Review in the Telegraph Journal-Public-private Partnerships Not Always Cheaper Alternative, Says Pro
Public Service, Private Profits
The Political Economy of Public-Private Partnerships in Canada
An award-winning Winnipeg professor has published a new book warning of the hidden dangers of private-public partnerships while using a New Brunswick deal to back up his point.
John Loxley, an economics professor at the University of Manitoba, released his newest book entitled Public Service, Private Profits this week complete with a case study that dissects the water-treatment plant deal between the City of Moncton and the largest publicly traded water company in the world.
The book uses case studies in Canada over the past two decades while aiming to explain the economics of private-public partnerships-or P3s-as a future guide for provincial and municipal governments to use in negotiations or decision-making.
Loxley has been working on the book since the late 1990s.
“The argument in favour of P3s is to shift the risk from the public sector to the private sector,” Loxley said. “So what you have to look at carefully in each case is to analyze how much risk is transferred and whether that risk is worth the extra cost that all of the deals involve.”
“The record is not very good and the book is designed to help.”
One of the studies sinles out the city of Moncton and the deal struck more than 10 years ago to build its water treatment plant.
Veolia Water Canada built the Moncton plant at a cost of roughly $23 million in a lease-to-buy agreement. The private firm fronted the money and built the plant and then took over operations.
After 20 years, the city will own the plant outright and can renew or terminate the operating agreement.
“But there is a capital charge in water fee that you pay and that capital charge is basically paying for the debt that the private company borrowed,” Loxley said. “Inn analysis for the book, the cost of borrowing which is applied in a capital charge is much higher than what Moncton could have borrowed at.”
“And Moncton now ends up paying $31 million for a $23 million water-treatment plant.”
Loxley added: “The dispute here is not about the quality of product that Moncton received, that’s indisputable knowing the quality of Moncton’s water before, it’s about whether or not the private partnership was cheaper alternative.
The City of Moncton maintains it was.
“This project came in on budget and on time, “Said Steve Trueman, Moncton city solicitor. “I think this particular agreement can be held out as a model of what is good about P3s.
We retain ownership of the water supply, they treat it for us and we control the water rates of the citizens and the private contractor does not.
Truman said the operating costs are also tied to the product pricing index, meaning the private partner has assumed the risk of market price jumps for water treatment chemicals and other expenditures.
“Professor Loxley’s book was just released and we have not had the opportunity to review the citations or calculations for his work,” said Lou Ann Baker, spokeswoman for Veolia Water in a statement. “We do know , however, that his suggested profit margins are grossly overstated. More importantly, we know that the citizens of Moncton are benefiting from a partnership that delivered and now operates a state-of-the-art drinking water facility that exceeds Canadian water quality standards.”
Veolia Water Canada also argued that Moncton is receiving a savings of $12 million less in capital, operating and maintenance costs over the life of the contract than if it had been done by the utility alone.
“We also believe it is important to remind citizens that the greater Moncton community was suffering through repeated boil-water advisories and was at risk of water-borne pathogens prior to the partnership,” Baker said.
Loxley won the 2010 John Kenneth Galbraith Prize in Economics in March, for a demonstrated contribution combining economic analysis with a commitment to social justice.
He has priviously been commissioned by the Canadian Union of Public Employees to investigate P3 agreements across Canada.
Those findings include a scathing report on the Evergreen Park School in Mincton, a P3 project which Loxley said cost the province roughly $900,000 more than a publicly financed and owned project at the end of its lease.
Loxley cited the New Brunswick Auditor General’s 1998 report which underlines expensive borrowing costs because of a high interest rate for the inflated price tag.-Adam Huras, Telegraph Journal June 2010