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“If you’re a good public sector, you shouldn’t need PPPs (public-private partnerships). If you’re bad, you shouldn’t go near them.”
Nova Scotia’s government, having chosen the P3 model to design, build, finance and maintain the province’s most vital medical infrastructure, will dismiss that pithy little quote with little if any curiosity as to its source.
The province, after all, is armed with a report from international consulting giant Deloitte assuring it that there’s value in going the P3 route to replace the decrepit old buildings on the Victoria General campus with four new ones at the Halifax Infirmary site and a day clinic out on the 240-hectare parking lot known locally as Bayers Lake.
Deloitte and a handful of like outfits crop up regularly in the vast library of available literature about P3s. They are cited both for their expertise and steadfast advocacy of the P3 model. Deloitte’s recommendation that the province proceed via the P3 route would have surprised absolutely no one familiar with big infrastructure projects generally or the P3 model specifically.
As for the quote, it’s from a report on the lessons to be taken from P3 projects financed by the European Investment Bank. The lesson is that fools rush in, and the author is Robert Bain, former P3 guru in the infrastructure rating practice at Standard & Poor’s.
Standard & Poor’s is the bond rating agency that, last fall, validated the signature accomplishment of Nova Scotia’s Liberal government, when it upgraded the province’s credit rating from A+ to AA- thanks, according to Premier Stephen McNeil, to his government’s fine financial stewardship.
The premier borrows freely of S&P’s credibility to wring maximum political benefit from the credit rating boost, but the views of the bond rater’s former P3 expert won’t get a mention. In the murky world of political spin, the same source can be omnipotent and unreliable, depending on the exigencies of the moment.
By going the P3 route on the QEII redevelopment, the province is turning its back on what it claims is the singular tangible benefit — beyond political — from an improved credit rating, namely lower borrowing costs.
The QEII project will be financed privately, at borrowing rates two to five points higher than the government’s borrowing rate, so the cost of P3 financing — all of which will be paid by taxpayers eventually — is significantly higher than the province would pay if it borrowed the money itself.
The public benefit from public-private partnerships comes from the transfer of risk from the taxpayers to the private entity. Cost overruns, delays and such are risks generally transferred to the private partner, who manages those risks or pays the price.
Often, it is the value placed on that risk transfer that determines whether a project is a good candidate for a public-private partnership.
Enter the consultants, who do some math, maybe check the stages of the moon or the paths of terrestrial insects and come up with just such a valuation.
The International Monetary Fund (IMF) has warned governments about the dangers of exaggerated values placed on risk transfer, as has been the case frequently in the United Kingdom, birthplace of the P3 model — it’s called PPP there — during Margaret Thatcher’s time as prime minister.
A classic neoliberal, Lady Thatcher believed there was very little the public sector could do that the private sector couldn’t do better, but Nova Scotians were assured this week no such ideology is at play here.
Deputy minister of Transportation and Infrastructure Renewal Paul LaFleche said Nova Scotia’s not wedded to P3, and if proposals from potential private partners don’t deliver value for money, he suggested the province would revisit the P3 decision.
Such a reversal would set the QEII redevelopment back and eliminate the one good answer available to the McNeil government when asked what it’s doing to improve health care in Nova Scotia.
Timing is nearly as important in politics as it is in comedy, and on the present schedule, the reversal LaFleche floated would occur in the same year Nova Scotians can expect a provincial election.
It’s difficult to imagine a government being re-elected after fumbling this ball. Hitting the reset button after years of “process,” and thereby delaying construction on a replacement for the crumbling VG, would be a political blunder of epic proportions.
The government started down the P3 road, and the politics will dictate that it stays on that road, even if that means, in the end, it has to apply some lipstick to a piggish private partner.
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