The 31st annual Canadian Council for PPPs (CCPPP) conference in Toronto picked up where the 30th incarnation had left off a year earlier: focusing on the challenges that the market is facing and working out how to meet them head-on.
“The industry has taken that challenge to heart,” said Lisa Mitchell, president & chief executive of the CCPPP, in her opening address. “It is important to note that the discussions have indicated a clear commitment from both sides of the table to P3s.”
That commitment was underlined by Peter Fragiskatos in his keynote address, outlining that the government “will continue to work with the private sector” to get results around areas such as tackling climate change and dealing with the “immediate challenge” of housing.
Reflecting on the conference, Mitchell told P3 Bulletin: “There was a reminder from both sides of why we got into P3s in the first place: it’s about providing value for the taxpayer and in delivering better, more resilient infrastructure. That sets the tone for how we find solutions.”
After more than a decade of successful P3 projects, focused mainly around social infrastructure schemes hitting the sweet spot of $100-500m, more recent efforts to branch out into more heavy civils projects such as transportation and municipal transit have left their scars on the industry. Add in the current high inflationary environment, supply chain issues and rising interest rates, and there are plenty of headwinds still facing the market.
However, the industry is not taking this lying down. Infrastructure Ontario (IO) has long been a pioneer in the P3 space, and for a number of years now has been looking to take the fight head-on when it comes to adjusting risk structures and other aspects of deals in an effort to attract more investors and make sure the public sector is getting the right deal for its taxpayers, too.
“The benefit to us of the progressive model is on affordability,” IO president and chief executive Michael Lindsay told delegates. “Where we see the sweet spot for progressives is on the multi-billion-dollar hospitals.”
Lindsay also underlined that his organization is not wedded to one particular method, and pointed to the Quinte Health project that is being developed as a design-bid-build scheme, with requests for proposals being issued to four qualified companies earlier in November.
Critics, though, can point to three progressive P3 schemes tendered by IO over the past year - all of which have picked up just a single bidder (the Ottawa Hospital - Civic Campus Redevelopment project; the Peter Gilgan Mississauga Hospital; and the Trillium Broader Redevelopment Project).
Joey Comeau, chief operating officer and executive vice president of Capital at EllisDon, suggested that the current climate for the industry means more consideration needs to be placed on how bidders can come to the table - and argued that taking a progressive approach is not always necessarily in the best interests of private partners, or their public sector counterparties.
During the same session, Cory Grandy, the Government of Newfoundland and Labrador’s deputy minister for transportation and infrastructure, admitted that authorities like his “need to listen”. The province is only starting out on its P3 odyssey compared to established markets like Ontario, and as such Grandy is keen to learn from both the public and private sector experiences and create a dialogue around what works.
“As we look to use progressive and other models, we will look to discuss experiences with colleagues elsewhere, for example at Infrastructure Ontario,” he added.
Mitchell added that the experience in one sector, such as the issues faced by major transit projects, “should not guide everything else”, adding: “Horizontal projects like hospitals or wastewater treatment plants are different beasts, with different challenges and are by and large delivered successfully on time and on budget across Canada as P3s.”
Capacity is an important factor in these discussions. The transition from small to medium-sized social infrastructure projects to mega hospitals and heavy civils schemes like transportation and urban transit, has significantly eroded the number of private partners that are able to take on the risk required to deliver these schemes.
As a result, the industry is casting around for new ideas - and not everyone is putting all their eggs in the progressive basket.
One panel session at the CCPPP conference asked whether the time had come for Canada to “embrace revenue risk projects”.
In-keeping with the nature of the whole conference, the session was deliberately provocative in attempting to stimulate discussion around a new area of development that could provide a new stimulus and way to deliver new infrastructure.
Still a relatively new phenomenon in Canada, revenue risk schemes have been a staple of P3 programs in other parts of the world, perhaps most notably in places like Australia, where overly optimistic forecasting around toll roads has at times left some investors badly exposed when those numbers have not materialized.
Nonetheless, there was a belief from the panel that Canada could benefit from these experiences, with the market having found a common ground. “Revenue-based deals in other countries have had the right structure for us to pursue them,” explained Maxine Ethier, managing director of legal at Canada Pension Plan Investment Board.
“We have not seen that so much in Canada: we need to see enough return; and at the same time, we need the scale to be able to deploy a significant amount of capital. There are only certain types of projects that are going to warrant that.”
Lisa Raitt, vice chair of global investment banking at CIBC, was blunt in her assessment of the need for models such as revenue risk: “The Government of Canada is broke, so the notion of [availability-based] P3s going forward is going to be more difficult.”
The former Conservative deputy leader of the opposition suggested that areas such as ports and airports could be ripe for revenue risk sharing partnerships, and argued that while it is important politicians take the public with them, the procurement and funding mechanisms are getting further removed from politics. She highlighted the Canada Infrastructure Bank (CIB) as an example of this.
Nonetheless, Borja Franco, head of business development for North America at Acciona Concessions, underlined the importance of ensuring the public is on side with plans, arguing that this is even more important in revenue risk projects, in areas like roads where a hostile local population could result in fewer people using the asset than originally forecast.
“There need to be mitigation mechanisms to ensure that contractors and investors are comfortable with the revenue sharing arrangements,” he said. “We have seen that in Latin America, Australia and Europe.”
He added: “We are starting to see the public sector [in Canada] taking a more collaborative approach in terms of the pain/gain share.”
This willingness to be more collaborative in the approaches being taken is perhaps a sign of the maturing market in Canada, and reflects the willingness to enter into difficult conversations to deliver improved outcomes. It was also the focus of another of the event’s panel sessions.
“There needs to be trust on both sides and transparency so that you can have an open conversation,” said IO’s president of project delivery, Angela Clayton. Part of that comes down to having “an owner that knows what it wants”, she continued.
As Canada learns from the lessons of other jurisdictions - particularly the UK, with the event hosting a keynote speech and discussion with Barry White, co-author of th White Fraiser Report into behaviours in PFI contracts - moving away from an adversarial mindset and ensuring all sides are acting collaboratively will be vital to delivering the large infrastructure projects being planned, regardless of the type of P3 model that is pursued.
“That requires a different range of skills,” said Louise Panneton, president and managing director at P1 Consulting. “It is easy for people to slip back into their traditional roles.”
Pierre Lafond, senior vice president at Pomerleau, agreed, adding: “You have to set the tone from the top of the organization.
“Collaboration is not just saying ‘yes’ to everything, there also needs to be the right to debate and part of that is the art of listening.”
Clayton suggested that one of the key elements here is moving from an overly punitive model to one focused on incentivization. “Where we have introduced incentive models, that has been better at producing the outcomes we want.
“We realize we need to show up differently in the current environment.”
The CCPPP’s Mitchell concluded: “There really is a desire and willingness in the industry - from both governments and the private sector - to find solutions together to some of the challenges we are facing.”