Will Ontario's Transportation Ministry Be Closed
Nevermind that it will cost taxpayers substantially more than if the Ministry did the roads themselves. We will find our P3 addicted Ministers federally and provincially shoving taxpayer money at private investors faster than anyone can imagine.
Can you imagine it. The Premier announces that thousands of MTO public servants would be made redundant because effectively, the Government has outsourced our road group. It would be breath-taking. The Opposition would not have a chance! No wonder the DRIC road really will not get started until late 2010. Just in time for Sandra and Dwight to get the credit here.
But you as a faithful BLOG reader would say that this is crazy since the P3 costs would be excessive. Let me remind you of what Margaret Thatcher's speech-writer wrote:
- "The decisions that really matter to political leaders are those to do with the getting and holding of power. Other decisions may turn out well or ill. They may cost billions of pounds or hundreds of lives, but for enlisted politicians those decisions are secondary. What matters to them is: will I still be here after this?"
It is bizarre to me that we have not yet learned our lesson after the Auditor General of Ontario audits of Bruce Nuclear and the Brampton Hospital. If one looks at the hundreds of millions of dollars of waste on just these two projects, imagine how much extra it will cost taxpayers if we have dozens of such P3 projects.
Bear with me as I give you a bit of background and do some mathematics to show you the huge mistake that we were making on the DRIC Road project.
The Internet is truly a wonderful tool with which to undertake research. Literally, at one’s fingertips are newspapers, magazines and journals from around the world that give us information that we would never otherwise easily find. If we knew they existed in the first place.
Of course, there are the online databases and subscriptions that enable us to find out all kinds of information and to permit us to remember what people have said years before, including some things that they would like us to forget.
Moreover, there are a number of tools that feed us this information that makes it even easier for us.
Every morning, I go through a ritual which enables me to find out valuable information that I can share with you each day in this BLOG. Contrary to what one may think, it is amazing that what we are going through in Windsor with the DRIC project is not unique.
Something similar is taking place in British Columbia involving the Port Mann Bridge. Vancouver Sun readers are very familiar with the ins and outs of that P3 project including the fact that the P3 investor, Macquarie, could not raise the necessary funds and required a bailout by the Provincial Government. Moreover, the actual cost of that project has more than doubled since it was first announced.
One would have thought frankly that the Windsor Star, the sister newspaper of the Sun, would have shared some of that information with its readers. But unless you are a BLOG reader, you would know nothing about it. If the Star publicized the mess out West one might be tempted to ask a question why we are doing a P3 project in Windsor.
Which brings me to a publication called Toll Road News. I have tell you it is not something that I read everyday nor even knew about. However, some of the information in it is priceless. Let me give you some data that you may not know about:
- “407ETR traffic level, toll revenue up 5.3% in 2008 to $437m, Dec Q down
407ETR the privately operated Toronto Ontario tollroad reports 2008 traffic about level with 2007 and revenue up 5.3% to $437m. The December quarter saw traffic down - 3.4% as measured by vehicle-km traveled vs 2007Q4, 1.5% down by total trips, 1.9% down by average workday trips.
Whole year trips (2008/2007) were up by 1.2%, average weekday trips by 1.0%, but the best measure, vehicle kilometers traveled showed level pegging - less than a tenth of a percent change.
Tolls collected for the whole year of 2008 were up 5.3% (C$546.5m vs C$518.9m) but the December quarter suggests a downturn toward the end of the year as the Ontario economy follows dismal US trends, albeit lagged and not as severe, yet.
2008Q4 saw toll revenues of C$133.5m vs 2007Q4 C$135.8m - a drop of 1.7%.
Earnings before income taxes were C$85.1m in 2008 vs C$60.3m in 2007. Income tax recovery enabled the company to substantially increase their net income to C$119m in 2008…
It is among the top three or four highest grossing and busiest tollroads in North America. 407 International has a 99 year concession and is owned by Cintra Concesiones de Infraestructuras de Transporte based in Madrid Spain, Macquarie Infrastructure Group based in Sydney Australia and SNC-Lavalin of Toronto in approximately 50/30/20 ratios.
Operations are by Cintra.”
If you will recall an earlier BLOG I wrote, you will remember that their tolls have doubled in a period of seven years and in 2001, the project was in a $70M loss position compared with today’s profits. Why even when traffic is flat, it seems their revenue increases.
Please excuse any typos. My hands are literally shaking as I see history repeating itself and taxpayers being put at risk:
- 1) Re Bruce Nuclear--“Energy Minister Dwight Duncan said he would sign the same deal all over again.”
Re DRIC--"Duncan said last week funding of the border highway is not a concern despite the massive price tag.” - 2) Re Brampton Hospital—“Were there lessons learned? Sure there were, and if people look at what Infrastructure Ontario is doing now on other projects, they would see the changes that have been made. But please do not punish my hospital for being the pioneer.”
Re DRIC—““the "Windsor Essex Parkway project would be the first large road project to be delivered using Ontario's AFP process."
They have their excuses already for the Auditor General report on the DRIC road once it is written. It is interesting as well the accurate but narrow statement was with respect to Highway 407 not being an AFP project. But then again, after the losses in Court, I can understand why the Province wants us to forget about that project.
Here is an interesting line that will justify the P3 road in Windsor and why private enterprise must be given all of this extra money:
- “The province will pay for the project only upon its completion.”
Do you get it… the private investor will have to pay the carrying costs until completion. Of course that will be built into the price charged to the Government in the first place but let us pretend that it is not. It just makes it so much more palatable to pay out excessive amounts to the private sector.
Of course, no one wants to tell us in this project that this technique has been applied before so that there is no justification for this. In the Lakeridge Health Oshawa hospital project:
- “Under the Ontario government's Alternative Financing and Procurement (AFP) program, the approximately $91.5 million redevelopment project is being executed as a 'build-finance' project. "
The private investor
- “will finance the project through the construction period.”
In this case, once the project is completed, then the private investor gets all of its money.
The financing is a little bit different with DRIC:
- “The province will pay for the project only upon its completion, making monthly payments for a period of 30 years, said Dougan, likening the arrangement to a mortgage. Should there be any problems with the roadway during that time period, the province would benefit from payment reductions, he added.”
It's hardly a mortgage but I will talk about the mortgage concept subsequently. Now you see a second reason for giving the private investor so much money: the business risk if there are any problems with the roadway.
You remember what was said before. It is not that the private sector investor is making a huge profit:
- “In a P3, however, the risks and potential costs are underwritten by the private sector, albeit compensated by an appropriate return. In other words, in a P3 procurement, the government is paying an insurance premium to protect against the risk of higher costs, rather than self-insuring at a zero premium cost but at a potentially high failure cost.”
Of course, this is a farce as well. Someone is trying to make it appear as if this is the first road that has ever been built in Ontario. The Transportation Ministry has built roads all over the place and should have a very good idea about what the risks are.
Here is what the Auditor General said in the hospital case about how the risks were overstated in order to justify the P3:
- “Another concern we had was the $67 million in transferred risks that was added to the November 2004 government design-and-build estimate. This amount was arrived at on the basis of the judgment and experience of management and consultants. Owing to the subjective nature of these estimates, it is virtually impossible to substantiate the validity and accuracy of the quantified amounts. We were concerned that the transferred risks for this project amounted to almost 13% of the November 2004 government design-and-build estimate of $525 million. In comparison, actual cost overruns (a major component of risk transfer) in the design and construction of the Peterborough Regional Health Centre—a hospital built under the traditional procurement approach during the same period—were about 5% of the total contract value."
Want to know how taxpayers get fleeced, then just read this comment:
- "Critics maintain these sorts of public-private partnerships are costlier in the long run but Dougan called that a “myth,” and promised taxpayers “value for money at the end of the day.”
Is a P3 project being costlier a myth? I hardly think so.
Here is what the deal now is, not exactly as Dwight said it was before when he mentioned 40 years:
- “The province will pay for the project only upon its completion, making monthly payments for a period of 30 years, said Dougan, likening the arrangement to a mortgage.”
Let us look at financing costs only and take 20% as the rate of return that a private investor wants for a toll road as I Blogged before. For a mortgage interest rate, the rate charged by Infrastructure Ontario for one of its 30 year to a Municipality deals is 5.61%. Let us take the cost of the project as $2B but it will probably be closer to $3B if the other P3 deals are typical.
COST OF $2B MORTGAGE AMORTIZED at 5.61% OVER 30 YEARS
Total payments, principal and interest: $4,178,606,000
Interest cost: $2,178,606,000
P3 COST FOR $2B PROJECT AT @20% RATE OF RETURN OVER 30 YEARS
Total Payments: $12,000,000,000
EXCESS AMOUNT FOR P3 BORNE BY YOU AND ME AS TAXPAYERS
$12,000,000,000-$2,178,606,000= $9,821,394,000
Reduce this amount for carrying costs until completion (although it is buried in the costing) and a minimal amount per year for road mainenance and it is still a hefty price differential that taxpayers have to burden.
Does this look like a myth to you?
Of course, the private investor would not be as crude as to say 20% in its tender documents. However, the Shadow Tolling or Availablity pricing as with Highway 407 would be very substantial by the end of the 30 year period.
Of course, our Governments know all of this. I am not telling anything out of turn or revealing information that is only known to members of the secretive P3 sect. It is not like I am telling you what their secret handshake is.
However, I do believe that Government is keeping some information from us. After all, if they told us the “non-myth,” we might get upset. One day though it has to come out but there is a terrific way of doing it as was disclosed in British Colombia with the Port Mann Bridge. Read it and shake your head in dismay. One comment in particular will make you want to vomit:
- “Total Port Mann cost always near $3 billion, official says
The B.C. Liberal government has long assumed it would cost close to $3 billion to build and finance the project to twin the Port Mann Bridge and expand portions of Highway 1, a senior government official said Friday.
"We had a number that wasn't that far off from $3.3 billion," Frank Blasetti, assistant deputy minister of transportation, said in an interview.
"We were around $2.8 billion…
As he unveiled the design Wednesday for a new single-span bridge, Premier Gordon Campbell said the entire project will cost $2.46 billion to build, and close to $3.3 billion including the cost to maintain, operate and finance the project between now and 2013, when construction is expected to be complete.
The announcement came as a surprise to a public that in January 2006 heard Campbell announce the project's estimated price tag at $1.5 billion.”
$2.8 billion, $3.3 billion… what’s $500 million between friends if you are a public servant who plays with taxpayer money and who has no accountability. I wonder if Frank Blasetti will be the cheque-writer in BC!
posted by JoeBlog at 12:01 a.m.
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