29 November 2007

The alchemy of P3s

Governments seem forever seduced by the allure of public-private partnerships (P3s).

With traditional procurement, a government hires a private company to build a facility such as a bridge or a hospital. The government finances the project, and after the facility is built, operates it. In a typical P3, the government contracts with a private cmpany to both finance and build the facility, and then leases it back. The idea is that, by some mysterious process, the government saves money.

Lately, federal Finance Minister Jim Flaherty has been preaching the P3 sermon and plans to set up an office to promote the concept. "Governments ... can no longer afford to finance, build and maintain every single infrastructure project in this country," says the minister."

They can't? Let's parse Mr. Flaherty's remarks.

In the first place, there is more money floating around this country than there has ever been before in our history. Much more. And the federal government is awash, almost to the point of embarrassment, in surpluses. Of course we can afford to finance, build and maintain the infrastructure we need.

In the second place, how will P3s save us money? Private companies aren't going to finance and build our infrastructure out of the kindness of their capitalist hearts.
Regardless of what legerdemain is applied to the financing, they will insist on recovering every penny they spend plus a handsome profit. Considering that governments can borrow at better rates than the private sector, projects will hardly cost less.

Big investors quite naturally love the idea. Jim Leech, incoming president of the Ontario Teachers' Pension Plan, says they are encouraging Mr. Flaherty, "to have assets that have in Canada traditionally been held in government hands turned over to the private sector." And why, I wonder, does he want to get his hands on our assets? Out of concern for the public good? I doubt it. More, I suspect, to make money for his investors, and that would mean at least equalling Teachers' recent rate of return of 13.2 per cent. That would be 13.2 per cent out of our pockets.

So please, Mr. Flaherty, stop wallowing in neo-con ideology and just give the cities the money they need to build the damn infrastructure.

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