By Jeff Nagel - BC Local News Published: October 07, 2008
Warning flags are going up that the global credit crisis could leave B.C.'s major infrastructure projects unable to get expected financing through private partners. Key projects such as the Port Mann Bridge/Highway 1 widening do not yet have final signed contracts with groups of global companies that are supposed to finance, design, build and even maintain new facilities. They're being built through public-private partnerships (P3s), intended to shift construction and financial risks away from the government. Although governments with their better credit ratings can raise money more cheaply than the private sector, the case for P3s has been based on the greater efficiency of private construction offsetting the higher finance costs. But some critics say that may be changing, as the differential between private financing costs and government bonds dramatically widens, and many private firms are challenged to raise money at all. "It's much more difficult to get credit," said Canadian Centre for Policy Alternatives economist Iglika Ivanova. "It will be harder for the private partners who want to bid to raise the money. Costs will increase. It could be increasing costs will be passed on to the government and the taxpayer."
Much, she said, depends on the details of the contracts the province strikes with P3 partners, but those are not made public. Government could opt to shield partners from some risks in order to lower financing costs, but that undermines the intent of P3s. Partnerships BC CEO Larry Blain said he is "pretty relaxed" about projects where planning is well underway. He said the group picked this summer to build the $1.7-billion Port Mann/Highway 1 project has pledged its financing as a condition of going into final negotiations on a contract. "Banks are committed to providing loans on certain dates," he said of the consortium led by Australian infrastructure firm Macquarie Group. "As we go through the project they put more and more of their capital in." Blain said he could not discuss the Port Mann negotiations or whether the global financial crunch has led the firms to demand more favourable terms. Nor could he reveal how big a deposit the private bidders have put up, which would be forfeit if the group were to walk away from the negotiations."They're committed and there are consequences if they did that," Blain said.
Victoria had been aiming for a final Port Mann deal this fall. Also in talks but not yet finalized are a Fort St. John hospital project, a new northern cancer centre in Prince George and a long term care facility in Prince George. Other big P3 contracts have been signed over the summer, for construction of the Surrey Outpatient Hospital, as well as hospital expansions in Victoria and Kelowna/Vernon. "All of those projects reached financial closing and are now under construction." In the event partners were unable to finish a project or did not complete it to specification, Blain said the province could withhold payments. "They don't get any financial payment until they're actually completed," he said. Blain's happy the hospital projects were signed off when they did – before the financial turmoil deepened. "We feel pretty good about the risk transfers that we're achieving," he said. "In these sorts of situations where there is movement in the markets, we're pleased."
Blain said the financial market upheaval may affect the P3 business moving forward. He expects a continuing active market for smaller projects, but said that may not be the case for large ones on the scale of the Port Mann where many firms and banks must join forces. "There's some evidence around the world those types of projects are difficult to do," he said. The South Fraser Perimeter Road is one project that is still early in the procurement process, with bidders not yet identified. The situation will stabilize at some point, Blain said, and at that time banks will be attracted to infrastructure projects that can count on B.C. taxpayers as long-term stable customers.
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