Generic Speaking Notes re: P3s in Water For: Atlantic Water Tour

April 30th to May 6th, 2009

CUPE represents over 600,000 members delivering public services in communities across Canada. They include education, health care, social services, municipal workers, paramedics, flight attendants and more. Among the 1/3 of our membership who are municipal employees are the workers who operate and deliver water and wastewater services.

CUPE has been fighting privatization in all its forms for a long time, with a particular emphasis on public-private partnerships since as early as 1997. In 1999 we launched a coalition project in collaboration with the Council of Canadians and Sierra Legal defense to keep water public and stop the privatization of water utilities and infrastructure. This coalition launched a campaign called Water Watch, a network of community-based coalitions that have helped municipal councils resist P3s from Halifax to Toronto, Montreal to Whistler, and elsewhere.

DEFINITION

1. What is a P3?

A public private partnership, or P3, is a form of privatization of public services. P3s are expensive multi-decade contracts for private management of public services or infrastructure.

2. How is it different from traditional method?

• In traditional procurement the private sector is hired to help design and build a public facility according to public specifications for a fixed price - this is often referred to as ‘design-build’.
• P3s on the other hand are long term in nature and include operation and maintenance contracts that are decades long.
• They often include expensive private sector financing.
• P3s are not partnerships. They represent a source of profit for corporations whose bottom line is their prime motivator. P3s represent a convenient, reliable steady stream of revenue from tax dollars that helps keep stock portfolios stable, at the expense of the communities where they operate.
• Contracting out is a form of privatization that is always present in P3s. Problems with contracting out like reduced quality, higher cost and loss of public control are inherent in P3s. P3s come at an even higher cost because of expensive financing and because of the long term nature of the agreements.
• Experience with P3s in water and wastewater shows that they are risky, unaccountable and undemocratic. They result in higher costs, lower quality, loss of public control and they compromise local governments’ ability to be stewards of the environment and to represent local community interests. When it comes to something as essential as water, this is no small loss.

3. What is the THREAT?

• Most of Canada’s community water systems in Canada are currently owned and operated publicly. But public water is at risk.
• Transnational water corporations are as determined as ever to obtain control of our water and wastewater services and to use our water resources for their financial benefit.
• Across Canada, water and wastewater does require significant re-investment to sustain and improve quality public services.
• Existing federal transfers remain totally inadequate and our system of municipal finances is outdated and inappropriate.
• This situation leaves communities vulnerable to the false promises of greater efficiency, risk transfer and cost savings that private water companies are selling.

4. Who is promoting P3s?

• The federal government vigorously promotes privatization, requiring expensive investigations into the P3 option when local governments seek $50 million or more from the federal Building Canada Fund.
• Following on the trend of previous governments but stepping it up a level, the Harper government’s love affair with P3s has been made abundantly clear.
• In the 2007 federal budget, Harper set up a new crown corporation called PPP Canada Inc. to promote a P3 market in Canada.

5. Who are they trying to please?

• Well we know that private water corporations like, France-based Veolia and Suez, are hungry to profit from public dollars in Canada.
• Organizations like the Canadian Council of Public Private Partnerships (CCPPP) are hard at work lobbying to improve so-called market access.

6. So why are we so concerned about P3s?

• First of all we are clear that water is part of the global commons. It is a basic need that is essential for all human, plant and animal life.
• We believe that water belongs to all of us and thus governments should not allow basic infrastructure that provides drinking water and sanitation to be used as a source of profit.
• To this end, daily operation, control and ownership of water facilities and infrastructure must be kept in public or local aboriginal governments’ hands and water systems must be run on a not-for-profit basis.
• Secondly, the evidence is clear that P3s are bad public policy.

Numerous examples have shown that P3s, among other problems:
a) cost more
b) compromise quality
c) are risky
d) are secretive and unaccountable
e) harm the environment and public health

There are endless case studies of failed water privatization but key in Canada for lessons learned are the experiences of drinking water and wastewater in Hamilton, Ontario and wastewater in Whistler, BC.

You will notice that Veolia water, the owner of US Filter, is also a common
culprit - US Filter may sound familiar - it is the company that operates the City of Moncton’s water utility.

A little more on each of these areas of concern:

P3s Cost more

In 2007, Halifax City Council cancelled a P3 deal with Suez for its sewage treatment plant for a number of reasons. But after the fact, Mayor Peter Kelly announced the key reason for keeping it public - to save millions of dollars.

The claim that P3s save money is no longer made by supporters. It is commonly accepted that P3s always cost more.

There are additional hidden costs that make P3s more expensive. They include:

1. reams of consultants and lawyers on both sides;
2. lengthy and complex contract negotiations;
3. ongoing monitoring costs and renegotiations every time the terms of the agreement need to be amended.

These are the costs that are not reflected in the overall price. Just considering a P3 cost Regional Municipality of Whistler $1.37 million in legal fees and other costs.

A big contributor to the overall higher price tag is the expensive cost of private sector borrowing. This has become even higher in the context of recession.

A recent report by a BC Forensic Accountant named Ron Parks concluded that the cost of the Diamond Health Centre as a P3 was $203 million, but would have cost only $89 million as a public project - a difference of $114 million or nearly 130 per cent.

In December 2009, the Auditor General of Ontario reviewed the Brampton P3 Hospital and found that $200 million could have been saved if the public had borrowed the money directly to build the hospital.

An additional $50 million would have been saved on construction cost and
“tens of millions” more if they had not privatized laundry, food, cleaning and security services.

Municipalities can do it more cheaply because they have access to the lowest borrowing rates available.

Higher Cost for Residents

P3s are not only more expensive for taxpayers through higher costs to the municipality, they also result in direct cost increases to residents.

A study comparing publicly and privately owned utilities in 20 US States found that the billing price for water and sewer are both consistently higher with private rather than public utilities.

Canada is no different. In Sackville, New Brunswick, prices increased after the water services were contracted out to the private company US. Filter (Veolia). An accountant’s analysis prepared for CUPE found that investors were earning a 24% return. If there is potential for such profits without overcharging residents or massively cutting corners, then there is also potential for savings and reducing rates for residents if kept public.

On the other hand…Bringing water utilities back in house following P3s pays for service users. Water bills went down when this happened in Felton California, Fort Wayne Indiana, Houston Texas and elsewhere.

7. So if they are so much more expensive, what is the case for P3s?

• The cost of P3s is justified on the basis of risk that is supposedly transferred to the private sector. But we know that P3s are risky for the Public - especially for municipalities who can get entangled in complex deals with little budget flexibility for all the additional lawyers and consultants needed to negotiate changes in the public’s interest.
• Time and time again the experiences of communities that have tried P3s show that it’s the public side that bears the risk.
• In 2005, a sewage spill in Richmond, California led to significant property damage and health problems. It wasn’t Veolia, but the City that was forced to compensate her with $160,000 for her losses.[2]
• In the City of Hamilton the private company refused to accept liability for sewage spills and floods. When 180 million litres of sewage backed up into 70 homes and businesses in Hamilton, it was the Regional Government that was stuck with legal and cleanup costs, not the private company.
• Upon renewal, they were asking for a 200% risk premium if their contract was to be renewed - Hamilton ultimately went back to public ownership as a result.
• It is very hard to hold private partners to account. The private partner can walk away. The public - and taxpayer - cannot.
• The economic and financial crisis has made P3 financing much less certain, and deals with private partners even more risky now, given their susceptibility to default.
• Another risk issue is the potential loss of public control under trade agreements such as NAFTA and the World Trade Organization, and potential emerging agreements between Canada and the EU. Trade liberalization designed to promote corporate rights is also being promoted inside Canada between provinces under the guise of labour mobility agreements.
• When privatization occurs under trade agreements, public services will no longer govern only by domestic law. Instead, International Trade Law will supercede local control and decision-making authority. Investor rights provisions that protect corporate rights mean that once a private company takes over a public service, it becomes the right of other companies to profit from that service. If a company deems that local regulations such as procurement policies or environmental protection initiatives can be seen as interfering with potential profits, governments are exposed to the risk of expensive law suits - cases that are heard in private courts.

P3s Compromise quality/ efficiency

The use of shoddy construction materials, delaying maintenance, backlogs in work orders and cutting the number of workers and their training levels are common ways that water corporations cut corners in order to make a profit.

Following the transfer to private control at the Hamilton water treatment plant,
Philip Services relaxed maintenance standards and reduced the number of employees from approximately 120 to 75, following the switch over to private operation.

After Veolia took over the City of Indianapolis, more than a million people in that same city were put on boil water alert, schools were closed, fire hydrants froze up and hospitals and restaurants were forced to use bottled water.

The town of Angleton, Texas terminated a contract with Veolia over water quality issues, understaffing and poor performance.[5]

P3s are secretive and unaccountable

P3s bring private sector practices such as corporate confidentiality into the public realm. As a result, P3s are infamous for keeping information hidden from the public.

It took a court order for information about P3 hospitals to be made public and all the deals have been secret in the Highway 407 project north of Toronto.

After the Resort Municipality of Whistler (R.M.O.W.) decided to go ahead with a P3 in 2004, activists got their hands on documents that showed the P3 would not save money, would expose the RMOW to environmental, political and financial risk, and would reduce transparency, and worker moral.

One of these was a critical analysis of the P3 proposal by Dayton & Knight Ltd. It revealed crucial financial, technical and ecological problems.

The report concluded (I quote): “Support for the DBO [P3 proposal] can be made only for political or self-serving reasons. Its selection over the current traditional approach lacks or excludes common sense, ethics, imagination, history and reason.”[6]

This is information that residents and councilors should have had access to. Despite this, in June 2006, the RMOW opted for public procurement. The project is currently on budget and ahead of schedule.

In another example of secrecy and lack of accountability, a municipal councillor in Hamilton had to pay $10,000 using the federal Freedom of Information Legislation to get a copy of a P3 water contract with the City that he was democratically elected to govern.

Secrecy breeds corruption

Big water corporations like Suez and Vivendi (now Veolia and including subsidiary US Filter), have been implicated in numerous bribes to obtain water contracts.

Charges of corruption and embezzlement led the City of Rockland, Maine to terminate a contract in 2004 with Veolia who ran the town’s sewer plant. A forensic audit also exposed that the bidding process by which the company was chosen had been fixed in their favour.[7]

Allegations of corruption are made all the time where there are privately run water systems and convictions are rare.

P3s are bad for workers and jobs

The P3 water treatment system in Hamilton is a case in point. The company, Philip Services at that time - promised that it would create 100 jobs for the municipality. Instead, Philip Services dramatically reduced the number of employees.

Water workers in Indianapolis in Atlanta and elsewhere under P3s saw job losses and their benefits cut when Veolia took over the system. The US Labour Relations Board has issued 16 complaints against the company (who operates under US Filter in Canada).

On the other hand, Peter Davidson, the president of CUPE 2010 (the union representing Whistler municipal workers), reported that after P3 plans were cancelled (I quote) “We had very poor morale during the process. But we’ve come full circle. We have a highly motivated crew now.”

P3s can cause Harm to the environment and public health

Investment in conservation by reducing demand and waste, such as fixing system leaks and replacing appliances is much more efficient than investing in expanded treatment capacity. Expanding green infrastructure like separating combined storm sewers and improving wastewater treatment can help protect source-water.

But environmental protection is not a profit-making venture. In fact, private companies may push for more expensive and harmful projects like desalination or larger plants to grow their profits, even if they do not match the needs of communities.

The City of Lynn, Massachusetts was required to pay a huge premium to have US Filter separate its sewers - about twice what it would have cost to do it in house had the system been under public control.

Public ownership and control are necessary to take steps to protect and defend the local environment and watershed. It is not profitable nor is it in the mandate of private water companies to consider the broader impact on local areas and to collaborate with other city services for environmental improvements.

First Nations

It is appropriate to touch on the unique challenges for First Nations, Metis and Inuit communities where water quality and infrastructure are much poorer than for most people living in Canada.

Private water corporations are aware of the need and eager capitalize on it.

Aboriginal people and their allies must be empowered to determine what are appropriate infrastructure needs and adequate funding must be secured to protect local control of drinking water on a not-for profit basis.

What is the better option?

Public ownership and operation remains the most appropriate and cost-effective arrangement for water and wastewater services.

Here are some examples:

Hamilton water and wastewater operations saved $1.2 million in the first year of renewed public operation, $4.5 million in 3 years.

Kamloops Centre for Drinking Water Quality was 20% cheaper than the projected cost of the P3 they were considering

Seymour Capilano Water Filtration plant is a $600 million public project that has come in $34 million under budget!

FINANCING OPTIONS: How will they pay to keep it public?

Let’s set one thing straight. As we have seen P3s cost more not less. Municipalities pay either way.

P3 promoters first got municipalities to buy into the idea by offering a way to keep the cost of investment in new capacity from showing up on their books.
But new accrual accounting standards in the public sector actually force governments to record their long term commitments as capital assets.

This makes P3s a lot less attractive on the financial side. Meanwhile, public borrowing is still the simplest and most affordable way to finance new infrastructure.

Another option for communities who do not have access to borrowing is to join with another water utility in what are known as Public-Public Partnerships or PUPS.

These are Partnerships between two or more public water authorities, whether they be a reserve or a municipality, to improve the capacity and effectiveness of one partner in providing public water or wastewater services.

PUPs can keep costs low thanks to the not for profit principle, and preserve local control. But PUPS require political will (and community pressure). Large municipal, provincial, first nations and the federal government should dedicate resources to supporting such efforts.[9]

Federally, CUPE and the Council are calling for a dedicated water and wastewater infrastructure fund.[11]

After witnessing the bailouts of the big banks we’ll know not to believe them if governments claim that we don’t have the money!

Of course, use of these funds must be restricted to investments in publicly owned, operated and delivered services under local government jurisdiction on a not-for-profit basis.

(Pro-tap)

It’s not enough to say no to privatization.

We also must take action to protect and improve our public systems. Research and development, and funds for retrofits are required to ensure the highest possible drinking water quality.

In many buildings, drinking fountains haven’t been fixed or maintained - and new buildings are being designed without fountains.

And access to tap water must be improved by reinvesting in water fountains in public buildings to making them accessible once again. Lack of access to water fountains forces residents to buy bottled water when we have already paid for our drinking water through taxes and utility bills.

(Conclusion - Benefits of Public Ownership)

• To conclude, the benefits of public ownership and control are many while the risks inherent in privatization through P3s are well documented.
• Keeping infrastructure and services in house is more affordable and can help control water and sewer rates and ensure equality of access.
• It allows for long term planning to advance local community priorities and make improvements in water and wastewater treatment to protect human health and the environment.
• Public ownership allows for democratic control and participation by residents in decision-making about their water systems.
• Our water systems were developed and expanded through public ownership because that is what made sense financially, and to ensure equality of access.
• At the turn of the century it was clear that public investment was the only affordable means to develop infrastructure that could deliver affordable potable water and sanitation services to all residents.

It is time for reinvestment in those systems and governments require the same clarity and common sense.

Sadly we can’t always rely on political leaders to have that vision on their own.

In all of the examples I have shared about P3s that returned to public control, it took informed and dedicated local activists supporting municipalities to make the right decision and kick the for profit corporations out.

Local organizing is essential to stop or reverse privatization. Vigilance and working in coalition are essential ingredients for success.

Other Resources

Public Water For All: Public-Public Partnerships by the Transnational Institute, Public Service International and PSI Research Unit, March 2009 (www.TNI.org)
Waves of Regret, 2005, Public Citizen www.citizen.org/waves.pdf
Money Down the Drain, February 2009, www.foodandwaterwatch.org
Public Citizen CUPE.ca/water

[1] Source: Public Private Partnerships in Canada Theory and Evidence by Aiden R. Vining and Anthony E. Boardman. U.B.C. P3 Project. Working Paper 2006-04. December 5, 2006. Sauder School of Business, University of British Columbia.
[2] Money Down the Drain:16
[3] Source: Evaluating the operation of PFI in roads and hospitals by Pam Edwards, Jean Shaoul, Anne Stafford and Lorna Arblaster. The Association of Chartered Certified Accountants Research Report # 84. London, 2004
[4] Jeremy Colman, Deputy Controller and Auditor General National Accounting Office - U.K. Financial Times June 5, 2002
[5] Waves of regret: 11/
[6] Warrington, G. (2006)
[7] Waves of Regret: 11
[8] Source: Public-Private Partnerships and Municipalities: Beyond Principles, a Brief Overview of Practices by Dr. Pierre J. Hamel for Federation of Canadian Municipalities. August 31, 2007
[9] Corral, Violeta et al, March 2009, Public-public Partnerships in Water, a report by PSIRU, PSI and Transnational Institute (TNI).
[10] Penikett Report.
[11] As part of the AFB Stimulus Plan, $3.7 billion in 2009-10. so that at a yearly rate of $3.1 billion starting in 2010-11 the water and wastewater infrastructure deficit would be paid down within 10 years down the infrastructure deficit in 10 years.