PPPs should focus on value - not money

BY KARENA BENNETT Business reporter bennettk@jamaicaobserver.com

Saturday, September 26, 2015

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UNIVERSITY of Toronto Canada Associate Professor Matti Siemiatycki is encouraging the Government to focus on public private partnerships that create value for the economy rather than raising money or shifting projects off its balance sheet.

Siemiatycki, who was guest speaker on the topic Public Private Partnerships (PPP) - Value for Money at the Jamaica Institute of Engineers' three-day Conference held at the Jamaica Pegasus last Wednesday, told the audience that Canada has been successful in the construction and delivery of PPPs through its Government's clear understanding of the risks and rewards of the projects, in addition to high levels of Government oversight and control.

He added that the North American country has directed most of its PPPs into building hospitals, water systems, incarceration facilities and railway stations which aim to deliver value for taxpayers by reducing the risk of budget overruns and poorly operating and maintained infrastructure.

"When you come to Canada for the most part you certainly won't hear Government officials saying that they are doing a P3 to raise money, because that's simply not the case," Siemiatycki stated.

"For the most part the traditional P3s are being done to deliver value... they really focus on the drivers of value, about the construction and demand risks and also around ongoing maintenance of the projects being done at a high level. Those are the key sort of technical focuses that you hear when you come to Canada," he added.

Over the last decade, Canada has emerged as one of the best-performing PPP markets in the world after the development of a model that attracted sound investment among the private sector. To date, Canada has created approximately 200 PPP projects with support from both the Government and private groups which are being hailed as the primary reasons for the success.

Meanwhile, Jamaica has recorded less than 10 PPP projects to date with the most recent being the Norman Manley International Airport and the Kingston Container Terminal (KCT), for which the Government inked a US$510-million deal with French-owned company Terminal Link/CMA CGM Consortium, for the privatisation of KCT under a 30-year concession agreement.

"Canada's government has really focused on becoming a more savvy consumer of infrastructure... I think there is also a political rationale that they wanted to move P3s away from the discussions of privatisation. Privatisation has really poisoned the debate around P3s to the point where they don't even call them P3s anymore. In my province they call them alternative finance procurement."

He added that the Canadian Government initially started its PPP projects to raise new money for infrastructure and off-balance sheet financing. According to Siemiatycki, the motivations often led to privatisation from the transfer construction and demand risk to the private sector partner, a lack in transparency. The implementation of user fees on road facilities that are commonly free in Canada was seen as unfair.

"The contestations were that the government lacked the expertise to manage such complex concessions," he stated. Siemiatycki added that contractual clauses designed to protect the long-term revenues of the private sector investors have resulted in governments losing control over fee setting and system wide planning, functions that are key to protecting the public benefit of infrastructure projects.

He added that PPP concessions have sometimes included contractual terms that lock in long-term decisions that may not be acceptable to future Governments, which result in conflict between the partners. Additionally, the demand is often dictated by factors beyond the control of the concessionaire of a specific piece of infrastructure.

Also speaking at the Conference, Minister of Finance and Planning, Peter Phillips said the government aims to be more reliant on facilitating private investors to engage in partnerships with the government aimed at infrastructure development, as it deals with the constraints imposed on capital budget.

"The opportunities are greatest where we develop partnerships which are not reliant on the flow of funds from the budget as much as from developing proposals, which can be financed independently on the basis of user pay opportunities," he said.

"As growth returns, what we will see increasingly is that there is not only more fiscal space, but a gathering momentum for investments, which we have already begun to see in so many areas."

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