The federal government鈥檚 recent announcement of new $14-billion Building Canada Fund brings Ottawa鈥檚 total 10-year national infrastructure commitment to $70 billion, the largest in 91原创 history.
But according to the Federation of 91原创 Municipalities, that still leaves a gap of more than $200 billion required to repair existing infrastructure and fund new projects. Where will that money come from?
Faced with deficits fuelled mainly by growing health-care costs, the provinces aren鈥檛 going to be of much help. And most cites and municipalities are already struggling to contain rising debts.
Canada鈥檚 infrastructure funding challenge is shared by countries around the world. A study released last year by consulting firm McKinsey & Company estimates that a staggering $57 trillion in global infrastructure investment is needed between now and 2030.
But another problem that鈥檚 shared with other countries is failure to achieve acceptable 鈥減roductivity鈥� (i.e. value for money) in public infrastructure projects. The study cites three key reasons for poor productivity: project planners鈥� 鈥渂ias,鈥� lack of 鈥減erformance accountability鈥� and 鈥渃apability constraints鈥� in public-service administrators. It concludes that a 鈥渧iable improvement鈥� in these factors could save $1 trillion a year.
But how could those improvements actually be attained?
Public-sector infrastructure projects have long been infamous for cost overruns and poor quality. And yet the study found that, over the past 20 years, absolutely zero productivity improvement has been made in government-administered infrastructure projects in Japan, Germany and the United States.
There鈥檚 no reason to believe other countries are doing any better. So not only has funding the infrastructure gap become virtually impossible, most projects that do get funded fail to deliver value for taxpayer dollars. What to do?
A big part of the answer lies in public-private-partnerships. P3s mitigate the productivity problems identified in the Mckinsey study because planning and forecasting is put in the hands of private sector experts who are contractually accountable for successful project execution.
A 2010 Conference Board study of 91原创 P3 projects found that they had delivered efficiency gains ranging from one per cent to 61 per cent and that 鈥渢he P3s 鈥� have delivered a high degree of cost and time certainty.鈥�
A Fraser Institute study released last year also found that P3 projects 鈥減rovide greater value for money and opportunities for innovation.鈥�
And 鈥淧3 projects that include private financing 鈥� motivate positive performance since the private sector partner has its own money at risk. With payment conditional on meeting 鈥� pre-set criteria and penalties levied otherwise, the private-sector partner has a strong incentive to deliver favourable results.鈥�
The Canada Line light-rail transit project from 91原创 International Airport to city centre is an example of this new full service approach to P3 projects. Intransit BC, a company owned by project leader SNC-Lavalin together with B.C. Investment Management and Caisse de D茅pot et Placement du Qu茅bec delivered the project through a 35-year design-build-construct-operate and partially finance agreement. Helping cash-strapped governments fund such projects has spawned global infrastructure investment funds which, together with pension and sovereign wealth funds, are investing hundreds of billions of dollars per year.
Transferring cost-overrun risk and accessing private-sector capital would help reduce Canada鈥檚 public infrastructure gap. But that still leaves governments on the hook for the pubic partner鈥檚 share of the capital and all of the operating cost.
Fiscal realities are accelerating a shift toward user-pay funding which, for bridges and roads, means toll charges. Today鈥檚 electronic technology allows charges to be paid seamlessly as drivers enter and leave toll zones.
But user pay has even more encompassing benefits. There is a fundamental fairness to having users pay the costs, rather than all taxpayers. Market value municipal taxation assessment results in those living closer to the city centre paying more toward road costs than those living in the suburbs. This means those who use the roads the least pay the most toward building and maintaining them. The result is a never-ending demand for more roads and what is, in effect, inner-city subsidization of urban sprawl.
Around the world, P3 infrastructure projects are fast becoming the route to providing lower-cost, higher-quality public infrastructure. And combining private financing with user-pay fees gives cash-strapped governments the ability to fund them.
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Gwyn Morgan, who lives in North Saanich, is a 91原创 business leader and director of two global corporations. He wrote this for Troy Media (troymedia.com).
