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April 30, 2007

Alternative Financing

Ottawa city council bails out two failing P3 projects


Ottawa city council has decided to provide additional funding for one of two failing P3 projects, and to take over management of the other.

Both are ice rinks with hockey-sized sheets of ice.

Council voted last Wednesday to provide an additional $400,000 a year for three years to bail out the Bell Sensplex, a four-sheet hockey rink adjacent to Scotiabank Place, home of the Ottawa Senators of the National Hockey League.

And, although no details have been ironed out, council decided the city should assume management of the Ray Friel Complex in the east end when the management firm said it was unable to make money, and intended to walk away from the contract.

Much of the debate was held in private session, but there were reports that the discussion was at times acrimonious. Certainly, the public debate that followed was spirited at times, as Coun. Alex Cullen, a long-time opponent of the P3 concept, tried to convince others on council that the Sensplex contract should be terminated, rather than give the operating company more money.

The Sensplex is owned by Capital Sports Group, which owns the Senators. The facility is operated by Ottawa Community Ice Partners (OCIP), a non-profit organization.

OCIP, Cullen said, is “already in technical default.”

“They have already drawn a million dollars out of the operating reserve. This after we guaranteed the construction of the facility through the municipal capital facilities agreement. We waived property taxes. We contribute toward their operating reserve. And we’re a guaranteed client for 2,400 hours of ice time a year. And they can’t make ends meet?”

But Coun. Marianne Wilkinson argued there were unusual circumstances involved.

“When they were starting construction, there was a hydro strike, an NHL strike, and they didn’t get the sponsorship funds they anticipated in their initial proposal. These were unusual circumstances. But it’s a busy, first-class facility. It’s well run, but it’s a little bit undercapitalized right now.”

Should the ownership group fail, the city is responsible for the company’s debt for building the $25.6-million facility.

The situation at the Ray Friel Complex is somewhat messier.

There, Serco Facilities Management underestimated its operating costs by $1.3 million a year when it submitted its bid, according to a report received by council. The bid was to build two ice rinks and run them and the centre’s other community facilities.

The report said revenues were overestimated. It added the company is “underperforming” and has said it can’t make a profit out of the centre.

"They have already drawn a million dollars out of the operating reserve.

Alex Cullen


As a result, the report said, “Serco has strongly indicated a preference for terminating the existing arrangement.”

That leaves the city with the responsibility for the company’s $12 million debt, as well as the need to manage the facility.

Coun. Rick Chiarelli said that indicates the city must be more realistic when evaluating proposals. The underestimated operating costs and overestimated revenues should have been caught, he said.

And, on a motion from Coun. Peggy Feltmate, city staff will begin giving council an annual report on P3s, comparing predicted costs and revenues with actual costs and revenues, in the hope that any emerging problems can be caught early.

Undeterred by the problems with the two P3s, council decided to seek a private partner to develop facilities at Petrie Island, a recreational area on the Ottawa River in the east end.

The city has already spent about $3 million developing and servicing the island, and there are plans for a $900,000 a pavilion. That would be a “bare-bones” structure, the best that could be fitted into the city’s capital budget.

There are, however, plans in existence for a larger, more elaborate building that might cost just under $2.5 million. Building that would require some sort of P3 project.

If no partners can be found, council decided, the basic pavilion would be built.

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