Politics, problems and pitfalls?

Transcription

1 Share BC Pension Forum Pension funds & P3 s: Politics, problems and pitfalls? Public Private Partnerships for Health Infrastructure and Services 1 Richard Neal BC Health Coalition May 24, 2007

2 An attractive long-term investment? Stable income stream + Low operational risks + Limited operational competition = Robust returns for investors? 2

3 Structure of a P3: Special Purpose Vehicles 3 AHA is a legal entity that has no legal assets of its own. It is referred to as a Special Purpose Vehicle, which is made up of the following partners Finance: ABN AMRO Construction:PCL Constructors Inc. Hard & Soft FM Services: Johnson Controls & Sodexho PCL Construction May 24, 2005

4 Primary Goals of P3 s Projects appear to be delivered on time and on budget via contract and risk transfer Performance Based Pay for operational contract duration a mechanism for superior performance 4

5 Questioning the goals of P3 s What are the frequency, extent, and magnitude of cost overruns and project delays on conventionally procured projects? What factors are associated with cost overruns and project delays? What are the costs of P3 s? 5

6 P3 s: On time and on budget? 6 The most publicized quantitative evidence to date produced by the UK National Audit Office: PFI: Construction Performance P3 s more likely to be on time and on budget But, NAO only examined construction times NAO did not account for: Budget increases during contract negotiation Downsizing of projects during negotiation Length of time for contract negotiation

7 On time and on budget? At what cost? Forensic analyses of operational Public Private Partnership hospitals commissioned by The Association of Chartered Certified Accountants P3 consortia charging a premium of 30% to deliver projects on-time on-budget Considerably exceeds evidence of average hospital cost overruns;by a factor of 3 to 5 times 7

8 On time and on budget? Abbotsford Hospital and Cancer Centre I look forward to the day in 2007 when one of the representatives of these groups is standing beside Premier Campbell when he cuts the ribbon to open this hospital Colin Hansen. June 25, Health Services Minister Colin Hansen and Finance Minister Gary Collins made the announcement today... Construction is expected to begin in 2004, with completion in 2007 Ministry of Health//Ministry of Finance. Press Release January 23, 2003 Project Agreement: substantial completion May 6, 2008

9 On time and on budget? Abbotsford Hospital and Cancer Centre $210 million;$286 million; $325 million; $355 million Annual service payment doubled: $20 million to $40 million 9 August 2006: BC Office of the Auditor General - $1.1 billion

10 Lower costs: Where s the evidence? The Auditor General said we saved $39 million on [the Abbotsford P3]. Gordon Campbell. Abbotsford Times, May 10,2005 Abbotsford Regional Hospital and Cancer Centre Project brings cost-savings of about $39 million... those savings will go directly to patient care 10 George Abbott Nov. 29, Ministry of Health Press Release. B.C. Wins Recognition for Public Private Partnerships

11 Higher costs = Value for Money? Value for Money : numerous colloquial definitions Value for money is misused to describe how P3 projects are guaranteed to be delivered on time, on budget, and with superior levels of service when compared to traditional public provision But value for money is notoriously hard to identify, and has a technical definition, not colloquial, for P3 cost-benefit analyses Comparative net economic benefit throughout the contract term 11

12 Private sector innovations and efficiencies at P3 hospitals Installing bedside entertainment and communications equipment High costs of incoming calls and marketing to patients a captive audience The real money maker: exclusive ability to bill for variable expenses 12

13 Is Partnership a loaded term? Risk profile changes throughout contract term Refinancing circumventing refinancing Public loses out 13

14 Why P3 s? BC s conventional procurement well managed and well executed No evidence that BC lacks experienced engineers, project managers or construction managers Generalizations about large cost overruns and prolonged delays on public sector projects are not borne out in the projects we have examined here in BC Morris Sydor, Director, Office of the Auditor General of BC,

15 P3 s: the financial and political risks to trustees & fund managers 15 Financial Unknown construction & development risks: Limited verifiable data available Operational... relatively benign risk Standard & Poors Global Credit Rating Political When you look at the institutional ownership of these assets, it is the Canada Pension Plan, the Government of Alberta, BCIMC, the province of Nova Scotia, and Ontario municipal employees Duncan Ball, ABN Amro, E & Y P3 Issues Survey 2006

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17 17 What next?

18 Risk Transfer: Is it effective? Is it worth the price? 18 Risk is at the heart of all... public private partnerships, but not perhaps in the manner claimed by their supporters.only by adding the value of risk that is claimed to be transferred to the private sector that any PFI project can appear to demonstrate value for money. In reality, the main risks in the provision of any essential public service will remain with the government. It cannot afford to let these services fail and so, if necessary, the private sector provider will be bailed out by the tax-payer. time and again private sector failures have demonstrated that the key risks remain with the public sector Association of Chartered Certified Accountants, 2002

19 Increased investment or increased debt? P3 s are a form of financing, not funding More costly form of financing Do not increase funding for public services or infrastructure Compels public bodies to bypass lowercost financing A loan that must be repaid 19

20 Risk Transfer: designed to Shelter taxpayers from project cost & time overruns Provide lower operational, service and maintenance costs for contract duration Only aspect of contractual risk transfer studied is ability of P3 consortia to deliver on time and on budget 20

21 Accountability: Partnerships BC says Public interest is paramount Processes are fair and open Partnerships BC. An Introduction to Public Private Partnerships. June 2003 We have committed to publicly release the final project agreement... after the deal is signed Mike Marasco, Chief Project Officer, Partnerships BC On the Abbotsford P3 Press release February

22 Financial Model Extracts publicly released DELETED 22 Partnerships BC Abbotsford Hospital and Cancer Centre Project Agreement Schedule 7 Financial Model Extracts Page 1

23 Cancellation Costs publicly released DELETION Partnerships BC Abbotsford Hospital and Cancer Centre Project Agreement Schedule 26 Compensation on Termination Pages

24 Gordon Campbell s visit to Europe... Why didn t he visit P3 s hospitals? Could not visit any regional London P3 hospitals. Why? High operating costs, high cost of debt, & operating deficits Beds cut, surgeries cancelled, staff laid off...technical Bankruptcy 24

25 P3 s in BC and PFI in the UK: Why they re so similar British PFI consultants drew up Abbotsford P3 contract, seconded by PBC to negotiate and lead final Abbotsford P3 contract Developed a template P3 contract for all other PBC P3 s Based contract on standard UK PFI contract: recognisably the UK PFI model David Hunter, partner, Bevan Ashford Time To Go West Again October

26 Assumptions of P3 s Inefficient state monopoly Revitalize with free market competition Private sector expertise, efficiencies, innovations, and competition Everyone benefits 26

27 The problems with P3 s If you had made this up, you d be laughed at. If you were the one who did make this up you should be ashamed. If you continue to make it happen you will destroy the NHS Paul Miller, Chair, British Medical Association Consultants Committee. Annual BMA Consultants Conference, June

28 The problems with P3 s 28 another example of governments choosing quick, politically useful results without concern for the long term consequences... it is difficult find anyone in the UK now prepared to support PFI except those in government and those set to profit from it Peter Fisher, Chair, NHS Consultants Association open letter to the CMA, August 2005

29 The problems with P3 s 29 Is the Private Finance Initiative dead? It may have failed in the United Kingdom but that won t stop it from being exported... It has created a cadre of exports who can now offer their services to the rest of the world. The UK may, once again, be successful in exporting its failures as successes Martin McKee & Rifut Atun, Editorial, BMJ October

30 The British Medical Journal : The evidence for P3 s 30 Several respondents have made the point that they would like to read an article that argues cogently the case for the Private Finance Initiative. We at the BMJ share this desire. We have never had such an article submitted to us, but we have made several attempts to commission a piece. These have all come to nothing, with some of the proponents of PFI arguing that they are "far too busy to have time to put the case for PFI." I find this bizarre, and it seems to me that when hundreds of millions of pounds are being spent on PFI schemes it should be possible for somebody somewhere to find a small amount of money to pay somebody to make the case for PFI.

31 The problems with P3 s Our analysis shows that PFI is a very expensive way of financing and delivering public services that must, where public expenditure is constrained, lead to cuts in public services and/or tax rises, that is a cut in the social wage. In contrast, the chief beneficiaries are the providers of finance and some of, though not necessarily all, the private sector service providers, leading to a redistribution not from the rich to the poor but from the mass of the the population to the financial elite. In short, PFI does not pass the accountability test. Pam Edwards et al, Evaluating PFI in Roads and Hospitals. Association of Chartered Certified Accountants, Nov

32 Public Sector Comparators Pseudo-scientific mumbo jumbo where the financial modeling takes over from thinking it becomes so complicated that no one, even the experts, really understands what is going on. Jeremy Colman, Deputy Comptroller, UK National Audit Office. Financial Times, 5 June

33 Public Sector Comparators People have to prove value for money to get a PFI (P3) deal. But that is wrongly seen to be demonstrated by the public sector comparator, it becomes everything. If the answer comes out wrong you don t get your project. So the answer doesn t come out wrong very often Jeremy Colman, Deputy Comptroller, UK National Audit Office. Financial Times, 5 June

34 Public Sector Comparators Public sector comparators won t do you much good anyways, because I can make the public sector comparator as bad as we want to, in order to make the private sector look good. Larry Blain, CEO, Partnerships BC BC Municipal Finance Authority Meeting, March 26,

35 What happens to staff Clinical staff employment retained so far But latest P3 models transfer entire hospital, including clinical services, to private sector. 35

36 Where s the evidence for lower costs? No independent publicly available quantitative study published to date confirms lower costs for P3 s Well known studies claiming lower costs for P3 s can only predict lower costs 36