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P3 and the proposals

Published Thursday 23rd October, 2008

The new Minister of Finance, in delivering her first budget speech on September 22, made several important statements on the government’s infrastructural proposals. We touched on some of these in the last column and considered the implications for our national planning system.

This week we will begin looking at the P3 procurement model which is the stated preference of the government for these large-scale infrastructural projects. The Minister of Finance stated in the 2009 budget that the P3 method was to be used for two important elements of the new transportation infrastructure: the Rapid Rail System and the National Highways Programme.

The P3 model will require that the State enter into public private partnerships with private entities, the idea being that the private partners will finance and build the projects with the State making periodic payments to them upon completion. Those payments are intended to repay the cost of finance and allow the private sector partners a reasonable level of profit. The stated benefits of this procurement method are cost and time savings due to the involvement of the private sector and insulation from price escalation. The private sector rewards are limited to the risks it takes on the project.

Readers should know that the P3 model is now under serious re-examination internationally due to its failure to deliver the promised benefits. The common criticism seems to be that, in the worst cases, the private entities did not actually take any kind of risk since the State (taxpayer) ended up paying for everything, even the private sector mistakes. Given our own poor record at holding contractors or designers to account (yes, just like at Tobago Hilton) one has to wonder whether our country can benefit from that procurement method.

But when one considers the proposals in a planning framework, it is clear that there is more to this story. To begin with, the Ministry of Works and Transportation in 2005 commissioned a Comprehensive National Transportation Study at a cost of $24 million. The results of that study are still awaited, but yet, in typical wrong-side fashion, we are calmly told that rapid rail is a reality, along with the other transport projects.

For the P3 proposals to be viable, they must be carefully studied so that the private entities can quote an appropriate and competitive annual cost to the State. The Minister of Finance stated in the budget that both the Rapid Rail and the National Highways Programme were to be procured by the P3 model.

Another aspect highlighted by the P3 critique is that there was almost chronic over-estimation of passenger numbers in the relevant projects in London. I ask myself, how are these bidders to estimate the passenger numbers for the rapid rail. If, as shown in the sidebar, we have virtually simultaneous execution of the highways, rapid rail, water taxis and PTSC expansion, how can we estimate the numbers of passengers using any one of these?

If we cannot estimate the passenger numbers, how then can we set fares which would repay the private entities their investments?

It seems likely that we will be unable to set proper fares to cover the cost of the various projects; be they rapid rail or water taxis. In that case, we would actually be talking about a “take-or-pay” type scenario in which the State agrees, whatever the actual usage of the provided service, to repayment terms which satisfy the private entity. That is a perilous situation for our nation, since we have to consider a private partner who takes no risk.

If that is indeed the case, one could well wonder why bother with P3, since those private entities would have no motivation to set higher service standards to improve public participation. If we cannot benefit from the private sector involvement, why are we pushing ahead with this method of procurement?

We would also note that despite repeated claims by Imbert that these transportation projects are viable, he has never published any supporting reports.

We leave the most important for last. Of course we are referring to the importance of planning.

We need to locate those transportation proposals so that they can best serve residential communities, business districts, educational centres and so on. The Ministry of Planning, Housing and the Environment has to be at the centre of this vital stage of national development. It is impossible to properly design all these transport proposals without the active involvement of that ministry. That ministry must not be allowed to table a draft national plan for discussion in two years’ time, when all these projects are already underway. This level of recklessness is going to cost our country too much.

Does the Ministry of Planning, Housing and Environment have a view on these proposals?

Are we going to be consulted?

The National Infrastucture Development Company’s (Nidco’s) high-profile advertisements for rapid rail are now giving one pause. Hear this: “As part of a holistic plan to ease traffic congestion and create a more modern, efficient, transportation network, the Ministry of Works & Transport…signed a design-build-operate-maintain contract on April 11, 2008, for the implementation of the Trinidad Rapid Rail Transit System.”

Where is this holistic plan?

Were public comments ever invited on that plan?

Where can the public see that plan?

In the absence of committed leadership of integrity, it might really be that this time around we could be forced to “pray for rain.”

We no longer have leaders who can admit to error, so it might be up to falling energy prices to make the whole adventure too expensive.

Next week we continue to examine the ways in which these transport proposals interlock, or not.

 

Afra Raymond is a chartered surveyor and a director of Raymond & Pierre Ltd. Feedback can be sent to afra@raymondandpierre.com.

Afra Raymond - Property Matters

Readers should know that the P3 model is now under serious re-examination internationally due to its failure to deliver the promised benefits.

The common criticism seems to be that, in the worst cases, the private entities did not actually take any kind of risk since the State (taxpayer) ended up paying for everything, even the private sector mistakes. Given our own poor record at holding contractors or designers to account (yes, just like at Tobago Hilton) one has to wonder whether our country can benefit from that procurement method.

But when one considers the proposals in a planning framework, it is clear that there is more to this story. To begin with, the Ministry of Works and Transportation in 2005 commissioned a Comprehensive National Transportation Study at a cost of $24 million.

The results of that study are still awaited, but yet, in typical wrong-side fashion, we are calmly told that rapid rail is a reality, along with the other transport projects.