P3s are an innovative way for governments to deliver on their commitment to maintaining and expanding public infrastructure while representing a unique opportunity for investors, according to Jim Cahill, Vice President of Project Finance at Infrastructure Ontario.

At MPT’s recent annual Investor Day, Mr. Cahill discussed the structure and merits of public-private partnerships, or P3s, based on his experience at Infrastructure Ontario, which is an arm’s length crown corporation that is dedicated to the renewal of Ontario’s hospitals, courthouses, roads, bridges, water systems and other public assets.

A P3 is a long-term, fixed-price and performance-based contract between government and the private sector for the provision of assets and the delivery of services. A P3 contract allocates responsibilities and business risks among the various partners. While the government retains ownership of the asset, the private sector bears responsibility for the P3’s commercial functions, such as project design, construction, finance, and operation in accordance with defined standards and performance requirements.

A key element of any P3, Mr. Cahill pointed out, is the transfer of risk from the public to the private sector. This means that the private sector, rather than the government, takes on the risks that it is better equipped than the public sector to manage, such as construction risk. With this transfer of risk, the private sector is highly incentivized to manage the project effectively. The objective of a P3 is to combine the strengths of the public and private sectors for the benefit of taxpayers and users of the asset or service.

For taxpayers, Mr. Cahill explained, the oversight of a P3 by equity investors, lenders and consultants usually means that a project has a high probability of being built on time and on budget. The private sector also offers innovation, flexibility and experience in service delivery, which typically results in a higher quality product and better, more cost-effective service, resulting in value for money for taxpayers.

Mr. Cahill noted that for investors, P3s represent a new class of investment opportunities, whether equity or investment-grade senior debt or bond investment opportunities.

"P3 investments offer attractive risk-return parameters," Mr. Cahill said. "Equity returns are in the 12% range for equity investors on availability-based projects. The bond pricing that we’re currently seeing on our projects is in the 300 basis-point range over the Government of Canada bond yield for debt investors. These are often A rated or A- rated bond financings. So both are very good returns given the government off-take payments to service the debt and pay the equity returns."

To listen to Mr. Cahill’s presentation, visit the Investor Day webcast on MPT’s website.

For MPT, P3s represent a potentially attractive investment opportunity due to the strong contractual framework, government counterparties and predictable cash flow, which typically a results in a low risk profile. MPT is managed by a subsidiary of the Macquarie group, which is highly experienced in P3s internationally, including in Canada with interests in the Sea-to-Sky Highway Improvement Project in British Columbia, the Southeast Anthony Henday Drive in Alberta, and the Autoroute A-25 in Quebec.

Did you know?

There are currently about $35 billion worth of public-private partnerships underway in Canada, including roads, bridges, hospitals, schools and courthouses.

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