Public-Private Partnerships

April 13, 2002

Public-Private Partnerships

News media have reported on the results of the Ipsos-Reid survey on public private partnerships. What has not been reported is that the questions were so general as to defy meaning. The devil is in the details with P3s, as they are called, but the Ipsos-Reid questions avoided any details.

According to the Ipsos-Reid website, two simple questions were asked:

1) As you may be aware, there has been much talk lately of private companies getting involved in areas currently under the responsibility of governments. These arrangements are called public-private partnerships and they are done for the purpose of providing public infrastructure, community facilities and other services. On the whole, do you think this is a good idea or a bad idea?

What do you suppose the answer would have been if the question had been "Should government be allowed to hide public debt in a contract with a private company?" The former Auditor General did look at that question and made it clear that the contracts supporting many types of public-private partnerships would not be accepted as being apart from government and would require the booking (disclosure) of public debt. Since then officials in the Ministry of Finance have been scratching their heads on how much risk has to be shifted before debt can successfully be offloaded and not reported. It is hard to find private companies that would accept the degree of risk shifting that is required by government.

Companies require additional payments to cover the risk shifted by government. Those risk premiums frequently make private-public partnerships more expensive than conventional arrangements. Conventional arrangements still involve the private sector. For example, government puts the construction of a school to bid and hires a private contractor to build it. The difference between that and a p3 is that with a p3 the private company might also provide the financing and might even go on to operate the facility (clean, do maintenance, or even manage and provide teachers). Given government's ideological bias in favor of p3s, it is up to the Auditor General to closely examine any contracts and report on whether the public been well served.

The second question asked in the Ipsos-Reid poll was:

2) With many types of public-private partnerships, the private company needs to charge a toll or a user fee to provide the service. Generally speaking, would you be willing to pay a toll or user fee to a private company for a service that was previously paid for by government through tax dollars?

According to the Ipsos-Reid poll, 48% of people surveyed would not mind user fees. We are rapidly finding out what the answer is on a real life example as government imposes fees on Inland Ferries that were previously considered to be part of the highway system, or part of compensation for flooding valleys to produce electricity. Interior MLAs with constituents soon to be affected by new user fees are learning that folks are not happy.

It is easy to agree with general principals only to discover that those principals do not hold up when applied to specific cases. Public-private partnerships have to be judged on the basis of the specific details for each scheme.