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Canada Line’s unusual financing scheme still generates interest and debate

March 13th, 2014 · 26 Comments

We all think we know the Canada Line inside out and we take it for granted. But it turns out others don’t.

This American organization asked me to write about it, which made me realize, as I was doing my research, how preoccupied we had been with other parts of the story during the years it was being debated and built: the crazy back and forth votes, the massive disruption on Cambie Street, the torquing of the region’s transit planning because of the Olympics, and more.

In the end, none of us looked that closely at the public-private partnership and the details of how it worked. This time, I got to and learned some new things from Jane Bird, the lawyer who oversaw it (now in London overseeing renos of Canada House), and a Toronto prof who has looked closely at P3s in Canada and whether they really save all the money that proponents like to claim they do. (Seems like we do P3s in a very cautious, Canadian way, if I’m reading his paper right.)

Here’s the series I did, most of which also appeared in Atlantic Cities.

Matti (the Toronto prof) sent me this additional note after it was published. (Warning: Only transit nerds may understand/enjoy this.)

An interesting feature of this project is that the design put forward by the winning bidder was estimated to deliver considerably higher ridership levels and thus more revenue (148M) for Translink over the life of the project than the comparable design that would have been built traditionally. If you look at the value for money report in further detail on the bottom of page 17 and at the top of page 21, you get a sense of the innovations that were being brought forward by the PPP concessionaire, and how these were expected to impact on ridership levels.

Some of these innovations have proven beneficial, while others could potentially be short or longer-term hindrances. You may also consider how these innovations would have saved money during construction for the PPP as compared to a traditional build project, even though the PPP is reported to have higher base construction costs. The key innovations in the PPP were reportedly:

– higher proposed midday train frequencies which would attract around a third more riders during the day, and contributed to higher revenue projections for the PPP. The report acknowledges that this change in service levels could have been made on a traditionally built project too (see bottom of P17).

– more accessible underground station designs that were closer to the surface and had fewer stairs, which would decrease total travel time and enhance convenience.  This may be related to the use of cut and cover construction, though it is not explicitly stated in the report.

– single tracking in Richmond (this likely would have lowered construction costs and possibly has community benefits as the guideway is thinner and less imposing on the street below; it also limits train frequencies on that segment of the line which will effect long-term capacity)

– the elimination of a station at the airport (faster travel times may attract more riders, lowers overall construction costs)

Finally, even after factoring in the revenue from higher ridership that the PPP would deliver, the PPP project was still estimated to have a total lifecycle cost that was 141M above the comparable traditionally procured project. It was only after considering risk on the project, and thus adding a risk premium to the traditional cost estimate, that the report shows that the PPP was likely to be the option that provided the best value. The risk premium added on this project was not particularly large compared to some of the ones I?ve seen on projects here in Ontario, and the risk of significant cost escalations is very real and does need to be factored into  assessments of the best procurement option. Nevertheless it still had a defining role in the outcome of the value for money assessment.

So what to make of all this? To me it says that a premium is being paid through the PPP model to realize cost and performance predictability. Private sector concessionaires can bring forward innovative design and service delivery plans that improve the quality of service for users, but these need to be closely vetted to understand their broader community impacts.  And risk transfer to achieve cost certainty continues to be a key variable that drives the value for money of PPPs. However this risk transfer comes at a significant cost for government and as such we need to continue to examine whether there are other less expensive ways for government to manage rather than necessarily transfer project risk.



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