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                            This Guest paper originally appeared in the November/December 2005 issue of the Taxpayer, a regular publication of The Canadian Taxpayers Federation (CTF), a federally incorporated non-profit and non-partisan organization dedicated to lower taxes, less waste and accountable government. This article is reproduced with permission and is copyright to the CTF and Sara MacIntyre © 2005.
                            Published here April 2006.

                            Editor's Note | Introduction | Design-Build-Finance-Operate
                            Capital Projects: What's Good, What's Bad? | Why Now? | Where is Canada on P3s?
                            Case Example: Abbotsford Regional Hospital and Cancer Centre

                            Prior to joining the Canadian Taxpayers Federation, Sara MacIntyre worked as a policy researcher in the Opposition Leader's Office in Ottawa. In addition to policy work in Ottawa, Sara was also a legislative assistant drafting amendments to legislation, preparing communications and background notes in the Aboriginal policy field. Sara is completing her Masters thesis on differential sentencing in Canada's Criminal Code while serving as the British Columbia Director for the Canadian Taxpayers Federation. She can be reached at smacintyre@telus.net.

                            Editor's Note

                            We spotted this article in The Canadian Taxpayers Federation magazine and felt that Sara's observations would be of considerable interest to those project management people who are involved in any way in the major projects industry. If Sara's observations are correct, Public-Private Partnerships, or "P3s" are not only a means for raising capital for investment, but also for bringing much-needed financial discipline to the business of public infrastructure design and construction. To underscore this point, the following table of projects undertaken by various levels of government in Canada, Figure 1, provides interesting evidence.

                            Capital Projects Undertaken by Governments in Canada

                            Jurisdiction

                            Project

                            Budget

                            Final Price Tag

                            British Columbia

                            Fast Ferries

                            $210 million

                            $463 million

                            Alberta

                            Louise McKinney River Front Park

                            $12 million

                            $20.5 million

                            Saskatchewan

                            Information Services Corp.

                            $20 million

                            $100 million

                            Manitoba

                            La Esplanade Riel

                            $15 million

                            $22 million

                            Ontario

                            SkyDome

                            $150 million

                            $608.9 million

                            Federal

                            Parliament Hill Renovation

                            $440 million

                            $1.4 billion

                            Figure 1: Examples of budget overruns for large construction projects in Canada

                            Of course, the concept of P3s only works if the private sector has an opportunity to recoup its investment plus a reasonable return on that investment, given the risk involved. That means that the project need or opportunity must be one that the public, i.e. the "customers", are willing to pay for on a pay-for-service basis. It is difficult to convince the public to pay for something that they normally expect to get for "free" through their taxes, such as road or highway networks. To pay "over the top" they need to see a clear added benefit, such as shorter journey time and/or reduced congestion.

                            There is also the public's perception of the "terrible specter" of someone making an "obscene profit" out of a "public service". It is true that profit is involved, but anyone in construction knows that the risks involved in any construction undertaking, especially one of any size involving property and the environment, is considerable. It is orders of magnitude different from, say, interest on a bank savings account. And people complain how low those are!

                            It is also true that the legal agreement between the parties must be very carefully crafted for the arrangement to work. This is especially the case considering the long term of such agreements and how they can be seriously impacted by inflation of the value or cost of money. However, considerable experience is now being built up in crafting such agreements.

                            So, on balance, we think we would rather settle for paying the extra profit factor over the long term for a major infrastructure works, than be held captive to bureaucrats. After all, such people are only spending money that is not their own, and with a tendency to a short term view.

                             

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