4/15/13

Ontario P3 fiasco: $90 million cost to finance $59 million loan



The majority of the costs reported by the Auditor General for the cancellation of the Mississauga gas plant were payments to the U.S. based investment firm that provided financing for the project -- $149.6 million.

The private company doing the project (Greenfield) negotiated expensive financing for the project with this U.S. investment firm -- 14% annual interest. Compared to the cost of public financing, that is through the roof, perhaps 7 or 8 times higher.

The Auditor General confirms this interest rate, and adds that "Penalties for Greenfield’s defaulting on the agreement were heavy: Greenfield would have to immediately pay back all amounts drawn with interest, as well as interest on the full undrawn amount for the full eight-year term of the agree­ment."

Worse, "the OPA (the Ontario Power Authority, which was acting for the government after it decided to cancel the project) was unaware of any of these onerous penalty terms when it signed a November 25, 2011, interim agreement to pay the costs for releasing Greenfield from its lender. The OPA told us that it had asked Greenfield for its lending agreement but that Greenfield refused to provide it. The OPA still proceeded to sign the interim agreement, undoubt­edly owing to the urgency of getting Greenfield to stop construction."

The Auditor adds, "A key legal issue was whether paying the equivalent of 14% interest for eight years on the full $263-million line of credit would exceed the legal maximum 'criminal rate' of interest that could be charged".

In the end the government agreed to pay the U.S. financier $90 million in penalty interest. 

Greenfield had only drawn $59 million in loans.

It's not reported by the media that this project is a public private partnership (P3)-- but that it clearly is. This is the policy the government is plowing billions of dollars into for hospital facilities and other public infrastructure. The Auditor General has already shown all sorts of extra costs associated with the Brampton P3 hospital.

The results of this P3? Incredibly high interest rates, onerous cancellation penalties, and $90 million in penalty interest for $59 million drawn in loan.

Perhaps even worse, the government was kept in the dark about the high interest rates and the onerous cancellation charges. And to get the construction to stop, it had to agree to cover these costs -- without even knowing what they would be!

Over 9,000 people voted in Kingston on Saturday to say NO to a privatized P3 hospital in a plebiscite organized by the Ontario Health Coalition.  A lot is at stake. 

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