Public – Private PartnershipsBusiness and Legal Issues
Presented by:Lou Milrad, Associate Counsel, Miller Thomson LLP
Presentation Roadmap1. Introduction and Outline2. Advantages and Disadvantages of P33. Project Scope4. Risk and Liability5. P3 and the Global Economy6. Canadian Experience7. Public Opinion8. Conclusions
P3 DefinedA cooperative venture between the public andprivate sectors, built on the expertise of eachpartner, that best meets clearly defined publicneeds through the appropriate allocation ofresources, risks and rewardsMost partnerships encompass the financing,design, construction, operation, and maintenanceof public infrastructure and servicesDefinitions, online: Canadian Council for Public-Private Partnerships ,http://www.pppcouncil.ca>.
Terminology• Design-Build (DB): The private sector designs and builds infrastructure to meet public sector performancespecifications, often for a fixed price, so the risk of cost overruns is transferred to the private sector. (Many do notconsider DBs to be within the spectrum of P3s).• Finance Only (FO): A private entity, usually a financial services company, funds a project directly or uses variousmechanisms such as a long-term lease or bond issue.• Operation & Maintenance Contract (O & M): A private operator, under contract, operates a publicly-ownedasset for a specified term. Ownership of the asset remains with the public entity.• Build-Finance (BF): The private sector constructs an asset and finances the capital cost only during theconstruction period.• Design-Build-Finance-Maintain (DBFM): The private sector designs, builds and finances an asset and provideshard facility management (hard fm) or maintenance services under a long-term agreement.• Design-Build-Finance-Maintain-Operate (DBFMO): The private sector designs, builds and finances an asset,provides hard and/or soft facility management services as well as operations under a long-term agreement.• Build-Own-Operate (BOO): The private sector finances, builds, owns and operates a facility or service inperpetuity. The public constraints are stated in the original agreement and through on-going regulatory authority.• Concession: A private sector concessionaire undertakes investments and operates the facility for a fixed periodof time after which the ownership reverts back to the public sector.• RFEI: Request for Expressions of Interest• RFQ: Request for Qualifications• RFP: Request for Proposals“Models of Public-Private Partnerships”, online: Canadian Council for Public-Private Partnerships <http://www.pppcouncil.ca>.
Key Elements• Investment in the development of infrastructure• Distribution of risk – allocated where it is most effectivelyassumed• Clearly defined responsibilities and timelines• Interchange of public resources and initiatives andprivate finance and innovation• Sharing in the mutual advantages of the partnership
Advantages– Efficient method for allocatingrisks and responsibilities to theparty most able to manage– Reduce political hazards forthe government and privatepartners– Increase accountability andadded transparency– Mitigate financial anddevelopment risks– Shift in public control– Increased costs, complexityand effort– Potential source of job loss– Diminished quality standards– Insufficient oversightChallenges
Risk and Liability• Proper management of the procurement process, founded on strong qualitycontrol policies and standards focused on P3• Establish communication channels to make the entire process transparentand information flow uninhibited• Private partners can face construction, operations and maintenance risks:– Marketing or financing risks– Infrastructure design risk– Construction cost overruns– Project completion within deadlines– Meeting performance or delivery standards in the short and long term– Managing service delivery and lifecycle costs• Risk assessment is critical
P3 and the Global Economy• Global financial crisis has destabilized financing transactions acrossall asset classes and sectors• United Kingdom:– $23B lending initiative to safeguard 100 projects– Treasury Infrastructure Finance Unit (TIFU): ensures projects reachfinancial close and jobs remain secure• France:– $41B stimulus plan focused on infrastructure projects– “Government Guarantee Program”: $15B fund to provide partialguarantees for P3– Regulatory changes: Private partners to source 50% project financinginstead of all financing
P3 and the Global Economy• European Investment Bank (EIB):– Over $50B given to infrastructure projects to counter creditcrunch– Provide loan guarantees to help transportation projects deal withearly risk– European PPP Expertise Center (2008): best practiceframeworks and other know-how• United States:– Transportation Infrastructure Finance and Innovation Act CreditProgram: secured loans, loan guarantees, and standby lines ofcredit to US transportation investments– American Recovery and Reinvestment Act: TIGER grants fortransportation infrastructure
Canadian P3 Experience• P3 active in Canada over 20 years• PPP Canada: Crown corporation to improvepublic infrastructure delivery utilizing P3 anddeliver value, timeliness and accountability
• Mix of Markets:– Advanced: Significant capital infrastructure budgetsand institutionalized P3 procurement capacity.• British Columbia, Alberta, Ontario, Quebec– Emerging: Established or developing policyframework for P3s and support general P3 advice.Lacks institutional capacity to support P3sprocurements. Little experience executing P3arrangements.• Saskatchewan, Manitoba, New Brunswick, Nova Scotia,Prince Edward Island, Northwest Territories– Undeveloped: Limited understanding of P3 approachor weak institutional and financial capacity.
Canadian P3 Experience• Municipalities:– Significant market: $15B construction capitalexpenditures in 2008– Alternative forms of infrastructure:• Moncton, Saint John, Toronto, Montreal, Vancouver, Calgary,Edmonton, Ottawa– Key sectors:• Transportation (roads and bridges), public transit, water andwastewater treatment, civic buildings (administration,courthouses)
• Aboriginals:– Advancing framework to promote economic andsocial development based on partnerships betweencommunities and private sector.– Minister of Indian and Northern Affairs: infrastructurefinancing structured to facilitate P3s.– Challenges: remote locations, small scale projects,Indian ActCanadian P3 Experience
Canadian P3 Experience“What Does The Canadian P3 Market Look Like?”, onine: PPP Canada <http://www.p3canada.ca>.
Public Opinion• High initial expectations from the community• Demonstrate benefits and limitations of a project throughscheduling and reporting• Survey in 2007 on support for P3s:– 2/3 of respondents believe that P3s can keep pace with thedemand for new or improved facilities– Public attitudes consistent over the last 5-10 years– Support strongest in Quebec and the Atlantic provinces
Conclusions• Now have several decades of experience with the P3 framework• Diverse array of projects have been completed worldwide• Positive impact on public and private spheres• Successes in water treatment, technology, multi-unit housing,infrastructure, hospitals, schools, airports• Interaction between development goals of public entities and privatesector financing, expertise, and assumption of risk created costeffective ways to provide services• P3s enable governments to find unique ways to deal with thechallenges of the global economy and frees up public funds foressential programs