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P3: Wading into the public-private concept
On Nov. 19, Abbotsford voters will be asked to approve or reject a proposal to enter into a public/private partnership (P3) to deliver a new source of water to this city.
The Abbotsford/Mission Water Sewage Commission (AMWSC) currently supplies water to 160,000 people in the region with a capacity of 143 million litres per day (MLD), but the city predicts population growth will require a system to service 430,000 people within 20 years.
The AMWSC ran into water shortages in 2007 but watering restrictions and four new groundwater wells from the Abbotsford-Sumas Aquifier pushed the next anticipated shortage to 2017. The highest demand ever recorded was 137 MLD in July 2006.
A new system would create a capacity of 400 MLD in three phases: 100 MLD by the summer of 2016 to meet current demand, 225 MLD by 2024, and full capacity by 2031.
The construction would involve a water intake station on Stave Lake, a pump station on the east shore, a treatment plant north of the District of Mission, a 6.6-kilometre raw water transmission main from the pump station to the treatment plant, and a 12.4-kilometre treated water main from the treatment plant through Mission, across the Fraser River to existing Abbotsford water infrastructure.
Mission City council voted to reject support for the Stave Lake project under private partnership in April, but it can’t block Abbotsford’s access to water from Stave Lake, nor construction if Abbotsford chooses to proceed.
Last week, the city announced a $200,000 public education campaign on the issue.
Abbotsford Mayor George Peary and council members, with the exception of Coun. Patricia Ross, are in favour of a P3 project, touting potential federal funding and reduced construction risk for the city.
The P3 agreement would likely carry a 25-year design-build-operate contract with a private company, but the infrastructure and assets would remain under the city’s control.
The estimated capital costs of the project will be $291 million, with up to $61 million from the PPP Canada Fund, if the application is approved.
PPP Canada is a federal Crown corporation created in February 2009 with a $1.2-billion annual budget to support potential development of infrastructure P3s. The fund focuses on provincial, territorial, municipal and First Nations projects. To gain approval, the project must be designed, built and financed by the private sector and funding must not exceed 25 per cent of the project’s direct construction costs.
Abbotsford has formally applied for P3 funding, but approval has not yet been received. The city expects to have a response before the referendum. If funding is denied, the referendum is “null and void,” says city manager Frank Pizzuto.
The private company would have to meet provincial and federal water quality guidelines in any P3 agreement to run the Abbotsford treatment plant and would be monitored by city officials.
The benefits to a P3 agreement are hotly contested, with no clear answer, but it is generally understood they provide efficiency in projects requiring financing of large capital costs that can’t otherwise be raised quickly with public money.
A business analysis for the Stave Lake project prepared by the accounting firm Deloitte, found marginal financial advantages to a P3 contract over a traditional one, particularly in design, construction and maximizing cost certainty. The P3 model fell short, however, in ensuring the lowest water cost to households.
The analysis found an average capital cost savings of 30 per cent in nine other P3 water treatment projects in Canada and the U.S.
Traditionally, government designs and funds capital costs of a project, and private companies bid on the contract to build it. The downside of this system is that project costs can escalate and the government is ultimately responsible.
A P3 contract mitigates some of those risks, such as cost overruns, lateness and quality, which are handled by the private company as stipulated in the contract.
Most P3 experts have identified the key to success in a P3 partnership as requiring the initial efficiency to outweigh any increased costs over the long-term.
P3 critics have in the past said four previous P3 projects in B.C. – The Canada SkyTrain Line, Sea-To-Sky Highway upgrades, Diamond Ambulatory Care Centre and the Abbotsford Regional Hospital – were more expensive than the public option.
There is some local confusion pertaining to P3s, with some people believing Abbotsford Regional Hospital was sold, when it has always been owned by the province through the Fraser Health Authority. The service portion of the contract, however, has exchanged corporate hands.
P3s have been negotiated in Canada for decades, but in B.C., regardless of the terms of the contract, the ownership of the asset and infrastructure is retained by the public.
For more information on the Stave Lake project visit the city’s website at www.stavelakeproject.ca
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