With the demand for public infrastructure outstripping governments' ability to finance and maintain capital projects, there is an increasing need to bring the private sector on board in assisting in the country's infrastructure challenge. Partnering with the private sector - and in particular, contracting out maintenance services - is not a new concept in Canada. However, commissioning a private-sector group to design, build, finance and operate public infrastructure is in its relative infancy in this country, especially when stacked up against the United Kingdom, continental Europe and Australia. It is this country's relative inexperience with P3s and the resulting lack of public understanding of them that remains the number one roadblock of more widespread use of this model.
There are two common misperceptions about P3s that are often bandied about, and which have held back their growth in popularity:
i) P3s are little different from privatization. P3s and privatization are two distinct concepts. Privatization refers to the outright selling of a public asset or service to the private sector. In contrast, in a P3 arrangement, the government retains ownership of the asset and continues to establish the ground rules. Thus, there is little loss of public control.
ii) P3s are more expensive than traditional public procurement. This argument stems from the fact that governments can borrow at a cheaper rate and that the private sector must be appropriately compensated for taking on the risk of a project. The concerns are valid, but they over-simplify the issue. Few analyses take into account the opportunity cost involved - such as higher taxes, debt, and potentially missed investment opportunities - when governments tie up significant resources to a particular cause. But, more importantly, it is not cost, but net benefit, which is the most relevant benchmark in considering the way to go. And, on this count, P3s could provide significant bang for the buck by allowing projects to be carried out more quickly and with greater overall benefits to the taxpayer.
Still, we acknowledge that P3s can be a risky game to the taxpayer if not executed correctly. As is the case with any business relationship, there must be synergies in working closely together. And, to the extent that the private and public sector parties have different cultures and attitudes, there may be leakage in the potential rewards of a P3. Above all, for P3s to provide value to taxpayers, the risks and rewards have to be properly aligned. Unfortunately the public sector has a tendency to underweight or improperly evaluate risk, which can result in excessive private returns.
Canada's difficulties in allowing P3s to get off the ground is in good part due to a piece-meal approach on government policy, with little federal involvement and provincial practices that vary across jurisdictions. In fact, a major reason why the U.K. has achieved success on the P3 front - and why other countries around the world have followed its lead - is that the central government took action early to create a more competitive market and bolster private and public confidence. In particular:
• The U.K. government established a standardized process to assist public sector employees in comparing risks and returns across all public and private sector options.
• The U.K. National Audit Office was given a mandate to review and evaluate the performance of P3s. In fact, many of its recommendations have been incorporated into the government's P3 legislation.
• In order to help public-sector employees identify opportunities for P3s and to help bridge the gap in expertise between the public and private sectors, the central government established Partnerships UK.
In addition to changing the legislative framework to make the ground in Canada more fertile for the P3 market to develop, governments should concentrate their efforts in areas that more easily accommodate P3s. Projects that fall under this umbrella tend to be large in scale, capital-intensive, have an identifiable revenue stream (i.e., user fee), and have measurable results - all of which would raise commercial viability and make it relatively straightforward to assess the potential risks and rewards. Roads, bridges, highways and water and wastewater facilities could all be considered good candidates in this regard.