Written by Vi Bui and Dylan Penner
The COVID-19 pandemic has revealed and amplified many structural inequalities in our societies. As workers and communities continue to struggle with the ongoing consequences of the pandemic, we urgently need government to put people at the core of its COVID-19 response and recovery plan. However, what we have seen so far are troubling signs that the Trudeau government is planning to ramp up their privatization agenda through the Canada Infrastructure Bank (CIB).
The Canada Infrastructure Bank
For decades, infrastructure has been severely underfunded in Canada, and local governments have been bearing the brunt of it. Under the Harper government, securing federal funding for major infrastructure projects required a public-private partnership (P3) screen, while provinces’ austerity budgets downloaded more cost to municipalities. Aging water and wastewater infrastructure urgently needs upgrading, while investments in public transit, regional rail and green infrastructure are critical to transition to a low-carbon economy and adapt to a climate crisis.
Responding to the urgent calls from municipalities to invest in infrastructure, the federal Liberals made infrastructure a key focus when they took office in 2015. We welcomed much needed investments, including in the Clean Water and Wastewater Fund and Public Transit Infrastructure Fund as part of the Invest in Canada plan. The Liberals also promised to establish a public infrastructure bank to provide low-cost loans to provinces, territories and municipalities. What emerged, however, was the CIB, an arm’s length agency with a $35 billion budget and a mandate to invite private investments in revenue-generating infrastructure projects.
As of November 2020, the CIB has announced funding for five projects, signed a memorandum of understanding with another five and signed an offer for advisory services to one other. Ranging from urban public transit to regional rail to district electricity and water, the CIB projects are all structured as public-private partnerships, a model well-documented to be costly and inefficient while significantly compromising accountability, public control and quality. Not every project is moving forward – this past summer, the township of Mapleton called off its plans to privatize its water infrastructure with the CIB on the grounds that it would have been too risky.
What’s wrong with public-private partnerships?
P3 projects involve the private sector significantly in the financing, design, building, operation and maintenance of infrastructure and services like water, wastewater, transit, hospitals and roads. P3s are criticized in Canada and around the world as a form of privatization that costs more, delivers less and lacks accountability. From the water privatization in Hamilton to the Ottawa light rail transit (LRT) project, Canadians don’t have to look far to find examples of P3 fails around us.
P3s cost more
Private financing is often subject to two to three times higher interest rates compared to public borrowing, and require financers to provide a return on investment for their shareholders, resulting in significantly higher project costs. In a review of 74 P3s in Ontario in 2014, the Auditor General concluded that they cost the province $8 billion more than if they had been procured publicly. A similar report by the B.C. Auditor General suggested the 16 P3 projects cost the province nearly twice as much compared to public financing.
When essential infrastructure or services are privately operated, there is also an incentive to increase user fees over time to create profit. A Food and Water Watch report showed that in the U.S., private sector providers charge 59 per cent more for drinking water and 63 per cent more for sewage services than public water services. Rising user fees affect the most vulnerable communities first, and in the case of water, could violate the human right to water.
P3s deliver less
In an attempt to cut corners and maximize profits, private companies operating P3s often try to reduce workforce and avoid unnecessary investments in the public interest, delivering poorer quality. The business case for P3s often include a significant “risk transfer” amount, presumably as the private sector takes on the risks associated with the project. However, the Ontario Auditor General has reported that this “risk transfer” factor in P3 projects is regularly inflated without evidence, often to favour the P3 option. At the end of the day, when it comes to essential services like water, sewage treatment or transit, the community and municipality still bear the consequences, and cost, when things go wrong.
For example, Nova Scotia’s review of 39 P3 schools in 2010 revealed that “the terms of service contracts are not adequate to ensure public interest is protected,” and that there was no child abuse registry or criminal record check of subcontractors. In 2017, the Ontario Auditor General discovered the four hospitals with P3 maintenance contracts had to request more funding or experienced funding shortfalls due to the higher costs or additional work not covered by the original contract.
P3s lack accountability and remove community control
Hiding behind confidential contracts, the entire process of negotiating and procurement of P3s is behind closed doors. The contract, once signed, takes away public control of the infrastructure and services for several decades.
In March 2018, Ottawa city councillors only had three weeks to review their P3 contract for the LRT Stage 2 before signing and did not learn until after the fact that the winning proponent failed to meet the minimum technical score. In 2011, Berlin residents and citizen groups had to push for a referendum to publicize the contract for its privatized water services before ending up taking it back into public hands.
Often operating under a consortium of private companies, it is very difficult to hold anyone accountable for P3 projects. Residents cannot directly appeal to or put pressure on nameless consortiums for changes that directly affect their daily life. Putting profit before the public’s best interest, P3 operators are less likely to make investments or upgrades to guarantee public safety, promote conservation or ensure equity.