P3 deal flops in Cranbrook

By JOHN MOORHOUSETuesday, February 27, 2007 http://www.pentictonherald.ca/article_3132.php

As Penticton city council looks to finalize a private sector management deal for the South Okanagan Event Centre, the City of Cranbrook is about to end a controversial P3 agreement for its six-year-old recreation complex.But there are few similarities between the two situations, Cranbrook Mayor Ross Priest said in a telephone interview Monday.Penticton council has signed an interim agreement with Philadelphia-based Global-Spectrum and hopes to sign a final contract by June 30 for managing the event centre, Memorial Arena and the Penticton Trade and Convention Centre.By contrast, Priest said a two-year legal battle to terminate a public-private sector partnership at the Cranbrook Recreation Complex could be concluded by this Friday.

The Cranbrook facility which includes an arena, swimming pool and other amenities, opened in October 2000.Rather than retain ownership of the centre, the city entered into a long-term agreement with the developers, Keen Rose Technology Ltd., whereby the company borrowed 100 per cent of the capital costs. The city's lease payments would cover the debt payments. After 30 years, the facility ownership would revert to the city.However, Priest said the anticipated revenue flow didn't come near expectations, winding up more than $1 million a year off expectations."It was destined to fail before it ever got off the ground," said Priest, who was not on council at the time and strongly opposed the partnership agreement."The revenues that were projected were pie in the sky scenarios that didn't have much chance of success -- and are proving that had no chance of success . . . and subsequently the private contractors cut back their operation very much to the bone."

Complicating the situation was the company's assets were sold two or three times. An agreement to terminate the deal is now scheduled to close March 2."Our new partner desperately wants to get out of this agreement as well, and we are in fact getting paid about $1.7 million to relieve them of future financial obligations," he said.The city will then take over complete operation of the facility, but noted debt servicing and operation of the rec-plex will still be a challenge.However, Priest emphasized the Cranbrook experience is decidedly different from the pending Penticton agreement and he doesn't want to be seen as criticizing Penticton council's decision on private sector management for the South Okanagan Event Centre.

Priest added he has no problems with the rec complex itself, which he describes as a great facility. It is also home to the Kootenay Ice of the Western Hockey League, who average crowds of about 3,400 in the 4,600-seat arena.Mayor Jake Kimberley said Monday the city was well aware of the difficulties encountered by Cranbrook prior to opting for a private sector management of the event centre. He noted Global Spectrum is a large company and well-experienced in running such facilities.An interim agreement with Global Spectrum was formally signed earlier this month, which allows the company to start preliminary work on taking over the three facilities, subject to final approval by council.Jack Kler, the city's director of corporate services, said the interim pact can only be extended with consent from both parties. Instead of a single 25-year agreement, plans call for a series of five-year service agreements with an option to renew by mutual consent of both parties."Ours is a pure operating agreement," Kler said. "The five-year window is a technicality and a formality at the same time. We just want to be sure everybody is still moving along and all our expectations are being met."No transfer of management of the facilities will take place until a final contract is signed.