What does the Canadian P3 market look like?
Over the years Canada’s P3 market landscape has evolved considerably and has established Canada as one of the world’s most stable and significant P3 markets in both volume and capital size of transactions. Of significance, Canada’s Minister of Finance, the Honourable James Flaherty, was awarded the 2011 Infrastructure Investor Minister of the Year award for Canada’s continued optimism towards the P3 model.1
The increased adoption of P3s can be attributed to the creation of dedicated P3 agencies at the provincial and federal level. Alberta, British Columbia, New Brunswick, Ontario and Quebec have collectively established consistent P3 deal flow across the country. As the national source of P3 expertise, PPP Canada has invested resources to analyze pipeline distribution by jurisdiction, sector and procurement method to help capture the ways in which Canadian jurisdictions are implementing their P3 procurements and identify lessons learned and areas of success.
SNAP SHOT: 2009 - 2011
In general, Canada’s procurement process over the last few years, relative to other countries with advanced P3 markets, is seen as the most predictable and timely taking on average 16 – 18 months to complete. This reality is due to several factors including Canada’s standardized practices, established legal expertise and careful adherence to project timetables.2 These factors generate greater certainty for bidders; produce greater competition and lower costs for the public sector, all of which contribute to Canada’s healthy P3 pipeline.
The robustness of the Canadian P3 market between 2009-2011 is evidenced by the total number of P3 deals which reached financial close during the this period (39 in total) culminating in a combined capital investment of approximately $21.7 billion.
Figure 1: Number and Aggregate Capital Value of P3 Projects Closed (2009-2011) 3
This time period saw 52 P3 projects in procurement 4 right across Canada covering almost every infrastructure sector but markedly in health care, transportation, justice and corrections. The majority of these projects were procured using a Design Build Finance Maintain model as seen in Table 3.
Table 1: Distribution of P3 projects in Procurement by Procurement Method (2009 – 2011)
This table demonstrates the flexibility of the P3 procurement model to adapt to any asset class and the adaptability of the private sector to meet either the minimum requirements of a Design Build Finance through to the full suite of services of a full Design Build Finance Operate Maintain.
MOVING THE MARKET: NEW JURISDICTIONS AND INFRASTRUCTURE CLASSES
Public sector procurers across Canada are increasingly turning to P3s when considering the delivery of complex and large scale infrastructure. In addition, the Corporation is seeing evidence of this through the adoption of “P3 friendly” legislative and policy frameworks at the provincial and municipal level to ensure their infrastructure projects are reviewed for P3 suitability; to provide transparency and clarity for their stakeholders and the public; and to assist them with the establishment of solid procurement principles.
The range of asset classes being considered for P3 procurement is also expanding. Where previously we had seen mostly hospital and school projects, we are now seeing an increasingly more diverse range of projects coming to the market, such as waste management, rapid transit and road infrastructure. This is a testament to the adaptability of the P3 methodology and the willingness of the private sector to bid on an ever increasing variety of projects.
CANADIAN P3 CAPITAL MARKET
Through the collaborative efforts of both the public and private sectors, Canadian projects continued to achieve financial close through the 2008-09 financial crisis and maintain private sector participation when new projects were released to the market. When bank lenders became more risk averse the public sector had to adapt to the realities of financial markets. Some of the measures adopted by public procurers for P3 projects during the financial crisis remain today and are likely to continue to be a feature of the Canadian P3 market for the foreseeable future. For instance, increasing government capital contributions at substantial completion has helped to reduce long-term debt and project financing costs. Procurers also began to look at other sources of financing to transfer the risks of long-term lifecycle costs. Bonds, as an example, have become a growing source of long-term funding for P3 projects as an alternative to bank financing as demonstrated in Figure 2. The success of bond issuances has prompted most analysts to believe that bonds will continue to play an increasingly important role in the financing of P3 projects in Canada.
Figure 2: Long Term Canadian PPP Debt Financing 5
This past year, Stonebridge Financial Corporation developed an infrastructure debt fund in close cooperation with PBI Actuarial Consultants Ltd. and with support from PPP Canada. Working with Stonebridge Financial Corporation, PPP Canada shared in the development costs of the legal agreements to be used in the newly created debt pool that in turn can be provided to other parties interested in creating a P3 investment Fund. PPP Canada also engaged Business Development Bank of Canada who were seeking to expand their interest in financing P3 transactions. The Stonebridge Infrastructure Debt Fund, launched on November 22, 2011and the first tranche of approximately $150 million closed on April 3, 2012. Initial investments have already been approved and are in the closing process. The debt fund will take the form of long-term, fixed rate, senior debt financing for the construction and operation of infrastructure and energy assets, including the emerging municipal infrastructure project sector. A subsequent funding round is planned for the latter part of 2012 to accommodate additional investor interest. 6
Based on the trends discussed above and with an estimated requirement of $400 billion in infrastructure upgrades required over the next decade, we expect to see a sustained pipeline of projects in the coming years.
- Andy Thompson. “No holding back” Infrastructure Investor 7 September 2011. September 7 2011 <http://www.infrastructureinvestor.com/Article.aspx?aID=0&article=63041>
- KPMG. PPP Procurement: Review of Barriers to Competition and Efficiency in the Procurement of PPP Projects. May 2010. May 16 2012 <http://www.kpmg.com/NZ/en/IssuesAndInsights/ArticlesPublications/SmarterProcurement/Documents/Review-of-barriers-to-compeition.pdf>
- Data for the years 2005 through 2008 has been sourced from the RICS Research Report, “The Future of Private Finance Initiative and Public - Private Partnership” (June 2011). Data for the years 2009 to 2011 has been sourced from Appendix A – Database of Canadian P3 Projects in Procurement (2009 – 2011). In addition, 2011 data includes projects closed as of November 30, 2011 (2 other projects are expected to close in December 2011 but have not been included in the tally of closed projects for 2011).
- In undertaking the review of the Canadian P3 marketplace, PPP Canada developed a database which contains only projects which were in P3 procurement (defined as a P3 project in respect of which at a minimum, a request for qualifications was issued) at some point between 2009 and 2011.
- What can the UK learn from the Canadian approach to PPP? RBC Capital Markets. December 2011
- For more information on the Infrastructure Debt Fund, visit Stonebridge Financial Corporation’s website at: http://www.stonebridge.ca/en/