Save Stave Lake’s P3

Elizabeth Brubaker
National Post
November 17, 2011

Abbotsford to vote on water project that would save millions

On Saturday, voters in Abbotsford, B.C., will decide the fate of the proposed Stave Lake water project. If it earns voters’ approval, it will be Canada’s largest privately financed undertaking in the water sector to date.

Under the proposal — expected to cost $345-million over 25 years — a consortium of private firms will design, build and partially finance a new water intake, pump station, treatment plant and water mains, and then operate and maintain the new infrastructure. Fearing any challenge to publicly financed and operated water services, the usual suspects are fighting Stave Lake with unusual vigour.

CUPE — campaigning on the slogan “Water for life, not for profit” — claims that private-sector involvement will mean higher costs, lower quality and a loss of public control over water. It presages disaster at every opportunity — not just before council and at public meetings, but also in a slick video and even in Abbotsford’s Canada Day parade, where it handed out bracelets, buttons and leaflets in English and Punjabi, informing people that “the Canadian way is to keep water in public hands.”

And of course Maude Barlow is campaigning for “precious” public water. Last month in Abbotsford, she sounded alarms about the inevitability of tap turn-offs and delayed repairs under private operations — all “because they’re in it for profit; they’re not in it for service.”

Abbotsford’s Mayor and all but one member of city council remain unshaken in their support for the Stave Lake project. Mayor George Peary insists, “If we want a safe, reliable source of water this is the way to go.” The project, he explains, “is beyond the city’s capacity to develop alone.”

The city emphasizes the economic benefits of a public-private partnership (P3). Deloitte, which is advising Abbotsford on the project, projects more than $36-million in savings in construction costs under a P3. One explanation of the savings lies in the competitive bidding process for a performance-based contract. Although the city will specify the standards that the water treatment plant must meet, the bidders will be able to propose the most effective and efficient means of achieving those standards. The scope for innovation, when combined with rigorous competition (all of the 10 firms interviewed by Deloitte expressed strong interest in participating in a deal), should result in considerable efficiencies. Deloitte points out that capital cost savings are common in P3s, averaging 31% in eight water or waste-water treatment projects that have been privately built, operated and, in some cases, financed.

Competition for a P3 also minimizes costs over the entire life of a project. A consortium responsible for both construction and operation will optimize long-term costs. In contrast, under a design-build tender, private competitors may have incentives to reduce construction costs at the expense of future operating costs.

Another great benefit of a P3 for Abbotsford is that it will reduce the city’s exposure to risks — not only risks related to construction schedules and cost overruns, but also risks associated with the long-term operation of the intake, pump station and water treatment plant. Reductions in operating risks will result from a private consortium helping fund the project with up to $110-million. Private funding works as a long-term performance guarantee. The city will repay the consortium for its capital investment over the operating period. If the operator doesn’t perform, the city can withhold payments. As Deloitte explains, “This would either spur the contractor to perform … or would leave the city with the funds to self-perform.”

Thus, even though Abbotsford could borrow money at a lower rate than a private consortium, private financing provides offsetting advantages that are worth the additional cost. That is one of the reasons Abbotsford prefers the design-build-finance-operate (DBFO) option.

There is another, less legitimate reason. Two-thirds of the $98-million the city expects to save by going the P3 route aren’t really savings — they simply transfer costs to Canadian taxpayers. As Deloitte explains, a DBFO maximizes “the costs that may be funded by other levels of government.” It recommended that Abbotsford apply for federal funding from PPP Canada — a federal Crown corporation established to encourage the P3 market — and Mayor Peary agreed. “The allure of 25% of the capital funding,” he admitted, was “tantalizing.”

In October, PPP Canada announced a “non-repayable contribution” of up to $65.7-million for the Stave Lake water project. The federal contribution to the project will be made through the P3 Canada Fund, a $1.25-billion fund that covers up to 25% of a P3’s construction costs. If the Abbotsford project goes ahead, it will be PPP Canada’s third foray into the water and waste-water sector, following two much smaller Alberta projects announced earlier this year. PPP Canada is currently reviewing another two dozen applications for water or waste-water projects.

Although the federal government is right to champion P3s, it need not subsidize them. As the Stave Lake project demonstrates, P3s can stand on their own.

If voters can see through CUPE’s ill-informed and self-interested opposition, they will approve the Stave Lake project. Abbotsford’s demonstration that the private sector can help municipalities finance and operate water systems will then help pave the way for P3s elsewhere in Canada. In a country where municipalities claim they need $46.8-billion to upgrade or build water infrastructure, this can only be good news.

Elizabeth Brubaker is executive director of Environment Probe and author of A Bridge Over Troubled Waters: Alternative Financing and Delivery of Water and Wastewater Services.

Letters to the Editor: Water firms get flush while taxpayers are hosed

Re: “Save Stave Lake P3,” Elizabeth Brubaker, Nov. 17

There are a lot of reasons why all Canadians should be concerned about the debate in Abbotsford, B.C., over the future of their public water system. While Ms. Brubaker would like to concentrate on CUPE’s support in protecting the public system, she completely neglects the most troubling aspect — the compulsory privatization of municipal services being foisted on cities and towns by the federal government through its Crown corporation, PPP Canada Inc.

Abbotsford is a sign of dangerous times to come. Faced with solid public resistance to water privatization, the Harper Conservatives have levelled their sights on cash-strapped local governments. They are backing cities into a corner by making water privatization a condition of federal infrastructure funding. Abbotsford is being forced into a public-private partnership by an agenda that puts ideology ahead of the facts.

With a private corporation in charge, profit will be the driving force of Abbotsford’s water system. There is ample evidence this will mean increased costs for households and businesses that depend on this public service, making corporations flush while Abbotsford taxpayers get hosed.

Our public water systems are a vital resource. The jobs held by CUPE members to provide the people of Abbotsford the quality public drinking water they deserve will remain, whether or not the P3 goes ahead. What’s really at risk is handing over control of our water to a private for-profit corporation.

Paul Moist, national president, Canadian Union of Public Employees, Ottawa

– – – – –

Elizabeth Brubaker protests entirely too much. As an Abbotsford taxpayer with absolutely no connections whatsoever with any union, I am very much opposed to the commodification of water. I resent the implication that I cannot think for myself — I am glad CUPE is on the same side of the issue, but I made up my own mind. I have been self-employed for over 25 years, and my husband — also opposed to a P3 as far as our water is concerned — has been self-employed for over 30.

There are many Abbotsford residents who oppose a private company treating our water and they too are independent thinkers. I have invested in private companies — they must make a profit for me or I take my money elsewhere.

Why should I want a private company making money when local water bills are already skyrocketing? Particularly when we would be paying a private partner interest rates of over 7%? Only bankrupt European countries are held hostage with rates that high.

Regina Dalton, Abbotsford, B.C.

– – – – –

I see Elizabeth Brubaker has popped up in the news again. Ms. Brubaker is the Batgirl of the water-privatization industry. Whenever anyone opposes privatizing operation of their water system, industry and their friends shine a large symbol of a dollar sign into the sky and she arrives to protect them.

Now she is defending the plans in Abbotsford for a public-private partnership to hand their system over to a private operator for decades. She promises cost savings and risk transfer.

In the U.K., which has far more experience with these things than we do, they are going exactly in the other direction. There Chancellor George Osborne has announced a “fundamental reassessment” of the use of Private Finance Initiative contracts in a bid to cut costs.

Ms. Brubaker thinks the market is the solution to all our problems. This is something we have all come to doubt in the last few years as we watch corporate stupidity nearly wreck our economies.

What she is really most concerned about is the inconvenience of democracy. In nearly every case where they have had a chance, citizens have demanded their water be kept in public operation. Hopefully the citizens of Abbotsford will make the same choice.

Keith Reynolds, North Vancouver

– – – – –

Elizabeth Brubaker responds:

Although the U.K.’s Private Finance Initiative has come in for some legitimate criticism recently, it continues to be popular, with 700 contracts to date. Twenty PFI deals were closed in the first half of this year, and more than 60 are now in procurement.

Of course, PFI doesn’t govern water in England and Wales, where water and wastewater services were fully privatized in 1989. The results of full privatization — rather than the halfway measure of PFIs — have been impressive by any standard. The tens of billions invested by the private water companies have improved drinking water quality and reduced sewage pollution.

Those concerned about “control,” like CUPE’s Mr. Moist, will be interested to know that the U.K. privatization brought dramatic improvements in government regulation by eliminating the conflicts of interest that prevent public regulators from cracking down on public utilities.

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One thought on “Save Stave Lake’s P3

  1. Good piece on the Abbotsford water treatment plant issue Elizabeth. I think what people don’t understand is that P3’s do not involve privatization at all, as CUPE tries to scare into people. The assets are all owned by the government, but the project is contracted out to the private industry. CUPE also attempts to scare people into thinking that water quality is at risk, when really, performance standards and independent monitoring are contractually binding in the project agreement, and if standards aren’t met the private contractor doesn’t get paid.

    PPPs draw on the strengths of both the private industry and the public industry, and these projects assure that municipalities have quality water and water treatment stations for the length of the contract (25-30 years). It is unfortunate that people don’t see through CUPEs scare mongering tactics, as they like to be perceived as representing the people, when in truth they are only representing those who pay their dues.

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