Public-Private Partnerships (P3s):
More Expensive, Less Effective

As an alternative to outright privatization, the Provincial government is aggressively promoting public-private partnerships (P3s). In the standard P3 arrangement, a private company designs, builds, finances and operates (DBFO) a facility or piece of infrastructure, and the government makes regular payments to use or lease the asset. The government ultimately pays the entire project cost; P3s do not provide a new source of capital.

P3s are a major area of concern.

Background

P3s are quite different than traditional contracting-out. In a P3, the private partner is responsible for securing private financing for the project, meaning that it is the private company, and not the government, that borrows the necessary funds. The private company is then entitled to project revenues, for example user fees, and the government makes regular payments to the private company over the life of the contract.

In other words, while it is the private partner that undertakes the loan, the government does pay the entire cost of the project, but does so as contract payments instead of as loan repayments.

P3 supporters argue that because the private partner actually holds the debt, there is a greater incentive to improve efficiency, reduce costs, and complete projects quickly. They further argue that because the government's payments are contractually fixed, it is the private partner who bears the risk of cost overruns or labour shortage.

In practice, however, P3s have been more costly than traditional public financing, and governments have continued to be responsible for cost overruns, while losing flexibility and control. In addition, there have been serious concerns about quality of service, transparency and accountability in P3 deals.

P3s: Myths and Realities

Current P3 Projects in Alberta: More Expensive, Less Effective

For more information about the drawbacks of P3s, click on the following:

Economic Drawbacks to P3s

Cost and Quality: P3s Lead to Higher Costs and Lower Quality Than Public Service

Risks to the Public Partner: P3s Are Not a Low-Risk Option

P3s and the Public Interest

How P3s Erode Transparency and Accountability

Loss of Flexibility: P3s Reduce Public Control Over Services and Planning



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