An Analysis of a Public-Private Sector-Partnership: The Confederation BridgeSep 6, 2000 08:00 PM
WHAT IS IT ABOUT?
- The Confederation Bridge was designed and built by SCDI, a international private sector consortium. SCDI will operate and maintain the bridge for 35 years after which time it will be transferred to the Government of Canada.
- Financing for the bridge was of an indirect nature- i.e the government of Canada did not borrow funds directly to build the bridge. Capital was provided by a New Brunswick Crown Corporation, Strait Crossing Finance Inc, which issued bonds in order to raise the money to build the bridge. This bond issue was secured by the Government of Canada which pledged to retire the bonds with a stream of annual payments of $41.9 million (1992 dollars) over thirty-five years. This sum is an estimate of the value of the annual subsidy which formerly went toward the Borden-Cape Tormentine ferry service.
- SCDI is entitled to all toll revenue from the bridge for 35 years. Toll revenue will also be used to pay for bridge operations and maintenance during this period.
WHAT KIND OF PPP?
This is an example of a Design-Build-Operate-Transfer (DBOT) PPP with financing being provided by the public sector.
According to the federal government, the Public-Private-Partnership which realized the bridge would be characterized by the following:
- efficient and quick construction
- developer would be Canadian
- “no additional cost to taxpayers”
- all risks and resulting costs borne by the private sector
- Government of Canada’s annual payments to SCDI of $41.9 million (1992 dollars) for 35 years would be “less than the government costs would be for the Marine Atlantic Ferry Service”.
The federal government and SCDI are suppressing financial and economic information about the bridge presumably to prevent public outcry over the actual cost of the bridge and high profits that SCDI stands to gain from bridge tolls.
The private consortium that built and is currently operating the bridge is 85% foreign-owned.
Toll rates were initially meant to be set at a level approximating those of the former ferry. During negotiations the federal government allowed SCDI to raise bridge tolls by as much as $8 per car in the bridge’s first year of operation.
The federal government has guaranteed SCDI a minimum of $13.9 million (1996 dollars) per year in toll revenues. There is no limit to the amount of toll revenue that SCDI can earn from the bridge.
The indirect financial arrangements of the PPP were meant to allow the government of Canada to avoid declaring its liability to the bondholders. This increased the cost to taxpayers of financing the bridge by at least $45 million.
According to the Auditor General of Canada, the estimate of the ferry subsidy which was used in the financial arrangements ($41.9 million annually in 1992 dollars) was an inflated amount as compared to other estimates of the ferry subsidy.
The project featured a substantial security package, however almost none of the guarantees in this package extend beyond a few years of the bridge’s completion.
Financial risk was borne by the federal government, construction and operating risks by SCDI.
No evidence of improved service level.
Union labour featured strongly in the project.