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March 24, 2010

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Value for taxpayers and public opinion favour public sewage treatment

By the end of March, elected councillors in the Capital Regional District (CRD) will make a crucial decision on how new sewage treatment should be procured and whether they will accept a public private partnership (P3) and hand sewage treatment to private corporations.

From the beginning this project has been caught in the cross hairs of the B.C. government’s privatization agenda. Premier Gordon Campbell’s October 2006 capital standard policy requires all capital projects with $50 million in provincial funds to be considered for privatization. In making that announcement the Premier repeated the mantra that “public-private partnerships save money, transfer risk and add value through design innovations and ingenuity."

But the facts tell a different story. B.C.’s most respected forensic auditor recently reviewed the CRD’s business case in support of provincial funding for sewage treatment. Mr. Parks delivered a very clear analysis that private is not cheaper, nor is there a justification for the assumed risk transfer or private sector advantage.

Mr. Parks found that the CRD business case, prepared by Ernst and Young Orenda Inc., inflates the assumed cost of public operation – double-counting the value of private risk transfer, including unjustified assumption of higher public costs, and using a discount rate that is too high.

Assuming a more appropriate discount rate of 5.19 per cent - linked to the current cost of public borrowing through the Municipal Finance Authority – as opposed to the 7.5 per cent used in the business case, Mr. Parks estimates that public operation is actually $116 million cheaper than a full P3 and $58 million cheaper than the mixed public/P3 (hybrid) option.

Taking on the business case’s estimates of higher construction and operating costs for models that include public operation, he says they seem to be based on “the general assumption that the private sector can always do things for less than government can.”

On this point, I am pretty sure Ron Parks would get strong agreement from the many local contractors, including the Vancouver Island Construction Association, who have been very vocal in telling the CRD that P3s are bad for local business and that public procurement has shown that it can be done on time and on budget very effectively.

We don’t have a lot of experience with P3s in Canada – as we still believe strongly in public services – but even with our limited experience, there have been powerful voices critiquing the value of P3s, including the Auditors General of New Brunswick, Quebec and Ontario.

The recommended proposal in front of the CRD this week would see a P3 for sewage treatment in Colwood and Langford, along with some portion of resource recovery. Treatment in the remaining five communities and other aspects of resource recovery would be publicly operated.

Given that the business case offers no rationale for why the taxpayers of Langford and Colwood are better off saddled with multi-decade private contracts, it looks like the proposed privatization is being driven by politics, not policy. And you can bet that if something went wrong with that P3, it would be the taxpayers of the CRD picking up the tab.

My bet is that residents of the region would rather see the tens of millions go to improve parks, recreation, transit and roads, than to pay for what amounts to “privatization premiums” or to pay for a boondoggle down the road.

The CRD should be congratulated for doing focused public engagement on the issue of procurement, during which the public said loud and clear that they don’t want private corporations running sewage treatment.

The first vote is scheduled for today, and the final vote on March 31.

If they listen to the people and look at the evidence, CRD directors will opt for high quality public sewage treatment and resource recovery in all seven communities, as that option provides the best value for taxpayers, and supports the local economy and the environment.

Barry O’Neill is president of the B.C. division of the Canadian Union of Public Employees.