Hospital and health care is the most active industry sector in Canada with the province of Ontario having 38 projects under way and the province of British Columbia having nine projects under way.
Transportation is also picking up speed with 31 projects proceeding nationally including nine in Ontario and seven in British Columbia. There are approximately 20 national projects in the justice and correction sector while the environment sector has attracted 16 projects nationally. There is also activity in areas including recreation, education, communications, government services, real estate, energy and defence.
How do Canadian provinces differ in terms of PPP administration and activity?
Well Ontario has 73 of the 146 PPP projects in the country. British Columbia is next with 28, followed by New Brunswick (12), Alberta (11), Quebec (10), Manitoba (five), Nova Scotia (four), Prince Edward Island (two), Newfoundland and Nunavut (one each).
One of the unique hallmarks in Canada is the creation of pan-Canadian procurement agencies, which manage the procurement of projects. They have achieved high effectiveness and efficiency in project delivery. This also means that PPP project models may be different in each of the provinces and federally.
How do current Canadian PPP frameworks differ from the UK and the rest of developed world and what can we learn from them?
Through the creation of the pan-Canadian agencies, there are now dedicated procurement agencies for infrastructure projects. Generally, these agencies deliver the projects to be procured consistently in a cost-effective and time efficient manner. The time period from requests for pre-qualification (RFP) release to financial close is less than 12 months for a new major hospital, which we understand is generally three years in the UK.
The majority of projects now under way are modelled after the design-build-finance-maintain structure. Under this model the private sector consortium agrees to take on the risk of financing and building the public infrastructure and once built the consortium operates it on behalf of the government under a long-term service agreement.
Long-term bank lending has been used in only a few recent projects in Canada. Typically the banks provide short-term loans that are then taken out by long-term bonds placed with institutional investors.
There is also now developing a secondary market for infrastructure acquisitions, which will continue to gain momentum.
What specific challenges will the Canadian PPP market face in 2011 and how is it planning to overcome these?
The global financial crisis is ongoing. This challenge will be addressed through stable domestic debt and equity markets and government co-financing.
Ensuring adequate market capacity: here, there is active encouragement at all levels of government for participation by foreign constructors, operators and equity providers.
Another challenge is ensuring efficient procurement timeline. Through the processes initiated by experienced procurement agencies there are now truncated time lines with an average of less than 12 months from RFP release to financial close being the norm.
How has the Canadian market changed since the first PPPs were launched – where will it go next in terms of sectors and financing?
It is predicted that the next priority projects include public transit, water infrastructure, waste water infrastructure, local road infrastructure, energy and affordable housing. More municipal governments are also looking at PPP infrastructure procurement to bridge their infrastructure gaps. The municipalities will require procurement experience to assist with the implementation of these projects and bundling of these projects may bring them within the realm of interest of the experienced procurement agencies.
As PPP projects are completed, consortia are interested in selling their interest in the completed project and redeploying their capital into new projects. Canadian financial institutions and pension funds looking for stable cash flow are expected to begin to buy into these projects over the term of the service contracts (typically 25 to 35 years).