Private sector partnerships could deliver infrastructure more cost effectively at equal, or even enhanced, levels of service

Canadian governments have been joining countries around the world looking to public-private partnerships (P3s) as a partial solution to financing and managing public infrastructure. In a comprehensive report released today, TD economists are calling on Canadian policymakers to create the winning conditions for the P3 market to flourish.

While the government takes on the bulk of the activities related to financing, designing, building, maintaining and operating public infrastructure, P3s involve the sharing of these responsibilities across the public and private sectors. They have been used extensively in jurisdictions such as the United Kingdom, Australia and New Zealand. In contrast, Canadian governments have been slow to embrace P3s over the past decade, although that may be starting to change.

“Governments have been turning to new approaches such as P3s in recognition of the fact that the status-quo is not doing the job,” said Derek Burleton, associate vp and senior economist of TD Bank Financial Group, in a news release.

Burleton noted that despite the huge improvement in budget positions in most parts of the country, growth in overall public capital spending has fallen short of growth in the economy over the past three years, partly reflecting the competition for tax dollars from health, education and other areas of public service. As such, not much of a dent has been put in Canada’s sizeable infrastructure gap, believed by many to be $50-$125 billion.

“There is a growing consensus that the choice in strengthening infrastructure is not between the traditional approach and P3s, but between using a P3-style model and deferring urgently needed projects indefinitely.”

Still, P3s have proven to be more than just an infrastructure funding alternative for cash-strapped governments. This approach opens up opportunities for the public sector to harness the innovative spirit and talent of the private sector, and in doing so, deliver infrastructure more cost effectively at equal, or even enhanced, levels of service. “A UK study showed that about one quarter of P3 projects were delivered late compared to almost three quarters in the public sector. Moreover, cost over-runs were recorded by only one in five P3 projects compared to three out of four in the public sector.”

In spite of their potential to generate value for money, P3s have had difficulty gaining traction in Canada. Probably the largest roadblock to more widespread use of public-private partnerships is the country’s relative inexperience in using these arrangements and the resulting lack of public understanding. As an example, Burleton pointed to one common misperception. “P3s are believed to be little different than privatization, when in actuality, the government retains ownership of the asset and continues to establish the ground rules.”

But, while jurisdictions such as the U.K. and Australia are regarded as world leaders on touching all of these bases, less commonly known is the fact that some promising models are being developed right on Canadian soil. “British Columbia, in particular, has been receiving international accolades for its early accomplishments in the area of P3 development,” said Burleton. Ontario, Quebec and Alberta have also been making progress in moving their P3 programs forward.

The report, “Creating the Winning Conditions for Public-Private Partnerships in Canada” (including charts) is available in PDF format on TD Economics’ Home Page at: http://www.td.com/economics.