Effectively leveraging Public-Private Partnerships to meet Canada’s growing infrastructure needs + Ways to get involved @ Ivey

Today I'm going to try a different approach, instead of making this a monologue about a general MBA topic I'm going to write on the specific subject of private-public partnerships (P3). Moreover, I have a twofold goal in mind for this post: first, I want to illustrate one of the numerous opportunities to get involved in extracurricular activities here at Ivey as well as to give you a backgrounder on P3s and using them to make Canada more competitive.

Lets start at the start: having expressed my interest in "getting involved" to a member of teaching faculty back in September, I was right away contacted by the director of The Lawrence National Centre for Policy and Management here at Ivey - Dianne Cunningham. After chatting to Dianne I was sold on the idea of volunteering my time to help organize the upcoming Transportation conference. The conference had a mandate to focus on policy recommendations for making the ON-QC transportation gateway a reality. The piece of the conference that was of particular interest to me was the consideration for private funding, operation and maintenance of the continental gateway infrastructure.

Having finished the three day conference earlier today, I can say it was a truly amazing experience and I'm really glad that I got involved with Dianne. It not only gave me a great deal of insight into the way government thinks about private sector but also supplemented nicely my previous knowledge about P3s. Moreover, I was really surprised to find out that parts of Canadian government are actually quite dynamic. In particular, I was really impressed by the forward thinking that exists at the very top of such organizations as Metrolinx (former Greater Toronto Transportation Authority) and Industry Canada.

Having singled out the conference experience as an example, I want to stress that there are various other opportunities to get involved @ Ivey. You can pick the flavor and level of commitment that fits you interests best. Those opportunities include but are not limited to the MBAA, Leader Project, China Teaching Trip, Ivey Connects and the list goes on.

So now lets talk about the exciting stuff: the concept of P3s, or the emerging multi-billion dollar opportunity like I like to refer to it. The concept is based on the fact that there are different areas that public and private organizations excel at. A partnership between public and private entity allows for the transfer of risks to parties most qualified to handle those risks. For example a private company operating a public highway will likely be better qualified to handle day to day risks which translate into a lower cost of operation while government would still carry the overarching set of risks associated with the variability of demand for the highway.

Recently, there have been an increasing number of success stories associated with the use of public-private partnerships in various infrastructure projects around the globe. UK has been a pioneer in using the partnership approach and has illustrated to the rest of the world potential rewards which can be achieved through a smart use of public-private partnerships.

As the result of its efforts UK is seeing an increasing level of private investment in its infrastructure renewal and its brand new infrastructure projects. Currently between 10 and 13 percent of all public infrastructure investment in UK is originating from private financing initiatives helping the country to significantly narrow its existing infrastructure gap.

There has also been a number of public-private partnership successes right here at home. BC has taken a leading role in the use of public-private partnerships while other provinces are following its path, including such successful partnerships as Highway 407 and Royal Ottawa Hospital in Ottawa. (Not to say that those haven’t faced their own fair share of challenges)

Due to a number of significant successes of Canadian projects, public opinion has started to gradually shift towards support for these types of initiatives. Moreover, there has been upswing of interest and increased public investment into public-private partnerships in Canada. Various stakeholders are starting to quickly realize that the public-private partnership approach is one of the most effective ways to bridge the widening infrastructure gap that Canada is currently facing, which by some estimates has already reached $125 billion. However, care needs to be taken to satisfy the need for the continued education of Canadian public about advantages and successes of using P3 approach to ensure that Canada continues on the path of progress towards wider adoption of P3s as one of the key considerations for future infrastructure projects.

It is really encouraging to see that the Government of Canada has finally made a significant commitment to the “winning combination of transportation and public and private partnerships”. Furthermore, by supporting their investment of $33 billion into Canadian infrastructure with a $1.26 billion national fund for public-private partnerships, as well as allocating additional $25 million over 5 years to set up federal P3 Office the Government of Canada has created a clear path to success by allowing businesses an opportunity to what they do best, increase Canadian competitiveness. As a future business leader I see this initial step as opening a great potential for Canada to bring our infrastructure back up to the world standards and increase our country’s competitiveness in the global business environment.

Public-private partnerships will allow for a significant value building activities. It will not only help to create new growth opportunities for a number of Canadian businesses but it will also allow those businesses to gain the necessary expertise in time to enter emerging public-private partnership market in U.S. Our neighbor to the south of the border has been slightly lagging behind in adopting public-private partnership approach which might spell a great opportunity for those Canadian businesses which can figure out successful models of structuring partnerships and working with public institutions to build value for their host countries.

More interesting yet, is the fact that a single dollar invested in public-private partnerships is likely to have a multiplier effect for both Canadian infrastructure and our economy. It will do so by attracting additional investments from both businesses and private investors. It will also have positive effect on Canadian economy by helping to create net new jobs as companies look to build their internal capabilities to take relationships with public institutions to the next level of collaboration.

Furthermore, partnerships will help to unleash the true potential of the public infrastructure through a combination of a long-term focus on efficient construction and operation of those assets. Depending on the model of operation chosen, public-private partnerships might also be able to help better align the costs associated with use and maintenance of the transportation assets with the particular users who are directly benefiting from the use of those assets. For example, through a system of tolls for users of Highway 407 its current operator is able to maintain high quality of maintenance and service for that highway, users are in turn benefiting directly from a more efficient transportation infrastructure which 407 is able to offer them. One challenge associated with near monopolies

However rosy the recent picture, the initial support for public-private partnerships can rapidly reverse if not enough care is taken to ensure string of successful projects. Therefore, to reinforce current public support, it is absolutely imperative to work close with private sector on early projects to not only ensure that businesses have the capabilities necessary to deliver a project, but also that both private and public partners are absolutely clear on the roles, responsibilities, rules, as well as the nature of risks and additional commitment that this new partnership structure involves.

Finally, as with any new approach, public-private partnerships have their fair share of risks and potential challenges. However, all those risks fail in comparison to potential benefits to Canadian economy that can be gained through this innovative partnership approach.

Till next time,
George