Public-private-partnership funding models will undergo changes as the credit market tightens, predict P3 promoters.
Jane Peatch, executive-director of the Toronto-based Canadian Council for Public-Private Partnerships (CCPPP), says the days of one large investment syndicate bankrolling large infrastructure projects are over. Instead, each project will rely on several lenders who carry lower amounts of risk.
"Syndication is no longer going to be the future," she says.
So called "club deals" where project sponsors, usually governments, put financing together will likely become more common. Under a syndicate, banks usually assemble lenders.
But Peatch, whose group hosted a recent conference in Toronto that attracted approximately 1,000 attendees from across North America and other parts of the world, says demand for P3s remains strong.
Project developers also expect such factors as approval methods and return rates to change, but anticipate that P3s will increase as more private players seek the protection of government-backed ventures.
"Everybody agrees that there's a credit crunch," says Peatch. But while it's harder to borrow money, P3 promoters believe "when the dust settles here, investment has to occur. Investment in something as clear and as fiscal as infrastructure, with payments coming from an availability basis from government, is going to be as good as it gets for investors."
According to the council, 14 P3 deals valued at $5.3 billion have been finalized in Canada over the past two years, while 32 worth $8.7 billion were completed in the past five years.
Under P3 formats, private companies receive long-term, fixed-revenue government contracts in return for building and operating public infrastructure.
But deals usually require private companies to have guaranteed financing and rates and charges before contracts are signed.
Larry Blain, president and CEO of Partnerships BC, which administers P3s for the province, says P3 players have to monitor the market constantly and be prepared to adjust their approach. Partnerships BC is considering whether to adjust terms of financing and the length of fixed-term financing during negotiations.
He says the conference, which attracted many new players, shows that there is still strong interest in P3s.
"I think the outlook is positive," says Blain. "We expect that financial markets will stabilize and that these projects can move forward."
In a paper posted on the CCPPP's website, Daniel Roth, managing director of accounting firm Ernst & Young's infrastructure practice, says government rules that require companies to have financing rates secured during negotiations - "that are taking longer to conclude" - will likely have to become more flexible.
Governments are also seeking ways to take advantage of their favourable credit ratings rather than pay more for "private finance," which has resulted in additional service fees.
"Using government debt does not mean that private sector risk-management and project-delivery skills (and consequent cost advantage) are insufficiently harnessed," writes Roth, who is based in Montreal.
"The trick is to know where to set the mix of public and private capital so that there's enough private capital at risk (both equity and debt) to foster motivation and discipline."
In Alberta, Premier Ed Stelmach's Tory government has come under fire from the Canadian Union of Public Employees for building 18 schools under a P3 setup financed by a subsidiary of the troubled Australian investment group Babcock & Brown.
The parent company has had some assets frozen because of its difficulties dealing with a $3 billion (Australian) debt load.
Sandford Borins, a University of Toronto management professor who has studied P3s and written a book on Ontario's Highway 47 improvement project in the mid-1990s, says he expects infrastructure investment will increase, and he hopes it can be done imaginatively.
"P3s are something that could fit under the rubrick of imaginative infrastructure projects, but the focus would be on getting (a project) done fast," says Borins.
Investing roles could also be reversed, adds Borins. Previously, incentive was provided by giving the private sector an opportunity to profit. But governments may now be asked to provide the money up front, potentially increasing their long-term debt.
"In a lot of the P3s, the public sector was looking to the private sector to fund the money. My guess is that in this business environment, the answer to that is: 'No way.' " Steve Dyck, manager of corporate development for Infrastructure Ontario, which administers P3s, says it does not anticipate any reductions in P3s because of credit issues.
