ENVIRONMENTAL FINANCIAL ADVISORY BOARD
Members
A. James Barnes
Chair
Terry Agrlss
John Bofand
George Butcher
Donald Correll
Michael Curley
Rachel Deming
Kelly Downard
Mary francoeur
James Qebaardt
Scott HasMns
Jennifer Hernandez
Keith Hinds
Langdon Harsh
Greg Mason
Karen Massey
Undene fatten
Cherie nice
Helen Sahl
Andrew Sawyers
OregSwartz
Steven Thompson
Sonla Toledo
Jim Tozzl
Justin Wilson
Stan fielburg
Designated
Federal Official
irP 15 2008
Honorable Stephen L. Johnson
Administrator
United States Environmental Protection Agency
1200 Pennsylvania Avenue, NW
Washington, DC 20460
Dear Administrator Johnson:
Earlier this year, the Environmental Financial Advisory Board (EFAB)
submitted a report to the Agency on the subject of Public Private Partnerships
(PPPs) for the water sector. As that report was being completed, the Board
learned of the aggressive and innovative approach being taken to PPPs in Canada.
Although laws, institutions, and intergovernmental relationships differ between
the United States and Canada, the Board decided to prepare a brief summary of
the Canadian experience for the Agency's information and use. That summary is
enclosed, with the title "Public Private Partnerships in the Provision of Water and
Wastewater Services: Brief Comments on the Canadian Experience." If you are
not already aware of the program described, we believe that you will find this
brief report to be very interesting.
In the event that the Agency decides to further examine the lessons of the
Canadian initiatives, we can suggest several lines of inquiry:
• Canada compares PPPs to public sector alternatives with the aid of formal
analytical models: the "Public Sector Comparator Model" in British
Columbia and the "Alternative Financing and Procurement Model" in
Ontario. We understand that these models are used to determine such key
parameters as "value for money," the allocation of risk between public and
private sectors, the appropriate level of public control/ownership, and
accountability. A better understanding of these models and their use might
be very helpful in identifying issues and otherwise shaping the Agency's
approach to facilitating PPPs in the U.S.
• The most relevant transnational comparison of Canadian to U.S. practice
would be to contrast the Canadian province-level initiatives to state-level
programs in the U.S. In this connection, it may be useful to seek out those
states which have been most active in removing barriers and facilitating
PPPs, then compare the selected state programs to the Canadian programs.
In addition to suggesting further enhancements of the programs in active
states, such a comparison could also result in a credible template for other
states to follow.
Providing Advice on "How To Pay" for Environmental Protection
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We also note that our prior report included an overview of PPP programs
underway at the U.S. Department of Transportation. As the DOT initiatives
gather experience, it may be helpful to the Agency to look more closely at which
programs are working and which are not, with the purpose of identifying specific
initiatives which may be relevant to the Agency's mission.
As always, the Board stands ready to assist the Agency with any of these
studies in any way that you may find helpful. If you or your staff have questions
about this report, or would like to arrange a meeting, please let us know. We
greatly appreciate the continuing opportunity to serve the Agency.
Sincerely,
A. James Barnes A. Stanley Meiburg
EFAB Chair EFAB Designated Federal Official
Enclosure
cc: Marcus Peacock, Deputy Administrator
Ben Grumbles, Assistant Administrator for Water
Lyons Gray, Chief Financial Officer
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Environmental
Financial Advisory Board
EFAB
A. James Barnes
Chair
A. Stanley Meiburg
Designated Federal
Official
Members
Hon. Pete Domenici
Terry Agriss
Julie Belaga
John Boland
George Butcher
Donald Correll
Michael Curley
Rachel Deming
Kelly Downard
Mary Francoeur
James Gebhardt
Steve Grossman
Scott Haskins
Jennifer Hernandez
Keith Hinds
Stephen Mahfood
Langdon Marsh
Greg Mason
Lindene Patton
Cherie Rice
Helen Sahi
Andrew Sawyers
Greg Swartz
James Smith
Steve Thompson
Sonia Toledo
Jim Tozzi
Justin Wilson
John Wise
Public-Private Partnerships in the Provision
of Water and Wastewater Services: The
Canadian Experience
This report has not been reviewed for approval by the U.S. Environmental
Protection Agency; and hence, the views and opinions expressed in the
report do not necessarily represent those of the Agency or any other
agencies in the Federal Government.
August 2008
Printed on Recycled Paper
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Environmental
Financial Advisory Board
PUBLIC PRIVATE PARTNERSHIPS IN THE
PROVISION OF WATER AND
WASTEWATER SERVICES: BRIEF
COMMENTS ON THE CANADIAN
EXPERIENCE
August 2008
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Table of Contents
Table of Contents iii
II. PPP POLICY IN CANADA 1
III. PPP POLICY IN ONTARIO 2
IV. PPP POLICY IN BRITISH COLUMBIA 3
V CONCLUSION 4
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I. INTRODUCTION
In 2006, EPA asked the Board to consider the potential for public private partnerships
(PPPs) to alleviate chronic funding problems in the drinking water and clean water
industries. The Board approached this task by examining the role of PPPs in the US
water sector, the kinds of PPPs that had been implemented or proposed, and the barriers
that may discourage or prevent implementation. The Board concluded that a potential
benefit from wider use of PPPs is well demonstrated, the mechanisms for considering and
structuring these arrangements are known, and success stories and model applications are
available. In its April, 2008, report to EPA, the Board made a number of
recommendations for action by Congress and by EPA.1
As the April report was being completed, a member of the Board learned about certain
government initiatives in Canada, in particular in the Province of British Columbia,
designed to promote PPPs in Canada. These initiatives have been innovative and
aggressive, and have succeeded in expanding the role of the private sector in providing
public infrastructure. In the hope that this experience may attract some interest in EPA,
this addendum summarizes the main features of the Canada's national and provincial
programs.
II. PPP POLICY IN CANADA
A central focus of activity in Canada is the Canadian Council for Public-Private
Partnership (Council). This member-sponsored organization was founded in 1993 with
the objective of fostering innovative forms of cooperation between the public and private
sectors for the benefit of all Canadians. The membership includes government agencies
as well as private sector firms. As described on its web site, the Council "conducts
research, publishes findings, facilitates forums for discussion and sponsors an Annual
Conference on topics related to PPPs, both domestic and international."2 The Council's
Board of Directors is comprised of senior representatives from business, government and
labor across Canada.
Increased use of PPPs is also advocated by Infrastructure Canada which, together with
Transport Canada, provides grants to local communities as part of the Building Canada
program. These grants are available for wastewater infrastructure, public transit, green
energy, and solid waste management projects. For the 2007-2014 period, Canada has
allocated CAD33 billion for all grants, of which CADI.25 billion is available for support
of innovative PPP projects.3
1 Environmental Financial Advisory Board, "Public Private Partnerships in the Provision of Water and
Wastewater Services: Barriers and Incentives," submitted to the Administrator, US EPA, April 2008, 39
pp.
2
3
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Early in 2008, the Canadian government formed a new Crown Corporation, PPP Canada,
Inc., which appears to have a mission similar to that of Partnerships, BC, described
below. In a recent review of PPP activity in British Columbia, the Council noted that
"British Columbia has emerged as a leader in the development of public-private
partnerships in Canada."4
III. PPP POLICY IN ONTARIO
In 2006, the Province of Ontario responded to a growing infrastructure deficit by
merging two existing agencies to form a new crown corporation, Infrastructure Ontario.5
The new agency is described as an arm's length corporation dedicated to the renewal of
the province's hospitals, courthouses, roads, bridges, water systems and other public
assets. As an arm of the provincial government, Infrastructure Ontario provides local
governments and other public bodies with access to affordable loans and other assistance
with infrastructure projects. But a key strategy is the use of an Alternative Financing and
Procurement Model (AFP) to evaluate and implement PPPs.
The AFP model is intended to insure appropriate public control and ownership, while
using private financing to strategically rebuild vital infrastructure, on time and on budget.
In evaluating PPP proposals, five principles are observed:6
• Public interest is paramount,
• Value for money must be demonstrable,
• Appropriate public control and ownership must be preserved,
• Accountability must be maintained, and
• All processes must be fair, transparent and efficient.
It is interesting to note that the AFP procedure for assessing "value for money" includes
an explicit examination of risk and the way in which risk is allocated between public and
private partners.7
In a 2007 presentation, Infrastructure Ontario reported closing 10 PPPs in the previous 20
months, with a total project cost of CAD2.05 billion.8
4 The Canadian Council for Public-Private Partnerships, "Responsible PPP Procurement for British
Columbia," April 2005, p. 1.
5 http://www.infrastructureontario.ca/
6 http://www.infrastructureontario.ca/en/projects/afp.asp
7 "Assessing Value for Money: A Guide to Infrastructure Ontario's Methodology," Infrastructure Ontario,
Queen's Printer for Ontario, 2007, 23 pp.
8 Livingston, J. David, "Alternative Financing and Procurement: Ontario's Infrastructure Delivery
Model," presented at Goldman Sachs Infrastructure Conference, New York City, September 19, 2007.
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IV. PPP POLICY IN BRITISH COLUMBIA
The active promotion of PPPs has been evident in British Columbia for at least 10 years.
In 1998, the province's Municipal Act was amended to allow the following:
• Public funds could be used to grant assistance to a private sector firm involved in
a PPP.
• Local governments are permitted to acquire or dispose of property necessary for a
PPP.
• Contracting procedures similar to those used in the private sector are permitted.
This expanded opportunity was quickly exploited by the provincial government in a
series of steps. First the Ministry of Municipal Affairs issued a guidebook for local
governments interested in implementing PPPs.9 Shortly thereafter, the Ministry
published a guide to project finance for local government which fully integrated PPPs as
one of a number of strategies for funding public projects.10
In 2002 the provincial government created Partnerships BC, a corporation wholly owned
by the British Columbia government. This step reflected the government's stated
intention "to modernize government to find more efficient and effective approaches to the
provision of services and infrastructure ...."n Partnerships BC is charged with using
PPPs to deliver "capital projects that meet public needs at minimum life-cycle cost with
an optimum sharing of responsibilities among the partners."
Partnerships BC provides the following description of its mode of operation:
Partnerships BC serves its public sector clients by providing core
expertise on analyzing, structuring and managing partnership contracts.
As a centre of expertise, Partnerships BC can develop and transfer
learnings from one project to the next.n
Project evaluation is centered around a "value for money" concept, which requires a
showing that the PPP provides a better ratio of value to net life cycle cost than the best
feasible public sector strategy. This comparison utilizes a "Public Sector Comparator"
model which estimates the life cycle costs of the alternative public sector project.
In the case of major projects,a PPP initiative is considered to be the base case.13 Public
9 British Columbia Ministry for Municipal Affairs, "Public Private Partnership: A Guide for Local
Government," May 1999, 99 pp.
10 British Columbia Ministry for Municipal Affairs, "Development Finance Choices Guide," October 15,
2000.
11
12
13 Blain, Larry, "International Models for Infrastructure Financing: Public Private Partnerships in B.C.,"
presented at Goldman Sachs Infrastructure Conference, New York City, September 19, 2007.
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sector approaches must be evaluated against the PPP approach.
Another feature of the Canadian approach is explicit treatment of risk sharing between
public and private sector participants. Risk allocation is considered alongside of cost
allocation in the negotiation process.
As of June 2008, Partnerships BC reports 13 major projects under construction or
operational and 5 more presently in procurement. All projects facilitated by Partnerships
BC to date represent a total capital investment of CAD9 billion, of which CADS billion
was provided by the private sector partners.14
Partnerships, BC, has an annual budget of about CADS.2 million. Approximately 75%
of this amount is financed by fees charged to PPP participants for services rendered.
Most of the remainder (CADI.8 million) is a grant from the provincial government.15
This very aggressive program is not without its critics. An internet search quickly turns
up web sites criticizing the evaluations of specific projects or, in some cases, opposing
PPPs in general. Among the complaints are allegations that inappropriate interest rates
are employed for the Public Sector Comparators, that procurement costs for PPPs are
understated, and that the results of evaluations are slow in becoming public. The
Canadian Council for Public-Private Partnerships, in its review, noted that Partnerships
EC's various roles—promoter, negotiator, procurement manager, financial advisor—
interfere with consistency. It might be added that these multiple roles may also weaken
the appearance of impartiality on the part of Partnerships BC.
V. CONCLUSION
The Canadian experience provides a very interesting counterpoint to the situation in the
U.S. Canada has similar infrastructure endowments, somewhat similar governmental
institutions, and similar financing problems. Canada, like the U.S., saw PPPs as a partial
solution to financing problems and as a way to deliver public services more efficiently in
certain cases. But the policies and strategies of the two countries have diverged sharply.
While U.S. federal and state governments have made some effort to clear barriers and
have provided guidance in certain instances, it is left to local governments and agencies
to decide whether or not to pursue PPPs and to determine how to evaluate proposals.
Canada, as typified by Infrastructure Ontario, has been much more proactive. British
Columbia, in particular, has taken an aggressive, hands-on approach designed remove all
barriers and enforce fair comparison of PPPs and other alternatives. This model is
claimed to be a success, and the rest of Canada appears to be following.
14
15 Partnerships, BC, "2006-2007 Annual Report," p. 41.
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|> fm ro UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
"2-
WASHINGTON, D.C, 20460
OCT 1 7 2008
OFFICE OF
WATER
Mr. A. James Barnes
Professor of Public and
Environmental Affairs and
Adjunct Professor of Law
Indiana University
1315E. 10th Street, Suite 418
Bloomington, Indiana 47406
, U W\
Dear Mr."Barnes:
Thank you for your letter to Administrator Stephen L. Johnson dated September 15,
2008, in which you transmit on behalf of the Environmental Financial Advisory Board (EFAB),
the report entitled "Public Private Partnerships in the Provision of Water and Wastewater
Services: The Canadian Experience. " I found the previous report on public-private partnerships
(P3) to be insightful, and I remain in agreement with the statement that, "these partnerships can
reduce costs, improve the quality of service, and speed the provision of needed
infrastructure... the availability of this tool should be a powerful weapon in the Agency's
struggle to achieve sustainable water services at a reasonable cost." As always, I appreciate the
opportunity to review and examine any input from EFAB.
This addendum provides an interesting examination of the innovative attempts to advance
P3s in Canada. I believe it is important for EPA to examine those activities and comparative
models, as recommended, and evaluate State programs in light of those activities taking place at
the Provincial level.
As I noted in my response to your previous report on the subject, I plan on continuing to
work with Congress and the water industry to try to achieve many of the efficiencies highlighted
in the report and I would like to continue this discussion with the Board. Once again, thank you
for your efforts. If you have any questions or wish to speak further about this issue, please
contact James A. Hanlon, Director, Office of Wastewater Management, at (202) 564-0748.
Sincerely,
Benjamin H. Grumbles
Assistant Administrator
Internet Address (URL) • http://www.epa.gov
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