The persistence of P3

British Columbia, which nurtures its popular perception as one of Canada’s’ most environmentally enlightened provinces, has for decades coped with the stigma of knowing its capital city was pumping untreated sewage into the Pacific Ocean. That did not change until the end of 2021, when the Greater Victoria area became home to one of the world’s most advanced systems for drying municipal wastewater to minimize its toxicity. The city is in fact the first in the country, and only the second in North America, to employ fluid-bed dryer technology, which is commonly found in Europe, where it is preferred for its ability to process large amounts of material in a relatively confined space.

This work was carried out by a consortium that included Mississauga-based Maple Reinders, as part of a public-private partnership (P3) to design, build, finance, operate, and subsequently maintain this facility over the next 20 years.  For Reuben Scholtens, the company’s vice-president of major projects, the P3 status of this work was integral to its success, even as the Covid pandemic made it difficult to bring in necessary expertise from the United States.

“Typically when infrastructure is procured by a federal, provincial, or municipal government, the need is identified by the owner, the owner retains an engineer, together they design a set of blueprints, then they set it out to tender,” Scholtens explained to Research Money. “Once in a while, you’d have an owner that would come along and want to do a design build — the private sector would design and build and price and put the thing together. The P3 model, if it’s exercised properly — if it’s exercised the way it’s meant to be exercised — is very logical, and it puts the responsibility where it belongs: between the two partners.”

In most cases, a municipal wastewater treatment plant would not pose an extraordinary design challenge. But Victoria’s picturesque location and rugged geography were among the factors preventing it from turning to one of those solutions, since the preferred site was simply not large enough for a conventional building strategy. For Scholtens, a P3 arrangement afforded him and his partners the leeway to explore more innovative designs than a conventional public management process would have yielded.

“The P3 typically affords the private partner a little bit more autonomy or discretion over what mechanism they use to solve the problem,” he said.

The virtues of this approach, as well as critiques of its track record, were highlighted last year in a report from the Standing Committee on Transport, Infrastructure and Communities. The committee was taking stock of the performance of the Canada Infrastructure Bank (CIB), a crown corporation created in 2017 with the goal of attracting private sector investors to make public infrastructure investments more sustainable and efficient.

The CIB replaced Public-Private Partnerships Canada (PPP Canada), another crown corporation that was launched in 2009 to provide funding for P3 undertakings. Critics of PPP Canada claimed it invited private sector participants to inflate the costs of their work, which was backed up by a 2015 Ontario auditor general report comparing the province’s P3 infrastructure expenditures with estimated costs, had that work been carried out exclusively by the public sector.

The committee also heard from observers who argued that P3 should not be dismissed as wasteful. According to Mark Romoff, President and CEO of the Canadian Council for Public-Private Partnerships, the Ontario auditor general’s comparison was premised on the ideal situation where governments deliver results without delays or cost overruns — something that happens routinely.

“As for projects that are undertaken through traditional procurement, if they were delivered on time and on budget, then we wouldn't need P3s, but the reality is that you see projects all around you, anywhere across Canada, that are way behind schedule and way over budget,” he said. “That's why you need to bring a discipline to the procurement process and to the delivery process in order to get the very best return on your and my tax dollars that are being invested in these projects.”

Ryan Riordan, an associate professor with Queen’s University’s Institute for Sustainable Finance, added that “while public funding is certainly less expensive, the private sector is particularly good at identifying projects that are the most promising”.

Although P3 does ask public organizations to surrender their control of the work to these partners, he insisted the result could be advantageous.

“Combining different sources of funding, accepting the fact that public funds are not inexhaustible, and allowing the private sector to help guide the capital to the most productive uses of that capital, lead to public-private partnerships that could increase economic growth,” Riordan concluded.

Although the CIB was introduced to compensate for the perceived failings of PPP Canada, the committee also considered whether it was doing a better job.

“P3s have been successfully implemented across Canada for almost 20 years, including in British Columbia, Alberta, Saskatchewan, Ontario, Quebec and Nunavut,” said Derron Bain, Managing Director of Concert Infrastructure, an independent developer of public sector projects. “It is a model that delivers infrastructure, in partnership with all levels of government and agencies, on time and on budget. The Canadian P3 model is widely viewed as best in class, and many Canadian companies are now exporting the model to other countries.”

Nevertheless, although the federal government’s 2023 budget directed more money to the CIB to attract private investment, Derron regarded the organization as unwelcoming to potential P3 initiatives.

“The activity of the CIB to date appears to crowd out opportunity for private sector equity and debt investment in infrastructure projects,” he maintained. “Too few federal government-led projects are brought to market. There is an abundance of private capital available for infrastructure investment in Canada but an undersupply of project opportunities. Canadian capital is available and waiting to invest in our infrastructure.”

For his part, Sholtens acknowledged that P3 is not for everyone. Even within Maple Reinders, he said, a significant number of project directors would prefer to do their best work delivering exactly what a public sector owner had asked for. Others, however, continue to welcome the challenge of tackling a task on P3 terms, which entails more risk and higher expectations.

Above all, he noted, where PPP Canada once directly underwrote this role, CIB simply provides a repayable loan, lowering the incentive to take on those risks.

“We still love public-private partnerships, and they are still around, just not to the same degree. At its core, if you can stand behind your work, you can do quite a bit better in the work. There are fewer and fewer companies that will bid on these kinds of projects, because you really have to stand behind your work. You really have to believe in your people and your abilities.”

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