Last week, the Alberta government announced plans to enter a public-private partnership to build 5 new high schools: 2 in Edmonton and the others in Blackfalds, Langdon, and Leduc.
The winning bid came in at just over $300 million. The high schools are slated to be completed in time for the 2024–2025 school year. Once operational, they will have the capacity to accommodate 7,000 students.
Prasad Panda, the province’s infrastructure minister, said in the announcement that “this P3 schools project is saving taxpayers money and furthering Alberta’s Recovery Plan to diversify and create jobs”.
So, let’s talk about that.
Generally speaking, P3 projects differ from full public projects in that the government covers only a portion of the costs up front and a private partner covers the rest.
Here’s the thing though: the private partner doesn’t donate that money altruistically to the project. They consider it an investment and expect it to be paid back.
Sometimes, that payment might come from users (such as a toll road). Other times, it comes from the government, which pays it back in installments.
These 5 school projects will likely be the latter, as has been the case with other P3 projects recently. Especially since one of the participants with the winning bidder—Concert-Bird Partners—is Bird Capital, a project financing division of Bird Construction.
In fact, a media release from Bird Construction claimed that financing will be repaid over a 30-year maintenance period.
Financing for the project was arranged jointly by Bird Capital Limited Partnership and Concert Infrastructure Ltd. and will be repaid by the project concession company throughout the 30-year maintenance term.
So, Panda’s comment is a bit misleading. Alberta isn’t saving “taxpayers money”; they’re effectively borrowing private money, which they’ll then have to pay back over time.
Alberta already has 4 main P3 partnerships:
- 18 public schools (2008)
- 10 public schools (2010)
- 12 public schools (2012)
- Evan–Thomas Water and Wastewater Treatment Facility (2014)
Let’s look at the 2008 P3 contract, for example.
This project was a 32-year contract: 2 years construction and 30 years maintenance. Total cost over the life of the contract was projected at $1.157 billion.
The contract stipulated that if all the schools were built by the end of of June 2010, then the government would pay $125 million toward the capital costs of the schools, as well as an early completion bonus, based on a daily rate per school, to a maximum of $1 million.
The remainder would be paid out in monthly amounts to the contractor through 3 streams—capital, maintenance, and renewal—over 3 years.
According to a 2010 media release, the government at the time claimed that they saved $97 million over the life of the contract—a little over $3 million a year—through going through a P3. This was 13% less than what they claim they would’ve spent if the 18 schools were entirely publicly funded (although technically, they were still publicly funded).
The main causes for the “cost savings” included:
- Economies of scale
- Construction efficiencies
- Building innovations
- Risks shifted from government to the contractor
- Fixed-cost contract
They left out things like lower wages and fewer benefits for the workers who manage the maintenance responsibilities outlined in the contract.
Even so, the government is still paying for this first contract, 13 years later, and it still has 19 years left on the contract. It’s not even halfway through. When the contract ends, all 18 of those schools will be 30 years old.
And like I said, this isn’t the only P3 the government is currently still paying for. It has several P3 contracts that are costing us tens of millions of dollars every year
According to the most recent provincial budget, the Alberta government will likely pay $17 million for all P3 contracts for schools over the current fiscal year, $1 million for the aforementioned Evan Thomas water treatment plant, and $65 million for all ring road P3 contracts.
That’s $83 million for all P3 contracts the government plans to pay this year, not including these 5 high schools or the Calgary freeway. And the amount it has to pay back to these private contractors increases every year.
Plus, that’s just principal repayments. Debt servicing payments are even more, with $26 million this year for P3 school contracts and $103 million this year for ring road contracts.
Here, let me show breakdown these contract payments a bit more.
|Schools (debt service)||$30||$30||$30||$29||$28||$28||$27||$26||$25||$25|
|Ring roads (principal)||$26||$28||$37||$45||$48||$50||$56||$65||$70||$73|
|Ring roads (debt service)||$72||$71||$83||$94||$92||$90||$95||$103||$103||$101|
|Evan Thomas (principal)||$1||$1||$1||$1||$1||$1||$1||$1||$1||$1|
2022–2023 and 2023–2024 are targets. 2021–2022 is an estimate. 2017-2018 and 2020–2021 are forecasts.
In the last 10 years, Alberta’s P3 payments to private contractors has gone from $141 million to $219 million. That’s an increase of $78 million, or 55%. That works out to an average increase of $7.8 million a year, and combined total of over $1.8 billion.
And I guess that amount is about to get even bigger.