November 22, 2011

Brownfields can benefit from public-private partnerships

PPP Canada executive speaks at Brownfields Canada conference

SAUL CHERNOS

correspondent

Public-private partnerships can help finance and facilitate successful brownfields projects, says a federal government official close to the process.

Projects can theoretically proceed under their own steam if the developer’s pockets run deep. However, brownfields are almost always costly and fraught with risk.

With public-private partnerships, governments and private interests come together as a team and help offset challenges such as financing and risk, for mutual benefit.

Governments have traditionally contracted pieces of projects to parties with specialized knowledge and resources. More recently, though, governments have begun moving to an increasingly relationship-based model, handing over build, design and finance components, and sometimes even maintenance and operations, to the private sector.

PPP Canada, a federal Crown corporation that helps finance public infrastructure development, provides grants and loans each year to projects meeting predetermined standards and qualifications.

At the recent annual Brownfields Canada conference in Toronto, PPP Canada’s director of business development, Rob Mackay, told delegates his organization has provided five projects with loans or grants since its inception in 2009 and has $1.2 billion to work with before its current mandate expires in 2014.

“We’ll fund up to 25 per cent of eligible hard construction costs and soft costs associated with developing a project,” Mackay said, adding that PPP Canada prefers loans to grants if a project will ultimately generate revenue.

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Municipal, provincial and territorial governments are eligible as are First Nations, and applicants must demonstrate they’ve secured the remaining 75 per cent of funding. For this reason, alone, partnerships are crucial, Mackay said.

Private companies can also be eligible but must have public-sector sponsorship, Mackay added.

Public-private partnerships are suitable when governments want to reduce the costs associated with building public infrastructure and are seeking partners that are competent and can take on added responsibilities, Mackay explained. The private sector, meanwhile, would look for projects where it can exercise its knowledge and experience and earn a profit.

One key area governments are keen to farm out is liability.

“A good P3 is where you’re transferring the right types of risks to the private sector,” Mackay said.

“Not all the risks, but the types of risks the private sector has the ability to manage properly, whether at the short-term construction stage or the long-term concession stage.”

Ironically, PPP Canada has not yet awarded money to a brownfields project. “There was one project, but it dropped the brownfields component,” Mackay said.

Truth be told, PPP Canada doesn’t directly finance brownfields work itself. The agency exists to support infrastructure.

“Your brownfields site has to be remediated and then you need to have public infrastructure as an end use,” Mackay explained.

Of course, cleanup is generally the riskiest and costliest component of any brownfields redevelopment. Still, for the right project, PPP Canada might be a suitable funding partner.

We can fund social housing if it’s on a brownfields site that’s one category, Mackay said. Redevelopment of parkland, or construction of museums or wastewater treatments plants are others. In all, there are 16 categories.

One conference delegate asked if municipalities might be eligible for funding to redevelop small parcels of land that used to house gas stations.

Every municipality has a bunch of these kinds of properties, and sometimes they want to redevelop them into park space or a park-and-ride. But they’re not necessarily located close to each other. If we could cobble or bundle enough projects together, could that be of interest?

Mackay replied that bundled projects might possibly work so long as the end use falls within one of the 16 approved categories, and only after clean-up work is completed.

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