Wednesday, March 24, 2010

CRD Decision on Wastewater Project Today

I have not yet heard what the decision is, but the media is making much of the people there protesting the use of P3s. It concerns me that there is such a backlash against a tool that government can use to deliver infrastructure to the public at a reasonable rate.

If you read the report of the peer review team on the Wastewater Management Program Business Case, The results come out at about $925 million cost for a public, hybrid or P3 approach to the project. the P3 is the cheapest in cost to build, but loses ground once financing is included. If the project were designed, built and operated as a P3 but received local government financing, this clearly looks like it would come out significantly cheaper.

The P3 also offers more risk transfer away from the public, this is good and protects us. I especially like the P3 for the operation of the plant. Having a private company operate the plant means the public has stronger legal rights if something goes wrong. Suing a company is much easier than suing a local government. This liability alone should mean the private sector would be hyper vigilant in how the plant is operated.

My hope is that the CRD chooses to go forward with a P3 but retains the option to drop it if there are no decent proposals coming forward. If no one is willing to bid on the P3, this says to me that there is something fundamentally wrong with the assumptions about the project. The Vancouver Trade and Convention Centre was a good example of this, no one went for the P3. This should have made someone go back and look at possible problems there might be with the project.

I am not wedded to the idea of a P3, but in the process of a project, looking at proposals as a P3 make sense as a step to consider first before going to a government sector option. If a P3 is not considered, there is no clarity if the option was a good one or not.

My biggest fear with the publicly built wastewater treatment system is the danger of cost overruns. Sticking to a fixed budget is much easier to accomplish in the private sector than the public. Also a good P3 would insulate the public sector from cost overruns. Large scale capital projects have a bad habit of going over budget, public sector more so than private sector.

If a public project goes over budget, the fiscal tap stays on. If a private project goes over budget, the company has to eat the cost. If it is bad enough the company will go under. If a P3 is partially built the company defaults on the agreement, a well written P3 should give the local government the partially built project at no cost.

The opposition to P3s is coming from public sector unions concerned that they will lose members - very self serving and short sighted as it once again makes them look bad in the eyes of the majority of the public. The opposition also comes from an economically illiterate part of the left that still thinks businesses making money must mean exploitation.

I hope the board makes a good decision and does not preclude any option for purely political reasons.
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