Canada should spend $300 billion-$400 billion over the next five years on infrastructure, experts say. That will bring existing facilities up to safety and efficiency standards and accommodate economic and population growth.

According to a recent report by CIBC World Markets Inc., 60% of Canada’s infrastructure is between 50 and 150 years old, and more than half of the systems have reached 80% of their service lives.

Canada has been slow in addressing the problem, says Jim Leech, senior vice president of private capital at the Ontario Teachers’ Pension Plan Board in Toronto. The issue is a hot potato in many jurisdictions, partly because Canadians have had trouble coming to terms with the concept of user fees — even though, when appropriate, these are the best way to make providing infrastructure affordable.

As a result, there hasn’t been much private-sector investment in infrastructure. There have been a few toll roads, but these are recent. Ports are an exception; the OTPPB, for example, owns two in Vancouver. But water facilities are still government-owned and operated.

Federal Finance Minister Jim Flaherty has said infrastructure has to be a priority. But, Leech says, it’s difficult for him to deliver on it because most Canadian infrastructure is under provincial and municipal jurisdiction.

Nevertheless, governments are investing in infrastructure — directly and through private/public partnerships. Ottawa intends to invest $33 billion over the next seven years; including matching money from partners, about $50 billion is expected to be spent. Much of it will go to municipalities, including $11.8 billion from the transfer of gas-tax revenue and $5.8 billion in GST rebates. But there is also $8.8 billion for strategic infrastructure and $3.1 billion for gateways and border crossings.

Most provinces also have infrastructure programs: Renew Ontario, which started in 2005, has a price-tag of $30 billion over five years; British Columbia plans to spend $5.2 billion in the fiscal year ending Mar. 31, 2008, $4.9 billion in fiscal 2009 and $4.6 billion in 2010.

(Some of these figures may include double-counting, as federal money may be involved in provincial and municipal projects.)

Infrastructure project financings may include private equity through PPPs. Most governments encourage PPPs, some of which feature the private sector maintaining and operating facilities over long-term contracts. At the end of the day, however, governments or consumers pay for these projects, even if the up-front money comes from the private sector and payments are spread over time.

More than $15 billion in infrastructure projects are currently being delivered through PPPs, says Jane Peatch, executive director of the Toronto-based Canadian Council for Public/Private Partnerships, which was established in 1993. The council is not directly involved, but does research and provides information.

Gregory Smith, president and CEO of Macquarie Power & Infrastructure Fund in Toronto, expects PPPs to account for 10%-20% of future Canadian infrastructure development.

B.C. has been a leader in PPPs; indeed, it is a global model, says Smith. Part-nershipsBC, a registered company owned by the provincial government, was established in 2002 to facilitate PPPs for all projects to which the province contributes $20 million or more and for which there is no compelling reason not to go this route.

PartnershipsBC advises on whether a PPP is the best way to go and is involved in the negotiation of deals, says Jennifer Davies, its director of communications and government relations in Vancouver. There is only one project in which PartnershipsBC has continued to be involved through the construction stage, and that’s expected to be a one-time situation.

Ontario and Quebec also have arm’s-length Crown corporations, both established in 2005. Ontario’s Infrastructure Projects Corp. has been assigned more than 40 projects; PPP Quebec has eight.

For its part, Alberta plans to build 18 schools using PPPs.

In the 1990s, Ontario used the PPP model for the Highway 407 toll road. Smith says Highway 407 provides a global blueprint for implementing PPPs, even though the toll road’s operators had to take the government to court when the province tried to change the revenue formula.

There is less enthusiasm for PPPs at the municipal level, partly because many projects are less than the $25-billion level at which PPPs tend to deliver more benefits than the traditional government-only model. Projects need to be of a certain size and complexity, says Davies, if PPPs are to reap the benefits of the transfer of risk to the private sector, add innovation and deliver the performance fee model that will ensure the facility is properly maintained and operated. Most of PartnershipsBC’s PPPs are close to $100 million, for example, although there was one at just $15 million.

@page_break@PartnershipsBC evaluates PPP bids against a base cost of projects to find out what the cost would be if the government did the project alone. If the costs are the same, PartnershipsBC tends to go with the PPP because even if a PPP costs a little more, the benefits would probably still make it worthwhile.

The Federation of Canadian Municipalities says its infrastructure spending is generating a deficit of more than $60 billion, but it doesn’t appear to favour PPPs. A recent study it commissioned concluded:

> There is no evidence that PPPs consistently cost less or provide better services than traditional public projects.

> Traditional municipal financing is relatively easy and less costly than private-sector financing.

> PPPs are not usually used for repairs and maintenance of existing infrastructure, which is the more pressing problem for municipalities.

> If municipalities grow too reliant on PPPs, they may lose their capa-city to manage public initiatives.

> PPPs can reduce flexibility, transparency and accountability because proprietary information is kept in private hands.

Others say there is a role for PPPs at the municipal level. In a December 2006 study for Toronto-based C.D. Howe Institute, Harry Kitchen, professor of economics at Trent University in Peterborough, Ont., says some criticisms of PPPs are important, especially the concern about loss of accountability and the sacrifice of quality for profit. But, he argues, the answer is not in keeping the projects in the public domain but in “designing carefully negotiated contracts based on performance measures that reflect results and outcomes rather than inputs.”

In Kitchen’s view, the concern that PPPs cost more is short-sighted because PPPs protect against cost overruns, scheduling delays, and so on. Peatch adds that governments have to decide how many future obligations they are comfortable in taking on.

There is more flexibility with the bonds that are traditionally used to finance infrastructure because they can be paid off earlier or refinanced for a longer term. With PPPs, obligations are set in stone and have to be paid every year. As a result, using PPPs for 10% of infrastructure spending rather than 50% may make sense. IE