The federal government’s promised Canada Infrastructure Bank is supposed to be a new government institution to fund infrastructure projects, but it’s a risky gamble.
While details on the infrastructure bank are expected in the upcoming federal budget, we know it is being positioned as a new source of funds dedicated to public-private partnerships (P3s).
Snippets of information have leaked out — hints and whispers of the Liberals courting equity investors and engaging consultants to create a pipeline of investment opportunities by privatizing federal ports and airports, or potentially other assets. The infrastructure bank is poised to be a commercial opportunity for equity investors, but it could equally muddy the waters in terms of ownership transparency.
When a federal, provincial, or municipal government builds a bridge, a highway, a school, or a hospital, we know who owns it: we, the people. But when equity changes hands, which happens frequently with these kinds of deals, the companies originally hired by the government to partner in a P3 are no longer the owners. So the private equity partners that any given government thinks it’s bringing to the poker game might not stay until the last hand is dealt.
Equity holders are the private partner of a P3 project. Their role is consequential: they run the operations and maintenance of whatever got built — a hospital, school, highway, or bridge. They set highway tolls, they collect user fees, they hire and fire staff, they set targets and standards. And they earn the revenue. Private profit, not necessarily high quality, affordable, accessible public services, would be their main priority.
When private partners sell their equity stake to new project companies after the P3 contract is struck, community projects are turned into mere budget line items in a global asset portfolio. Transactions favour the top bidder, not necessarily the best quality partner. Public assets become equity trading cards, changing ownership hands multiple times.
Whether highways or hospitals, the bottom-line determines the rules of the game and private partners are hording the gains. For instance, private equity in Vancouver’s Diamond Centre P3 hospital has already changed hands twice since 2007; but the hands of the hospital’s public partner are tied — the new equity holders hire and fire the cleaning and maintenance contractors.
Ontario’s Highway 407, which is subject to a road toll, has changed equity hands four times since Premier Harris sold it. And regardless of Highway 401 congestion or public outrage with ever-rising 407 tolls, higher user fees mean greater profits for the equity holder without public gain or even input.
To date, there have been more than 20 P3 equity sales in Canada — and that was before the federal government formalized these kinds of deals with an infrastructure bank. Who can name these owners, either former or current? Who controls those assets that only exist because governments leveraged public money to build them? Who profits from those assets? Who is making decisions about the operation of public infrastructure projects that are so integral to so many Canadians?
John Laing. Ferrovial. Macquarie. Bilfinger Berger. HICL. Cintra. An alphabet soup of exotic investors.
And even with these publicly known owners, where are they located? To whom are they accountable? What do they earn annually off our infrastructure?
The formalization of these types of dealings raises more questions than they answer.
Multinationals with offices around the world — several registered in offshore tax havens — all hungry to swap ownership shares in public hospitals, highways, bridges, schools as if playing cards. They cash in on the enhanced value of public works once a project is operational, with market participants earning returns on investment far in excess of the initial value for money assessment, while public partners see none of the proceeds once contracts are set.
Think about the consequences of an equity owner taking over a hospital, which has changed ownership multiple times, may be in need of upgrades, and is cramping potential investment returns for the equity investor. Does the investor decide to cut support staff? Diminish access? Hike parking fees? Do Canadians end up paying more for less?
A lucrative equity trading game is afoot and the Canada Infrastructure Bank, with its stated aim of expanding opportunities for private equity taking, will certainly encourage the expansion of this share-swapping market, putting Canadians at further risk of service cuts, inflated fees, reduced ownership transparency, and diminished public control over things that should be in public hands.
Instead of opening the flood gates, the public must have a say: Canada should be taking steps to control or bar equity sales, to avoid a future where public infrastructure is exposed to remote investor decision-making, profit leeching through user fees, offshore revenue loss for communities, distorted value for money, and a lack of accountability.
Heather Whiteside is an assistant professor of Political Science at the University of Waterloo. She has published two books on P3s in Canada. This op-ed was fist published in the Toronto Star.