Private company running Ottawa P3 asks for a bailout

Even though the private sector is supposed to be covering the cost of project risks, governments have repeatedly picked up the tab when P3 privatization schemes run into trouble. The $251.9 million that the City of Ottawa is being asked to provide is just the latest example.

Ottawa (12 Nov. 2020) — The private company running the P3 privatization scheme at Lansdowne Park is asking the City of Ottawa for a bailout that will cost the public an estimated $251.9 million. The company would also be able to take $4.7 million from the reserve funds. This is in spite of the fact that when the Lansdowne Park P3 was first approved, Ottawa residents were told that the private company running the P3 would “assume the construction risk during the redevelopment period and the operations risk on revenues and expense once the site reopens.”

Project was in trouble before COVID-19 

While the conditions created by the COVID-19 pandemic are unique, the Lansdowne P3 privatization scheme was in trouble before the pandemic hit. Annual reports for the P3 from 2017 and 2018 found that the company running the scheme, the Ottawa Sports and Entertainment Group (OSEG), had “already had to contribute significantly more equity to date than it would be able to recoup.”

That the P3 privatization scheme was in trouble before the COVID-19 pandemic raises questions about whether the request for a bailout would have come anyway and whether there will be further requests for bailouts.

Yet another example of how claims that P3 privatization schemes “transfer risk” are a joke

Even the privatization industry acknowledges that P3 privatization schemes mean higher costs in some areas. Borrowing costs are higher for P3s, and negotiating and administering the complex legal agreements for P3 push up operating costs. However, the privatization industry claims that P3s save money because the costs of risks associated with the schemes are transferred to the private sector.

But even though the private sector is supposed to be covering the cost of project risks, governments have repeatedly picked up the tab when P3 privatization schemes run into trouble. The $251.9 million that the City of Ottawa is being asked to provide is just the latest example.

Trapped in P3 privatization schemes

The justification given for bailing out the Lansdowne P3 privatization scheme is that allowing it to fail would cost even more than the bailout. This privatization trap is all too common. 

The trap usually goes like this: governments approve P3s after being told that they will save money by transferring risk to the private sector. If things don’t work out, the private sector demands a bailout. Then governments are told that if the private company running the P3 is allowed to fail, it will cost the public even more than the bailout.

Unfortunately, the trap in P3 privatization schemes leads to yet another problem. It sends a message to private companies running P3s that, even if they screw up, there is a good chance they will be bailed out.
 

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