Canada: Public Private Partnerships: Policy And Execution Dilemmas

Once limited to a few jurisdictions (including Australia, the United Kingdom and certain parts of Europe), private involvement in the procurement of public infrastructure through concession or similar arrangements (referred to in this article as public private partnerships, or PPP) have become increasingly attractive to governments worldwide.  For any government looking to introduce PPP, or broaden its use of PPP as a delivery model, there are a number of questions that must be addressed.  A few of these questions are set out below.

Politics:  Involving private enterprise in public infrastructure cannot avoid the political reality in which it takes place. Different countries have different views as to the appropriate role of private enterprise in such undertakings. Any model must take into account these often divergent such views (including public perceptions with respect to PPP), while at the same time ensuring that politics do not so impede the development of the model that it defeats the benefits of the model.

Where PPP can be used:  Some jurisdictions have looked to PPP's primarily in the transportation sector. There seems little reason, however, why PPPs cannot be used in broader government infrastructure sectors. For example, in the Canadian PPP model, there have been more social infrastructure projects (hospitals, detention centres, data centres, courthouses, etc.) than transportation projects. At times, there may be a predisposition to include or exclude certain subsectors based on constitutional jurisdictions within a particular country. To the extent that a country can develop a model which is flexible, one may ask why it should be restricted on such a basis. 

Facilitating certainty:   T attract foreign participants, and thereby increase competition, in its PPP market, countries need to provide some level of certainty to prospective participants.    Certainty can be viewed on various levels, but in the context of PPP, it is suggested that there are a few key issues.  First, the legal regime must provide an adequate framework for PPP participants to understand what they are bidding to. Second, PPP documentation must provide sufficient information to permit participants to properly evaluate risk and pricing, and thereby provide strong bids from which the government can choose. Third, the host government must provide certainty of process.  A process should be one that is understood by all, consistent, transparent and, to the extent possible, free from political interference.  With respect to the last of these, in certain jurisdictions (including a number of provinces in Canada) PPP participants have lauded the involvement of specialized government agencies which are not only advisory in nature, but are actually the procuring agency for various projects. One advantage of such an agency is that it can transcend some of the jurisdictional difficulties referred to above.  Fourth, PPP participants are generally attracted to markets where there is certainty of deal-flow which can justify the significant pursuit costs that are associated with the PPP model.   Robust deal pipelines can be hampered by a number of factors, including actual infrastructure needs, delivery capability, and financial strength (to name a few).   One of the ways to address pipeline concerns is to first bring to market social infrastructure projects, which may be more numerous and smaller (in the latter case also facilitating development of PPP expertise in government in a smaller project context).

Choosing the Delivery Approach:   There are arguments in favour of various PPP models (build finance, design build finance, build finance maintain, design build finance maintain, etc.)   For example, some would argue that, in the absence of a design feature in a procurement process, proponents cannot bring full value to the infrastructure project in question.  Similarly, many suggest that, in the absence of a long-term operational and or maintenance component (at least 20 years), governments may not fully realize one of the benefits of the PPP model "being the healthy tension between construction provider and operations and maintenance or facilities management provider".

The role of equity.  One of the elements of the PPP model is the inclusion of an equity provider. While this may be part of a construction company, or operations and maintenance provider, it can also be a separate financial investor who is prepared to participate in a consortium involving construction and operations and maintenance participants.   The type of equity participant that may be attracted to a particular PPP model may depend upon the structure of a particular PPP project (with most financial investors preferring a longer-term equity component).   A longer term equity component may also have the collateral effect of encouraging a secondary market in infrastructure projects, which can in turn attract new investors into a country's infrastructure market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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