P3s hold water with water/waste management

By the same token, P3 models can also offer an effective solution for water/waste management in Canada. The water industry is certainly in a period of unprecedented change, driven by a growing demand and a need for substantial investment in new technology and improved water infrastructure. Water/waste facilities display similar attributes to that of roads - they require large capital investments, have an identifiable income stream through user fees and have measurable results - making this industry an ideal candidate for P3 models. Unfortunately, when it comes to water management, the mention of P3s is generally met with public apprehension, especially if the public believes the government may forfeit ownership and regulation of the assets. But it is important to reiterate that in every P3 concession, the public sector can always maintain ownership of the assets, govern safety and quality standards and set user rates.

The Walkerton experience in the spring of 2000 in Ontario certainly rang a loud note of caution among many Canadians, as a water system contaminated with E.coli claimed the lives of seven people while causing severe illness in more than 2,300 other residents. Although there was plenty of initial finger-pointing at the private sector, which took over laboratory testing from the government in 1996, the Attorney General inquiry indicated that the private sector fully complied with government regulations and was not in any way responsible for the deaths or illness that had occurred. Rather, an inefficient method of water system management by the public sector was a house of cards that came tumbling down. The Attorney General report identified several shortcomings in public sector management, predominantly linked to the lack of training and expertise among Walkerton Public Utilities Commission (PUC) operators, the improper operating practices of the PUC operators, and the inability of the Ministry of Environment inspector's program to detect and ensure correction of the improper treatment and monitoring practices of the PUC. By no means is this meant to open old wounds, as the government has since put in place a number of corrective and effective measures, but it does speak to an area where the government and broader public can benefit from a transfer of risk to the private sector.

First, the government can place the onus of responsibility for properly trained staff and accountability on the private sector. Under-qualified staff represents an intolerable risk to the private sector because it would undermine its competitive advantage, and its ability to develop efficiencies and manage corporate risk. Any shortcoming here would cost the private consortium dearly through financial penalties embedded in P3 contracts if minimum quality or safety standards are breached. Second, there is the advantage to the public partners of transitioning from one of operations manager to one of contract manager. Since P3 contracts provide the opportunity to define outcomes that must be achieved by the private sector and the means that they can be achieved, the public sector can clearly set out the division of responsibility along with reporting standards and performance monitoring. This allows for heightened enforcement capabilities by the municipalities and provinces. So, if a situation like Walkerton ever did occur under the watch of the private sector, it is the stakeholders of that company who bear the financial price of the error, not the taxpayers.

Indeed, local and provincial governments should not be remiss in exploring P3s as an option in water/waste management because the results so far have been highly encouraging. It is estimated that in the United States and Canada, P3s in the water sector have generated cost savings of between 10-40 per cent. 47 Although public sector delivery is the dominant service model in Canada for water treatment facilities, there are some P3 contracts in place that reflect either management concessions or build-operate-transfer (B-O-T) arrangements. However, P3s need not be limited to these types of contracts. The City of Moncton in 1998 was the first Canadian municipality to enter into a broader design-build-finance-operate (DBFO) private contract for a water/waste treatment facility. Doing so allowed the City to quickly realize the benefits of stabilized rates, guaranteed safety and compliance, and increased opportunity for improved infrastructure development. In this partnership, the public sector not only retained ownership of the plant, but user costs are fixed and controlled by council, except those for which neither party has control, like electricity. This milestone partnership was carefully implemented, with the City of Moncton enlisting expert consultation to the tune of $680,000 in matters of process, legal, contractual, financial and technical requirements. This initial investment by the City resulted in a state-of-the-art treatment facility with capital, engineering and operation costs estimated to have been $11 million less than what the traditional government model could have delivered over the term of the agreement. In addition, the public sector benefited from significantly reduced exposure to risk and liability. Prior to the new facility, the city of Moncton was subject to two boil orders due to high bacterial levels, one in 1997 and a second in 1999. However, with the P3 contract, the government was able to impose stringent water quality guarantees and performance standards that meet or exceed the Canadian Drinking Water Guidelines. The contract also includes a dispute resolution mechanism that protects the municipality in the event that guarantees are not met. In addition, the contract included a repair and replacement program to ensure that the plant would remain in acceptable condition when it was turned over to the government after the 20-year lease term (i.e. whole-of-life approach). The facility was completed on schedule in 500 days and the City estimated that the traditional municipal method would have added $120 a year to a typical user's water bill compared to $91 under the private partnership. The City of Moncton stands today as a model for how a municipality can successfully transfer risk to the private sector, derive the benefits of greater efficiency and innovation, while still maintaining regulatory control over the delivery of the service.