6/8/11

Are P3s a way for foreign corporations to downsize Canadian business?

Concern that public private partnerships (P3)  disadvantage Canadian business was deepened with the announcement  that a new massive P3 hospital project in Montreal will see foreign corporations play the dominant role.  Here is the comment from (the long-time privatization booster), the National Post:  


'We are talking about very limited Canadian ownership. There are four equity partners: Innisfree, based in the United Kingdom and one of the largest investors in hospitals around the world, has a 30% stake; Laing O'Rourke Canada Ltd., a U.K.-based construction entity, has a 25% stake; OHL Construction Canada Ltd., a Spanish construction, concessions and services groups that has been around for more than 90 years, has a 25% stake; and Dalkia, a large French company that provides facilities management services to more than 5,000 hospitals around the world, has a 20% stake.'


Duncan McCallum, managing director of infrastructure at RBC Capital Markets and lead manager on the private placement, said "We have a group of very large and very experienced European players," noting that some of the equity investors are new to Canada.

Canadian businesses are relatively smaller and have less P3 experience than competing foreign corporations, leaving them at a disadvantage for such projects, especially as P3s are often large and complex deals.   Foreign governments are likely promoting P3s as a way to strengthen the foreign reach of their corporations.  

It is also not clear that Canadian corporations have the strength and dynamism to push through major privatization initiatives.  Certainly foreign corporations are often the winners of major privatizations: think of Carillion, Compass, Sodexho,and Aramark.  With this project we 'gain' some new major, foreign players, who will, no doubt, push more privatization.  

Total construction costs of the Montreal P3 hospital are supposed to be $1.99 billion, with $1.37 billion raised through 38.8 year  bonds with a 6.721% coupon.  That is a long, long term. And while I am no economist, that sounds to me like very high interest payments.

Indeed, even the Post adds, "The deal is the lowest rated P3 to come to market.  As is the norm, the P3 project is below the rating enjoyed by the host province." (Apparently, Quebec is rated "A high" while this project gets only BBB [high] by DBRS and Baaa2 by Moody's.)

 The project is not supposed to be completed until March 2020.


Update 2:20 pm: Also announced today is the P3 consortia that is suppose to build, design, finance, and maintain the new Halton hospital.  Included in the consortia is British P3 heavy-weight Carillion (which has won many Ontario P3 bids) and US transnational Honeywell.  


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