All of which, of course, indicates that Canada's governments must be doing something right to be stimulating such a growing market. Indeed, PPP advisors surveyed by Infrastructure Investor could point to more than a few things provincial authorities got right.
First, they're very simply finishing what they start. That may seem like an unusual qualifier, but compared to the US, where political uncertainty has torpedoed many a PPP (three in Pennsylvania alone), it's certainly a distinction worth making.
"Canada has extremely consistent deal flow and it has extremely good process," says Macquarie's Hann. "Once a PPP process has started in Canada, it is very unusual for a process not to proceed to successful close."
This doesn't mean that all deals necessarily reach financial close. The Canadian market has had some high-profile deals fall apart, like the $2.3 billion Port Mann Bridge project in British Columbia. In that case, the Macquarie-led winning proponent couldn't come to terms with the province on a mutually agreeable financing agreement. So in early 2009 British Columbia scrapped the PPP and pursued the project as traditional design-build. Both Macquarie's Hann and Partnerships BC's Sarah Clark ascribed the deal's failure to poor timing, given the market turmoil that followed its award during summer 2008.
But Canadian provinces certainly learned from the Port Mann experience. Among the meaningful changes introduced in 2009, most notably in British Columbia, was greater provincial support in the form of payments toward projects while they're in construction. These so-called "milestone" payments lower the amount of private financing needed for a project, therefore making them more economical.
And once transactions close, investors know they're locked into an agreement with highly creditworthy counterparties. All of Canada's provinces have credit ratings comfortably in the investment grade range, meaning that "there is no appropriation risk per se in Canada", Hann says, referring to the risk that a government counterparty won't make good on a promised payment.
"And that's a big difference between Canada and the US," he adds. ■