Under the leadership of mayor Sam Katz, Winnipeg has embraced the use of public-private partnerships (P3s) for several large infrastructure projects, locking the city into long-term contracts and multi-million dollar annual payments to the private sector.
Now, the incumbent mayor is looking to the P3 Canada Fund for a light rail rapid transit network.
“An expansion of our public transit system should not be a candidate for a P3,” said mayoral candidate Judy Wasylycia-Leis, criticizing Katz for not completing phase II of the Southwest rapid transit corridor with earmarked federal-provincial stimulus cash.
Wasylycia-Leis wants to virtually discontinue the use of P3s because they sacrifice public assets to the “unaccountable” private sector.
Olivia MacAngus is the director of corporate strategy for PPP Canada, a federal crown corporation. She believes, contrary to Wasylycia-Leis, that the P3 method has become necessary for many municipalities.
“In Canada there has been an across-the-board increase in the demand for P3 development,” she said.
The reason, according to MacAngus, is that municipalities are looking for ways to effectively develop and maintain new infrastructure without running massive deficits.
Normally, the government enters into contracts with the private sector for just the construction of a project. The government then owns the new infrastructure and is responsible for its maintenance.
P3s work differently, however, by ensuring that the private sector is responsible for the construction as well as the maintenance of the infrastructure over its lifetime.
The government makes annual payments to the private partner in return for regular maintenance. This results in contracts that allow the government to spread upfront construction costs over 25 to 35 years.
For example, the Charleswood Bridge, a P3 made between the City of Winnipeg and DBF Construction in 1995, continues to cost the city $1.5 million annually. Those costs ensure regular maintenance on the bridge will continue until 2024.
Proponents believe that P3s are beneficial because they transfer a great deal of risk to the private sector. If maintenance costs exceed the governments annual fee, the private sector is on the hook for any additional costs.
With the P3 model in place, the private sector stays on top of maintenance rather than the government falling behind over time and incurring large repair costs, said MacAngus.
Critics, however, claim that P3s are too costly and diminish accountability to the public.
“I believe the costs (for P3s) are exorbitant,” said Wasylycia-Leis, citing projects like the recent Chief Peguis Trail expansion, which will cost the city $8.2 million annually until 2041.
“(The increased use of P3s) means that unelected corporations are responsible rather than public officials.”
John Loxley is a University of Manitoba economics professor and the author of Public Service, Private Profits, a critical look at the rise of P3s in Canada. He agrees with Wasylycia-Leis.
“The idea that all P3s are more efficient is simply not true,” he said.
Loxley believes that P3s are used to hide the costs of a project by spreading it over long, incremental payments to the private sector.
“It works like a car loan,” he said. “(Katz) is ideologically aligned with P3s without any real reason or justification.”
Published in Volume 65, Number 6 of The Uniter (October 7, 2010)