Drivers • Demand by citizens for improved public services • Need to sustain economic growth and productivity • Limited growth in public sector revenues • Private sector demonstration of superior performance • Attractive budget and financial statement impact

  15. Financing Infrastructure: P3 Policy in Alberta, Canada Why P3 Policy Debate Matters • P3s are risky & uncertain – life span of 20-30 years • P3s could increase debt, taxes & limit competitiveness (lower economic growth/standard of living) • P3s could spark economic growth and higher standard of living • Bandwagon effect is taking hold among governments • Alberta’s P3 cash commitments is substantial ($6B - 2011)* *Source: Government of Alberta, 2010-11 Annual Report

  16. Financing Infrastructure: P3 Policy in Alberta, Canada Current P3 Policy Framework • Government’s commitment is critical • P3 financing strategies – Equity vs. Debt • Comprehensive project risk identification and allocation • Concession selection and transparency

  17. Financing Infrastructure: P3 Policy in Alberta, Canada My Proposed P3 Policy Framework/Model • Government’s commitment is critical • P3 financing strategy – Equity vs. Debt • Comprehensive risk identification and allocation • Concession selection and transparency • **Governance and Community Engagement

  18. Financing Infrastructure: P3 Policy in Alberta, Canada Case Study : Design Approach • Focus on the Edmonton Ring Roads • 3-4 cases – a mix of both policies • South West Edmonton – Conventional Procurement ($600m) • South East Edmonton – P3 Procurement ($495m) • North West Edmonton – P3 Procurement ($1.42b) • North East Edmonton – P3 Procurement ($650m) est.

  19. Financing Infrastructure: P3 Policy in Alberta, Canada Theoretical Approaches • Investment theory • Agency theory • Transaction cost theory

  20. Financing Infrastructure: P3 Policy in Alberta, Canada Conclusion & Discussion • P3s are growing at a rapid rate in almost every region, and Canada is now a major player • Governments are attracted by the promise of P3s (deliver a project today @ minimal cost to current taxpayers) • P3s are not suitable for every asset/service category • P3s need careful policy analysis given their long term implications for all citizens

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