June 11, 2009

Ontario hospital unions warn of rising P3 financing costs

ST CATHARINES, Ont.

The cost penalty paid by governments for financing hospitals and other public infrastructure projects through public private partnerships (P3s) has jumped substantially since the onset of the financial crisis, warns a report released by the Ontario Council of Hospital Unions (OCHU/CUPE).

Economist Hugh Mackenzie’s report says the financial crisis has made P3s an even more expensive and risky way to build public goods like hospitals, roads and schools.

“The financial crisis has been bad news for private investors looking to profit from so-called public private partnerships,” says the report’s author, independent economist Hugh MacKenzie.

“The financial crisis has increased the spread between borrowing costs for the private and public sectors and made it harder to attract investors to highly leveraged projects. If P3 financing was bad before the financial crisis, it’s even worse now, and all governments should take notice.”

The report finds that the financing cost disadvantage for P3s had reached as much as 60 per cent in the early stages of the credit crunch and now has reached 83 per cent, even assuming that P3 operators are prepared to accept lower rates of profit.

That means that governments can afford to invest 83 per cent more in infrastructure projects if they are publicly financed than if they are privately financed.

The McGuinty government remains fully committed to the P3 model for building vital institutions like hospitals, even though P3s increase costs for every large project, the union says At the St Catharines General P3, private investors backed away from the project, causing the McGuinty government to scramble for financing, turning to OMERS, the Ontario municipal employees’ pension fund.

DCN News Services

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