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Our AGM’s focus this year was on how the obligation of NL communities to upgrade waste-water infrastructure in order to meet new federal guidelines might force some municipalities into public private partnership (P3) agreements. We’ve since had requests for more background information. Here it is. In defense of this rather long blog post, it is a multi-faceted issue.. ………………………………………………………………………………………………………………………………………. According to media reports, St. John’s, Mount Pearl and Paradise have to collectively come up with $250 million to upgrade their waste-water infrastructure. At the provincial level, NL municipalities could be looking at an overall cost of $600 million to meet the new federal regulations. The big question for all of us is where the money for these upgrades is going to come from. Our concern is that NL municipalities may be forced into some sort of public private partnership (P3). This posting explains what P3s are, why we are opposed to them, and how we think a P3 agreement might be imposed on us. Part A: A brief history of P3 agreements Part B: Why we oppose P3 agreements for waste-water infrastructure Part C: The role of the Harper government in promoting P3s Part D: The role of the new Canada Infrastructure Bank in P3 promotion Part E: Will our province be Ground Zero for the privatization of waste-water infrastructure? Part F: Joining the Blue Community Movement Part A: A brief history of P3 agreements In a typical P3 agreement a consortium of private sector players finances the project and provides the architectural, constructional and management expertise. A tightly bound contract is drawn up between government and the consortium. Then, over a 20 to 30 year period the private sector group reclaims the money from the public, either through tolls (P3 bridges and highways) or by directly charging governments (water infrastructure). Public private partnerships have been pushed as a solution to funding infrastructure upgrades since the 1990s. At that time, governing parties in the richer countries saw P3s as a way of shifting budgetary expenses to future years. This camouflage of expenditures allowed governing parties to look more fiscally responsible as elections approached. In the Global South the story was different. International organizations like the World Bank imposed privatization of one sort or another on governments, by making them a condition of a country’s loan agreement. In spite of the propaganda spouted by so many financial institutions, water related P3s have not for the most part been a success. Maude Barlow, our honorary chairperson at the Council of Canadians, and a former senior advisor to the UN on water related issues states it succinctly. “Private water and wastewater services employ fewer staff, cut corners on source protection, provide poorer customer service and charge higher rates.” Unfortunately for poorer countries with heavy debt loads, re-municipalization is not easy, given the continuing enthusiastic support of privatization by the international financial institutions. It’s a different story in richer countries, however. France, is a particularly interesting example of the recent pushback against P3. The country is the home of the two largest water corporations in the world (Veolia and Suez). Yet, since the year 2000 more than one hundred French municipalities have taken back public control of water. At a broader level, the European Court of Auditors has detailed widespread shortages and limited benefits in EU public private partnerships. It's not just water infrastructure P3s that are problematic. Part B: Why we oppose P3 agreements for waste-water infrastructure The concern of our local CoC chapter is that, just as the rest of the world is seriously questioning and retreating from the privatization of water, Newfoundland and Labrador may be forced into accepting a “P3 solution” for waste-water upgrades. Here are six reasons for our opposition to going the P3 route for waste-water infrastructure. 1. P3s constrain our human right to public water and sanitation. In 2010 the United Nations recognized the human right to water and sanitation as an essential part of the right to life. The Human Rights Council further clarified that governments have the primary responsibility to deliver these new rights. P3s obstruct and limit this responsibility. 2. P3s lead to the loss of public control. Given that P3s effectively grant monopolistic power to private sector consortiums, we should take note of what has happened elsewhere in the world. As Nicholas Shaxson, author of The Finance Curse, explains in his critique of P3s in Great Britain: “The top down state sets long term performance targets, which can never cover all the possible eventualities. The highly complex contracts are impossible to monitor effectively and influence in a changing world. The players constantly try to shirk and wriggle out of commitments and whenever there is a clash, the government which has outsourced its expertise to private actors gets dragged into bargaining games it can’t win. Government has lost its ability to understand what is going on.” 3. P3s impose additional costs and burdens on taxpayers and the local economy. US research indicates that private providers of waste-water infrastructure charge on average 63% more than governments for service delivery. Unfortunately, there are no Canadian statistics yet available on P3 waste-water projects. However, cost analyses have been done on other P3 projects (health care, transportation, etc.). As a result, six auditor generals, (Ontario, BC, Quebec, Nova Scotia, Saskatchewan as well as the federal auditor general) have made extensive criticisms of the additional costs of the P3 approach. Keep in mind also that the “partnership” between government and the private sector is rarely a partnership with local businesses. That’s because local businesses generally do not have the resources to meet the financial requirements of a P3. Instead, the partnership is invariably with powerful corporations with no emotional ties to local communities. That means that almost all profits will leave the province. Furthermore, in order to increase profits, P3 management often cut back on workers and benefits. That can have an effect on quality control. 4. Risks remain with the public sector. Canadian auditor generals also concluded that instead of transferring the risk to the private sector – one of the main justifications for privatization – provincial governments usually end up assuming all the risk in P3 arrangements. In other words, it’s public risks but private profits. 5. P3s could lead to permanent privatization. Did you know that there is a ratchet clause in the CETA trade agreement between Canada and the European Union that states that once a service has been privatized it cannot be re-municipalized as long as CETA exists? Water delivery is exempted. Waste-water is not. Currently, the perception is that government has the option of taking back control at the end of the project term. Under CETA, maybe not. It’s impossible to predict how any challenge to re-municipalization might play out in an ISDS court. 6. P3s unfairly disadvantage future generations. Under a P3 arrangement, the initial financing of projects is done by the private sector. In the past this has allowed governments of the day seeking re-election to look more fiscally responsible as project costs are pushed into the future. The neoliberal rationale for this decision has been that as the economy continues to grow it will be easier for future generations to pay the cost. Except that we now know that talk about future growth may be just a fantasy, particularly in our province. We would argue that this transfer of extra cost obligations to a future generation is no longer (if it ever was) an honourable option. Part C: The role of the Harper government in promoting P3s Way back in 2012 the Conservative government under Steven Harper introduced new regulations for waste-water infrastructure. These regulations, which were to come into force in the years leading up to 2020, required secondary processing standards for sewage treatment. Around 40% of Canadian municipalities were affected by this legislation at estimated costs between $18 billion and $24 billion. Here in our province, 90% of municipalities are theoretically required to upgrade at a cost of around $600 million. We say theoretically, because small communities will probably be exempt, simply because the effluents they dump into the ocean are below the threshold amount designated for upgrades. While we acknowledge the need and importance of upgrading waste-water infrastructure in our province we are suspicious of the real motives of the Harper government. After all, this was a government that deliberately gutted regulations related to Canada’s lakes and rivers, effectively leaving 99% of them unprotected. Consider the following two points:
Part D: The role of the new Canada Infrastructure Bank in P3 promotion The present federal government has withdrawn the insistence that public infrastructure projects over $100 million go the P3 route in order to access any federal grants. That’s good. What the Liberals have not done, however, is provide adequate funding through grants or loans so that municipalities can make the required upgrades to waste-water infrastructure. That doesn’t jibe with the Liberal campaign promise back in 2015 to spend money on building and strengthening Canadian infrastructure. Many voters envisioned that 2015 campaign promise as some sort of FDR New Deal where government would incur debt and then spend it throughout the country by subsidizing infrastructure projects, either through direct grants to lower levels of government or through loans to local businesses and municipalities. But that’s not what we got – not at all! During their first term of office the Liberal government formed the Canada Infrastructure Bank (CIB). This is a crown corporation completely controlled by the private sector. There appear to be no government representative on its board of directors and civil society groups have very little access to its deliberations and policies. The CIB’s declared mission is to build Canadian infrastructure through public private partnerships. But is that the way it’s really going to play out? We can’t help wondering how many CIB promoted P3s are going to end up capturing and controlling already existing public infrastructure - infrastructure like our waste-water systems. Furthermore, given the corporate control of the CIB’s board and administration it’s hard not to conclude that CIB sponsored P3 contractual agreements could be significantly biased in favor of the private sector consortia and the big corporations they represent. The CIB’s goal is to leverage private sector P3 investments of up to $140 billion over the next ten years. To that end the federal government has committed $35 billion to be spent over that time period. A small amount may go to municipalities. For example, Mapleton, Ontario was recently loaned $20 million to be put towards waste-water infrastructure upgrades. But here’s the interesting part. The caveat was that the $20 million was to be used to “attract private capital expertise” through a P3 agreement. If the CIB’s money is not being spent on directly financing infrastructure projects, where is the bulk of it going? It turns out that a large part of the $35 billion federal investment in the CIB is to be used to subsidize the borrowing costs for corporations bidding on P3s. That’s to be done by loaning consortium partners money at a lower rate than they could get on their own in the money markets. As a co-investor, the CIB can also mitigate some of the unexpected risks a consortium might face by injecting capital at key points. All of this makes P3 projects, even smaller ones like Mapleton (population 11,000), appear a lot less risky for the private sector. But still, the private sector would really prefer larger projects - which is why there is increasing reference to the concept of “bundling” on P3 promoting Internet sites. In the past, the term was used to refer to the bundling of different partners within a particular consortium. The new talk however, is of persuading communities to bundle together. A practical example would be if Lewisporte, Twillingate, Gander and Grand Falls bundled together as partners in order to encourage a P3 investor to come in at a lower cost option. Worse case scenario: The majority of municipalities needing upgrades across the province agree to bundling in the interests of saving money. Part E: Will our province be Ground Zero for waste-water infrastructure privatization? There is, of course, the possibility that our fears about the privatization of waste-water infrastructure are unfounded. P3s for waste-water management have not to our knowledge been formally proposed. That doesn’t mean, however, that they won’t eventually be slid onto the table. Certainly, the federal government is pushing municipalities to do something. As reported in a CBC article, in some cases town managers in NL municipalities that don’t have an infrastructure upgrade plan in place have been threatened with $500,000 fines and two years in prison. The federal government is obviously well aware that our towns are several hundred million dollars short of having the money to make the required upgrades. Why then this bullying unless it is to push communities into a corner where they believe P3s are the only way out? That raises questions about how much support municipalities that want to resist a P3 “solution” are going to receive from the provincial government. There are reasons for pessimism. First, it is very possible that the present Liberal government is, itself, in favour of a P3 “solution” for our waste-water infrastructure crisis. Since taking office in 2015, the Liberals have gone the P3 route for the proposed mental health hospital, the new prison and two nursing homes. By contrast, there were no P3s in Newfoundland and Labrador prior to 2015. The Liberals may also argue that they simply can’t find the money given the current fiscal problems the province faces. This fiscal dilemma is further complicated by a federal government that appears to be ideologically slanted towards some sort of privatization of public infrastructure. Does that mean they won’t consider other strategies like actually loaning federal money to our municipalities or pushing into the future the 2020 deadline? Who knows? The one bright point is that we have a minority government with potential opposition to the P3 route from the other parties. But will they come out against P3s and will they look for other solutions? Water related infrastructure is very possibly the next frontier in the private sector’s quest to gain greater control of Canada’s lucrative public infrastructure delivery. If that is so, our province, thanks to its dismal fiscal situation and the many communities needing upgrades, may well be Ground Zero in that power shift. Part F: Joining the Blue Communities Movement Did you know that, in the developed world, Paris, Berlin, Bern, Brussels, Los Angeles and many other cities have become Blue Communities? The Blue Community movement was initiated back in 2009 by the Council of Canadians in partnership with CUPE and the Blue Planet Project. Blue Community members commit to three things.
We would like Newfoundland and Labrador municipalities to consider joining the 27 other Canadian communities right across the country in becoming a Blue Community. But let's be practical. First, we have to acknowledge that there may be forces in the business community and in government that are going to push privatization at us through a P3 agreement. If and when that push come we have to be ready to say NO to any P3 agreement on our water infrastructure delivery.
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