Skip to main content

P3 bank crisis: Are we really transferring risk to the banks?

Canadian banks have usually preferred to limit their P3 (public private partnership) involvement to [a]  financial advice, and [b] financing over the construction period for the public facility being built (i.e. two to three years of financing rather than the twenty to fifty years of P3 financing required after construction).

European banks (whose problems you may have been reading about lately) however have been a major player in the long term financing of P3 deals in Canada. 

The 2008-9 financial crisis raised more questions over the claim by the banks and the rest of the P3 industry that the extra costs associated with P3s (compared to normal infrastructure procurement) was offset by a “risk transfer” to the private sector.   (To offset the large financing cost advantage of normal government infrastructure development, P3 supporters have to claim that considerable risk is transferred to the private sector  -- and that the public should pay a LOT of money for the risk transferred to the private sector.)

Project Finance Magazine reports that the "Niagara hospital project in 2009 demonstrated that the province was not immune to financing difficulties. When Plenary's (the p3 corporation's) institutional relationship with Deutsche Bank came under strain and it was reassessing its debt solutions, the province stepped in and offered an increased contribution to the project in the form of extra milestone payments, which might be charitably described as a soft loan, assuming the province can get the payments back in a refinancing".

Blakes (the corporate law firm) adds that as "the most recent financial crisis continued through 2009, the various Canadian P3 agencies introduced some form of milestone payments during or at the end of the construction period to reduce the level of long-term debt financing required. Although the financial markets have been more stable, we continue to see milestone payments utilized in most Canadian P3 transactions."

The $125 billion bailout of the Spanish banks announced this week raises more questions, once again.  Are these banks reliable partners? Is the public actually transferring risk to them?  (Or are they transferring risk to us?)  Is the high cost to the public for the alleged risk transfer to these organizations justified?  What will the bank instability do to the cost of P3 financing?  


Popular posts from this blog

Public sector employment in Ontario is far below the rest of Canada

The suggestion that Ontario has a deficit because its public sector is too large does not bear scrutiny. Consider the following. 

Public sector employment has fallen in the last three quarters in Ontario.  Since 2011, public sector employment has been pretty flat, with employment up less than 4 tenths of one percent in the first half of 2015 compared with the first half of 2011.

This contrasts with public sector employment outside of Ontario which has gone up pretty consistently and is now 4.7% higher than it was in the first half of 2011.

Private sector employment has also gone up consistently over that period. In Ontario, it has increased 4.3% since the first half of 2011, while in Canada as a whole it has increased 4.9%.

As a result, public sector employment in Ontario is now shrinking as a percentage of the private sector workforce.  In contrast, in the rest of Canada, it is increasing. Moreover, public sector employment is muchhigher in the rest of Canada than in Ontario.  Indeed as…

The long series of failures of private clinics in Ontario

For many years, OCHU/CUPE has been concerned the Ontario government would transfer public hospital surgeries, procedures and diagnostic tests to private clinics. CUPE began campaigning in earnest against this possibility in the spring of 2007 with a tour of the province by former British Health Secretary, Frank Dobson, who talked about the disastrous British experience with private surgical clinics.

The door opened years ago with the introduction of fee-for-service hospital funding (sometimes called Quality Based Funding). Then in the fall of 2013 the government announced regulatory changes to facilitate this privatization. The government announced Request for Proposals for the summer of 2014 to expand the role of "Independent Health Facilities" (IHFs). 

With mass campaigns to stop the private clinic expansion by the Ontario Health Coalition the process slowed.  

But it seems the provincial Liberal government continues to push the idea.  Following a recent second OCHU tour wi…

Hospital worker sick leave: too much or too little?

Ontario hospital workers are muchless absent due to illness or disability than hospital workers Canada-wide.  In 2014, Ontario hospital workers were absent 10.2 days due to illness or disability, 2.9 days less than the Canada wide average – i.e. 22% less.  In fact, Ontario hospital workers have had consistently fewer sick days for years.

This is also true if absences due to family or personal responsibilities are included.
Statistics Canada data for the last fifteen years for Canada and Ontario are reported in the chart below, showing Ontario hospital workers are consistently off work less.
Assuming, Ontario accounts for about 38% of the Canada-wide hospital workforce, these figures suggest that the days lost due to illness of injury in Canada excluding Ontario are about 13.6 days per year ([13.6 x 0.68] + [10.2 x 0.38] = 13.1).

In other words, hospital workers in the rest of Canada are absent from work due to illness or disability 1/3 more than Ontario hospital workers. 

In fact, Canad…