Election 2014: Shocked… shocked to find there’s been privatization going on here

There is a scene in the movie Casablanca where café owner Rick is surprised to see his friend Captain Renault has sent the police to close down his backroom casino.

“I’m shocked… shocked to find that gambling is going on in there,” says Renault.

With impeccable timing, a young employee approaches Renault. “Your winnings sir,” the employee says. Renault quickly stuffs the proceeds in his pocket.

The beginning of the election has been a little like that.

The media appears to be jumping all over NDP leader Andrea Horwath for her suggestion that the Liberals would expand privatization, including at the TTC.

Kathleen Wynne apparently saw red (maybe it was her bus) and insisted that nobody is privatizing the TTC. She may as well have said “I’m shocked, shocked that privatization could be going on,” as someone approaches her with a pen to sign the contracts.

Did she just forget the TTC’s Eglinton-Crosstown light rapid transit (LRT) project is being developed as a public-private partnership. That word “private” is the point of contention.

While it is universally recognized as a P3, the government likes to call such projects by a more bureaucratic name that obscures what’s really going on: “Alternate Financing and Procurement” (AFP).

The website for the Crosstown LRT notes that this is not new in Ontario – that $23 billion in infrastructure has been developed this way since 2006. Well not quite, but more on this shortly.

This is from the same government that in 2003 fought – and won – an election opposing the P3 method of designing, financing, building and operating the William Osler and Royal Ottawa hospitals, vowing to bring them back under a public system (they didn’t). Everything was on the table in these projects except for the clinical services.

You may have noticed that the government doesn’t actually own any construction companies. So any infrastructure project usually does get tendered to the private sector. So far no complaints here. The tendering could easily be contingent on a price and delivery guarantee. If you’ve ever built a house, you may have some familiarity with these types of contract guarantees.

What’s different about these P3 projects is what gets bundled with them.

In the case of the TTC privatization, it takes maintenance away from the TTC workers and gives it to a private company for an undisclosed period of time. Most of these deals are between 25-30 years.

Secondly, the financing is done through the private sector, which means Ontarians are paying a much higher interest on the borrowing. In a project like the Crosstown, pegged at $6.6 billion this year, that’s a lot of interest. Count on the cost to rise by the time the final deal is sealed later this year. In 2010 the cost was estimated at $5.3 billion.

The cost to government (read: us) is also higher given the private sector absorbs the “risk” of potential cost overruns. This “risk” is usually what they use to justify the higher costs of such projects. The odd thing is, given the risk is bundled in the higher costs, we pay those additional risk costs up front instead of “risking” that the project would cost less by coming in anywhere near on time and on budget.

Thirdly, when the private sector gets involved, transparency goes out the window. When transparency is gone, so is accountability. Gas plants anybody?

Finally, the P3 consortiums that are involved in these projects have one objective, and that’s to maximize profit, not public service.

At this point, while curiously already under construction, the LRT P3 is at an early stage – requests for qualifications close this month. Usually that is followed by a separate competition among the qualified parties to bid on the project.

The Liberals have gone much further than the Harris Tories in developing infrastructure using this costly method. But not of all of the $23 billion has been contracted along the lines of more traditional P3s. After an initial wave of bad news, including an auditor’s review of the William Osler, the McGuinty government scaled back the scope of their P3s, some of them involving only financing during the construction period.

Having come through a period of relative calm, they are now escalating the scope of these projects again, planning P3s that will be with us for more than a generation.

As the UK discovered, developing infrastructure this way also ties your hands when going through a period of austerity. These contracts are iron-clad. That means the cheques have to keep on coming no matter what transpires. In the case of the UK, it meant the only thing left to cut were the actual direct services citizens received. The maintenance could remain at a hospital, the clinical services, well that’s another story.

The McGuinty government also discovered that they couldn’t alter the terms afterwards, unable to freeze the cost of tolls on the 407.

The media are trying to suggest P3s are not privatization at all. Their vision of privatization is the complete take over a service, such as the final sell-off of the 407. The 407 is the most extreme form of privatization of a public asset, but it doesn’t mean that all the degrees in-between do not also represent forms of privatization. Nor does it mean P3s will not become stepping stones to much broader forms of privatization. Let’s not forget that the 407 began as a more traditional P3.

NDP leader Andrea Horwath is correct – this is a form of privatization within the TTC. It’s expensive, not transparent, and it means public accountability will be very difficult to maintain. Instead of being shocked by this allegation, Kathleen Wynne should come clean on her AFP plans.


As a footnote to this story we recently read another term would be more appropriate for P3s: The P6: Public partner pays, private partner profits.

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