Public-private partnerships can help productivity: Dodge

Public- private partnerships offer a practical and efficient way of building infrastructure that can help boost productivity in Canada, says Bank of Canada governor David Dodge. Dodge waded into the controversial topic at a conference yesterday hosted by the Canadian Council for Public- Private Partnerships, or PPPs.

If steps aren’t taking to correct an “infrastructure deficit” in Canada, the country’s productivity growth could be harmed, along with standards of living, Dodge said. Working with the private sector can help governments build infrastructure quickly and cost- efficiently.

“ The most efficient and timely allocation of resources . . . occurs when the incentives are right. And that framework of incentives usually includes some expectation of profit,” Dodge said. When infrastructure projects are purely publicly funded, the incentive to make a profit isn’t a driving force behind the investment. But Steven Shrybman, a lawyer at Sack Goldblatt Mitchell who specializes in public- interest work, says public-private partnerships are “ demonstrably more expensive than a publicfinance model.

“ The transaction costs for the deals are much higher,” he added in a telephone interview.

University of Toronto economist Ernie Lightman agreed.

“ All it does is raise costs, because you have to build into the costs of the program profit for the private sector,” Lightman said. “ The private sector aren’t going to do it out of the goodness of their hearts. They will do it to make money.” As for being timely, there is no reason why the public sector can’t get a project done on time, Lightman said.

The key is to write contracts with penalties for delays. Dodge said working with the private sector has benefits in terms of risk assessment. “ Private financing of infrastructure through markets tends to lead to better assessment of risks of the investment, because financial markets are better able to measure and price risk.” Canada has fewer public- private partnerships than such other countries as Australia, which has more developed legal and regulatory frameworks for these agreements, Dodge said.

“ A lack of pricing that appropriately reflects demand and supply conditions may be one reason why there have been relatively few PPP infrastructure projects in Canada,” he said. The timing is ripe for more public-private partnerships in Canada, he argued. Pension and endowment funds are investing more of their portfolio assets in infrastructure, Dodge said. “We have governments that are committed to investing in infrastructure, a private- market appetite for longer- term financial assets and a pent-up demand for these investments in Canada.”

Politicians, including Ontario Minister of Public Infrastructure Renewal David Caplan, also spoke on the first day of the twoday conference.

There is a role for private involvement in health care, transport and justice, Caplan told the crowd. The Ontario government recently announced a $30 billion five- year investment plan for infrastructure. About 8 per cent, between $ 2.3 billion and $ 2.5 billion, might be suitable for privatesector investment, Caplan said. Support from governments and the Canadian public is growing for public- private partnerships, said Michael Wilson, chair of the Canadian Council for Public- Private Partnerships. So far, though, not everyone is a fan of these arrangements.

“ There are people who oppose them, and politicians have been sensitive to that opposition.”