Canada country focus: Putting partnership first

It may be early days for the public-private-partnership model in Canada, but it is likely to expand and mature in coming years, creating a wealth of opportunities for Canadian and foreign companies. By Mark Bain and Tara Mackay of Bennett Jones LLP.

Over the past several years, Canada has developed significantly greater momentum in the public-private-partnership (PPP) arena. While there is little current interest in complete privatisation of public infrastructure and services, Canadian governments have increasingly signaled an intent to employ PPP, or other alternative financing and procurement models, to resolve a large and growing public infrastructure deficit.

Context

A quarter century of under-investment has left Canada’s public infrastructure in a weakened state. Combined with the steady growth of Canada’s economy and a failure to prioritise the maintenance of public assets, this under-investment has created a huge gap between Canada’s current stock of infrastructure and its present and future infrastructure needs. For Canada as a whole, this infrastructure gap is estimated to be upwards of $130bn, and it shows no signs of lessening.

In this context, a number of Canadian jurisdictions are considering alternatives to the traditional government financing and procurement model. There is a growing recognition that it may be necessary to allow the private sector to participate in the provision and operation of public infrastructure assets, through PPP or other structures.

Positive developments

Several provinces have established a ministry or agency to promote public infrastructure projects and examine alternatives to the traditional government financing and procurement model. In addition to developing coherent and consistent PPP policies, these ministries and agencies will help to raise the profile of PPPs in Canada and inform Canadians about the advantages and disadvantages of the PPP model.

For example, the Ontario government has established the Ministry of Public Infrastructure Renewal to develop a broad framework for planning and coordinating the government’s investments in public infrastructure. One of its responsibilities is to support the development of innovative and creative ways to meet Ontario’s infrastructure needs while ensuring that the public interest is protected.

In the past eighteen months, a number of pilot PPP projects, including four hospital projects (two in British Columbia and two in Ontario), four road projects (two in British Columbia, one in Alberta and one in New Brunswick) and a substantial transit project (the Richmond-Airport-Vancouver Rapid Transit Line in British Columbia) have reached financial close.

In the past six months, a considerable number of new projects have been announced in Ontario, British Columbia and Quebec.

In Ontario alone, the provincial government is proposing to procure over a dozen new hospitals, three new courthouses and a new light rail system using an alternative financing and procurement model.

Challenges

Those attempting to implement early PPP projects in Canada have faced a number of challenges, many of them political in nature, and many of them common to early pathfinder projects in other jurisdictions and other industry sectors.

First, the Canadian experience and approach to PPPs can best be described as inconsistent. While there have been some successes, like the Confederation Bridge, the Greater Moncton Water Treatment Facility and the Fredericton-Moncton Highway, certain other projects have met with slow progress, ambivalence and mixed reviews.

Part of the early inconsistent record can be attributed to the public sector’s slow pace in developing its own infrastructure resources and policy platform to manage an expanding PPP programme. Practices and policies vary substantially from jurisdiction to jurisdiction and, sometimes, project to project.

There is also a certain amount of organised rhetoric and other opposition to the PPP concept, particularly from public sector unions, and particularly in areas that are considered to be core functions of Canadian governments, such as health and education.

In the face of this early uncertainty, both Canadian and foreign companies have been somewhat reluctant to develop the resources necessary to bid for and carry out PPP projects. However, as deal flow increases, there is likely to be an increased interest in these projects on the part of the private sector.

Conclusion

The Canadian PPP market is still in the early stages of development but there is little doubt that it is expanding and maturing. Both the Canadian public and Canadian governments at all levels are considering alternatives to the traditional government procurement and financing model and seeking ways to address a significant public infrastructure deficit in the context of limited fiscal and policy options.

While only time will tell whether the PPP model will become as widely used in Canada as it is in the UK, continental Europe and Australia, if the current momentum can be maintained, the Canadian market has the potential to be a very significant source of opportunities for both Canadian and foreign companies.