The spectacular failure of a privatization scheme to upgrade parts of London, England’s subway system has lessons for Canadian officials, including Québec politicians who are privatizing construction of two new hospitals and a section of highway.
In 2003, a £30 billion, 30-year P3 deal to upgrade the subways was inked over strong opposition from London mayor Ken Livingstone. He argued to fund the work through municipal bonds and do the upgrades in-house, but lost a court challenge to cancel the deal. One of the deal’s champions was Gordon Brown, now Britain’s Prime Minister. The scheme drew fire almost immediately from the National Audit Office.
As part of the deal, the Metronet consortium scooped a £17 billion contract to maintain and upgrade nine of the system’s 12 lines. A short four years later, Metronet has essentially folded and is under administration, after failing to get an emergency cash injection to offset nearly £2 billion in overspending. The consortium was behind schedule in its work, and had faced criticism over poor management. There’s a Canadian connection to the fiasco. Consortium partner Bombardier, a 20 per cent shareholder in the consortium, has written off US$164 million as part of the collapse.
CUPE Québec wrote to transport minister Julie Boulet in late July, saying the collapse shows P3s aren’t immune to cost overruns or failures to deliver. CUPE Québec assistant director Michel Parenteau and CUPE 1983 president Claude Benoît also point out that taxpayers get stuck with the fees involved in tribunals, arbitrations and other legal proceedings to sort out the tangled arrangements of P3. Drawing up the P3 deal cost £500 million in lawyers’ and consultants’ fees – another waste of tax dollars.
Finally, they warn the minister, risk transfer is an illusion. When push comes to shove, governments often have to pick up the costs for private sector shortcomings or failures. In the case of Metronet, the municipal government is being saddled with a £2 billion bill.
British P3 expert Allyson Pollock told the media that “the whole rationale for using PPPs is that the government has transferred the risk: well, this just blows a hole right through that argument.’ Adds Pollock, a professor at Edinburgh University, “what we are seeing is that the risks just revert back to the public sector, at a cost much higher than if they had just contracted it on the usual government basis.”