Capital Construction P3's

Capital Construction P3's

Introduction

Public-private partnerships (P3s) in the area of capital construction and infrastructure do not differ significantly from regular P3s in that they are usually motivated by similar factors. These factors include cost saving, transfer of risk, and the sharing of expertise. They require the same winning conditions in order to be successful and face the same obstacles. However capital construction P3s stand out from other P3s due to their visibility, size and scope. Visibility, in terms of media coverage and physical presence, place these P3's into the spotlight. Their size manifests itself not only physically but also financially. The ability to span generations and affect thousands of people attests to the scope of capital construction P3s. Such partnerships are very complex and the risk of failure is great. This paper however, intends to focus more on the success of capital construction P3s. As such, the example that is most representative of success, visibility, size and scope is the Confederation Bridge. The bridge will be used as a point of reference for all further discussions on the subject.

This paper will begin by examining the background and history of capital construction P3s in Canada. These partnerships affect many different types of stakeholders that will be listed. The paper will progress to what links these stakeholders to each other. With this established the question of success can be introduced. What makes for a successful capital construction P3? This question will be answered by examining various past successes, in particular the Confederation Bridge. These factors may not always be present and it is important to address potential barriers that must be overcome in order to achieve success. Finally we will examine the future of capital construction P3s.

Background

Since 1994, there have been more than 45 major capital construction P3s either under construction or completed in Canada including bridges, roads, highways, schools, health centres or hospitals (Burleton, 2006). Among these, one of the most costly and complex P3s ever in Canada was the Confederation Bridge. Therefore, it is of most interest to study this particular project, analyzing its historical context and outcomes.

History

The Government of Canada has a "constitutional obligation to ensure that Prince Edward Island is linked to the mainland, as specified in the Constitution Act of 1867 and in the 1873 Terms of Union" (Transport Canada, 2007).

Historically, the method of communication designed to meet this commitment was a ferry service. In 1993, the Government of Canada and Strait Crossing Development Inc. (SCDI), a private consortium, agreed on financing, designing and constructing a bridge across the Northumberland Strait. It is now known as the Confederation Bridge: a 9 mile long 'fixed link' between Prince Edward Island and mainland New Brunswick. It is the longest bridge over ice covered waters in the world (Prince Edward Island, 2007).

The idea of a fixed link across the Northumberland Strait had been debated since the 1870s, when a railway was being built across the province. It failed to attain the approval of the Government and was rejected several times. In 1969, the project was formally abandoned once again due to scientific recommendations that favoured improved ferry services. With the costs of providing ferry service steadily rising along with increased deficits by the railway system on Prince Edward Island, talks about a fixed link were renewed in the 1980s. The federal government proposed to participate financially in the construction and operation of a fixed link. In return, the province was to agree on abandoning the ferry service as well as the railway system. Consequently, Public Works Canada called for formal proposals in 1987 and received three offers: a tunnel, a bridge, and a combined tunnel-causeway-bridge (Wikipedia, 2007).

Following this, Joseph Atallah Ghiz, Premier of Prince Edward Island at the time, promised a plebiscite to assess the public support of the project. There were deep concerns from 'anti-link groups', concerning potential environmental damage due to the construction. Further concerns involved negative economic effects on the local population. The plebiscite was held on January 18th, 1988 and eventually favoured the fixed link. Despite the fact that the federal government kept facing numerous legal challenges, the project went ahead with the selection of the single bridge proposal and the choice of Strait Crossing Development Inc. to develop it. On December 2nd, 1992, the official announcement was released that the Northumberland Strait Crossing Project would be built. The construction was set to commence in the summer of 1993, however due to delays caused by legal issues, official construction started in October of that year. The bridge opened on schedule on May 31st 1997.(Loxley, 1999, Wikipedia, 2007).

Terms of the contract:

The Government of Canada agreed to an annual payment of approximately $44 million for 33 years to Strait Crossing Development Inc. These payments, formerly made to cover operating expenses from the ferry services, were then being used by the developer to finance the project (Wikipedia, 2007). One of the developer's subsidiary company, Strait Crossing Bridge Limited (SCBL), is to manage, maintain and operate the bridge until 2032, at which point these operations will be transferred to the Government of Canada for what remains of the 100-year life span of the bridge (Confederation Bridge, 2007). Lastly, tolls charged by SCBL are "profit for the consortium with toll increases indexed to inflation and regulated by the federal government" (Wikipedia, 2007).

Outcomes for the region:

Tourism in P.E.I. has increased with annual numbers of tourists growing from 740,000 in 1996 to 900,000 in 2006 (Confederation Bridge, 2007). The bridge also created an increase in the export of products from P.E.I. to the mainland, these products mainly being potatoes and seafood. The island's retail sector has also undergone an important change, turning away from small family-owned retail stores and toward 'big box retailers' like Wal-Mart and Staples (Wikipedia, 2007).

Stakeholders

Private partners:

 Strait Crossing Development Inc. (SCDI): consortium in charge of designing, building, financing, operating and maintaining the Confederation Bridge. Consists of: