ION - Waterloo Region's Light Rail Transit

[tomh009]

I'm afraid as well.  P3 is 2-3 times more expensive than going it alone.

This seems to say the costs of P3 are 2-3x those of non-P3.

Built in escalation rates.   Infrastructure Ontario is looking at a number of P3 agreements.   A number of very large P3 projects are experiencing escalation rates 2-3 times more expensive than CPI.  

So the private partner running the say, maintenance, experiences a 2% increase in a year.   The escalation rate in the agreement turns that 2% increase into a 6% increase that is passed onto the public partner.    This is real and has happened and is costing taxpayers on multiple levels huge.

But in fact the claim seems to be that the annual cost increases could be 2-3x those of a non-P3 arrangement.  Total P3 costs will not be 2-3x total non-P3 costs, based on this.  But I should think that every P3 contract would be different -- and no one was forced to sign one of these agreements.

I don't pretend to have any idea as to whether P3 is a good thing or not.  But let's at least be precise when comparing costs. 

[Canard]

I feel bad asking (and please feel free to just say "no" and ignore me ) but can someone explain what any of this "P3" discussion means?  I really don't understand at all.  I think I get the basic jist that "Private-Public Partnership" means the Government is going to pay a private company to "Design, Build, Finance, Operate and Maintain" the system.  Basically saying "We give you money, you make it happen and operate as a company"... as opposed to them just doing it all themselves.  I get that sort of.  But like, what does this "concern" come from with regard to raising prices and all that jazz?  I thought that Grandlinq was getting a fixed amount of money, that is a very-well known number, from the Government...

Again, I'm sorry but I just have no clue how business or this P3 thing works at all. I can tell you in great detail how any aspect of the trains work mechanically (please ask!), but when it comes to how the logistics of a project actually works from a financial perspective I have no idea.

[Markster]

A P3, "Private-Public Partnership", is when the government involves a third party, profit driven company in virtually any kind of project as a vaguely-equal partner.
The involvement of the private sector, in the case of ION, is the rather extensive Design-Build-finance-Maintain-Operate, but in practice can be limited to single one, or some combination of those.

The alternative to P3s, is that government keeps all the work in-house, employing all of the various experts and contractors directly.  The TTC is an example, where all their work on the streetcar network is all done in-house, and it's paid for through government debt.

P3s came to the fore in the 90s, (particularly under Mike Harris) as a solution to governments becoming particularly cash-strapped. Private companies were invited to have an ownership stake, or at least, some manner of control over the project, in exchange for the government no longer having to train and retain its own staff, or put all the money upfront through tax receipts. Basically contracting out various pieces the work.

P3s got a really bad rap through this era, as the deals signed gave away large pieces of infrastructure at bargain prices (the 407 being a famous example), at minimal benefit to the public.  The driving force for using P3s at the time was ideological, and government getting out of the business of Designing/Building/Financing/Maintaining/Operating was largely its own reward, as government is believed to be never efficient at doing anything in those circles.

Kitchener's Old-New-City-Hall (The red brick Sunlife tower) is a similar case of a bad P3.  Kitchener traded a Capital investment (land) for a limited time lease on a new building. Once the lease was up, Kitchener was left with nothing but continuing rent increases.

These days P3s are usually written a lot better.  But since the private companies are no longer getting sweetheart deals in the fine print, they have to put in larger cost-escalations up front to serve as profit for the company, and cover potential cost overruns.

[BuildingScout]

The devil is in the details. In some cases (a la 407, which strictly speaking wasn't a P3) the private operators have a say on the fees collected and were allowed to jack them up rather arbitrarily. So what at first seemed like a fair contract ends up being a license to print money. In the case of the LRT the fees are under control of the Region so the concerns do not seem to apply, but it is always good to keep an eye on what's happening.

In my opinion a lot of time was wasted debating BRT v. LRT in the last three years when LRT had already been chosen the winner. Then the real effective input would have been in "what type of LRT?", "what funding model?", "what route?", "where the stops go?", "what's the speed of the thing?", etc.

[ookpik]

The devil is in the details. In some cases (a la 407, which strictly speaking wasn't a P3) the private operators have a say on the fees collected and were allowed to jack them up rather arbitrarily. So what at first seemed like a fair contract ends up being a license to print money.

The private buyers paid an astonishingly low price for that 99-year license to print--and the full power of the province to act as their de facto collection agency. How could they not make out like bandits? (Send your thank yous to "common sense" Mike Harris.)

On a somewhat different topic which also crosses into the high speed rail and other threads is this piece from tomorrow's G&M: Inside Bombardier's bellissima train division. It seems our trains could end up being "made" by a Chinese company. The discussion about HSR technology is also fascinating, not that we're likely to get any, any time soon.

[Markster]

(a la 407, which strictly speaking wasn't a P3)

It quite was. It was a DBOM awarded to Canadian Highways International Corporation in 1994. (http://www.highway104.ns.ca/PRchic.pdf) Under an NDP government, no less.
It is accurate to say that the more controversial part of the 407, namely the 99-year lease in 1999, was not directly tied to its P3 genesis. Though, at the time, I don't believe people were happy about the (at the time) 35 years of tolls to pay for the financing of the highway.

[numberguy]

I'm afraid as well.  P3 is 2-3 times more expensive than going it alone.

This seems to say the costs of P3 are 2-3x those of non-P3.

Built in escalation rates.   Infrastructure Ontario is looking at a number of P3 agreements.   A number of very large P3 projects are experiencing escalation rates 2-3 times more expensive than CPI.  

So the private partner running the say, maintenance, experiences a 2% increase in a year.   The escalation rate in the agreement turns that 2% increase into a 6% increase that is passed onto the public partner.    This is real and has happened and is costing taxpayers on multiple levels huge.

But in fact the claim seems to be that the annual cost increases could be 2-3x those of a non-P3 arrangement.  Total P3 costs will not be 2-3x total non-P3 costs, based on this.  But I should think that every P3 contract would be different -- and no one was forced to sign one of these agreements.

I don't pretend to have any idea as to whether P3 is a good thing or not.  But let's at least be precise when comparing costs. 

Yes, every P3 contract is different.   But based on empirical, actual costs experienced, P3 annual cost escalations far exceed non-P3 cost escalations.    And yes, I am only referring to the annual cost escalations.  Sorry for the lack of clarity, mea culpa.   Most P3 will not be 2-3x non-P3 project costs.

One only has to look at RIM Park as an example of how the devil is in the details.   Until city of Waterloo staff started actually paying bills, it was not apparent that the contract signed was a one-sided deal.    The way cost escalations work in some existing P3 deals are having a similar (to a lesser scale) unintended consequence.

I want to see the deal between GrandLinq and the Region of Waterloo.   Is this available?    If not, why not?

I'll give a hypothetical example.   Many of us know about the added costs incurred by the Region of Waterloo due to 2 workers deciding to sign union cards, technically backing the Region into having to use higher scale union labour for a trade. Say that happens with GrandLinq.   Depending on how the labour escalation formula works, that increase could get passed onto the Region, 3, 4, 5 or more-fold.   It's happened with P3s in Ontario.

Oh and the posted GrandLinq's annual operations and maintenance cost for 30 years includes:
•Operations ($4 million, plus HST and inflation);
•Maintenance ($4.5 million, plus HST and inflation);
•Lifecycle (average $8.7 million, plus HST and inflation);
•Financing ($11 million, plus HST);
•Insurance ($1.7 million, plus applicable taxes)

Those are just budgeted.    Pending seeing the actual agreement between GrandLinq and the Region of Waterloo, I am thinking that those posted amounts are not final or binding.

What interest rate assumptions were used?   Until recently, Ontario's auto insurers were allowed an 11 percent return on equity.   Again, great alpha, with (except in the GTA, due to fraudulent claims) little beta.   (Sorry, alpha is vig/juice/profit/return.   Beta is risk)   With ION, what was the interest rate used for assumptions?

[numberguy]

I feel bad asking (and please feel free to just say "no" and ignore me ) but can someone explain what any of this "P3" discussion means?  I really don't understand at all.  I think I get the basic jist that "Private-Public Partnership" means the Government is going to pay a private company to "Design, Build, Finance, Operate and Maintain" the system.  Basically saying "We give you money, you make it happen and operate as a company"... as opposed to them just doing it all themselves.  I get that sort of.  But like, what does this "concern" come from with regard to raising prices and all that jazz?  I thought that Grandlinq was getting a fixed amount of money, that is a very-well known number, from the Government...

Again, I'm sorry but I just have no clue how business or this P3 thing works at all.  I can tell you in great detail how any aspect of the trains work mechanically (please ask!), but when it comes to how the logistics of a project actually works from a financial perspective I have no idea.  

There is never a need to feel bad about asking questions, IMHO.  

The amount of money is only partially fixed.   GrandLinq will operate the ION system, for 30 years.   No one knows where interest rates, CPI, labour costs etc will go in 30 years.   So, there will be some mechanism to adjust those costs, accordingly.

CPI is an often used benchmark.   Labour rates can be used as well.   Most of the P3 escalation clauses I've seen have a CPI portion and a labour portion for escalation factors.    I am not an expert, I've only seen detail formula for 5 P3s.  

It's important to do scenario/what-if analysis.   Empirically, P3 annual cost increases in Ontario are tracking up far faster than non-P3 projects.

The issue I have is that P3 seems to be a way to get market alpha/return with government level beta/risk.   It's a guaranteed win for the private partners.

Oh, and I saw this on Reddit tonight:
http://imgur.com/KWBF8Za

^ the sign that was put up for LRT related construction, apparently. By GrandLinq.
http://www.reddit.com/r/kitchener/commen...onal_they/

I want ION to work. I am just worried. Bombardier and P3 empirical cost escalations have me losing my optimism.

[tomh009]

It's important to do scenario/what-if analysis.

Absolutely.  If the people negotiating these contracts don't do decent an analysis ...

Empirically, P3 annual cost increases in Ontario are tracking up far faster than non-P3 projects.

The issue I have is that P3 seems to be a way to get market alpha/return with government level beta/risk.   It's a guaranteed win for the private partners.

... then they will sign bad contracts.  And in that scenario I cannot blame the private company, profit is their goal after all, I will blame the government in question for not negotiating a better contract.

But even if the LRT contract has excessive escalations, ION can still work well.  It'll just be more expensive than it should be.

P.S. I saw the sign, too.  I was tempted to make a better one for them ...

[mpd618]

I want to see the deal between GrandLinq and the Region of Waterloo.   Is this available?    If not, why not?

Here you go.

The amount of money is only partially fixed.   GrandLinq will operate the ION system, for 30 years.   No one knows where interest rates, CPI, labour costs etc will go in 30 years.   So, there will be some mechanism to adjust those costs, accordingly.

No, they will operate it only for 10 years, with the possibility of renewals. The maintenance component will be over the 30 year term and include full rehabilitation towards the end of that span.

[numberguy]

Thanks, schedule 20 and 21 cut to the meat of the matter for me.    

The Monthly Service Payment shall be payable in respect of each Contract Month. The Monthly Service Payment shall be calculated in accordance with the following formula:
(sch 20, Part B)

What is the definition of ESCOn (Operations Escalation Factor for the relevant Contract Year) and ESCMn (means the Maintenance Escalation Factor for the relevant Contract Year)?

The Escalation factor calculation is blocked out in Section 4, per MFIPPA Section 10(1).    (facepalm)

Also, the interest rate assumptions are not clear to me.   Too much is redacted out.

[jerryhung]

Anyone know if Columbia closure will be open by CANADA DAY?

I know the closure was originally 2 weeks, then delayed to 3 weeks, but no idea now as they don't show the dates on the closure sign either
Online says hopefully June 30th, let's hope they're on time
http://www.rideion.ca/construction-updates.html

Columbia Closed, between Philip and Hagey -

On June 8, Columbia at the CN railway tracks, between Philip and Hagey, was closed to traffic for approximately two weeks; the intersections at Albert and Wes Graham remain open. The Columbia closure has now been extended until approximately June 30 to accommodate Waterloo North Hydro’s work in the area. We will continue to work in the area during this time.

Work includes upgrading and relocating the underground water utilities, removing and replacing the CN railway tracks, installing the permanent LRT track and paving.

Generally, work will take place Monday to Friday, between 7 a.m. and 7 p.m., however, over the weekend (June 12-15 and June 19-22), crews will work around the clock for an 88-hour period. This extended work period will ensure that trains are able to resume regular service on Monday.

Sidewalks are temporarily closed during this construction, and safety barriers and fencing is installed near the active work area. To avoid the closure, pedestrians and cyclists are encouraged to use Hagey and Ring Road or Phillip.

[timio]

I believe it's supposed to be open to traffic on July 2nd. On July 1st that stretch of Columbia is closed for Canada Day.

[Pheidippides]

I noticed at the Laurier/Waterloo Park stop that an additional number of trees along the east side of the Laurel Trail have been cut down and now there is a large pile of flattened earth piled where these trees were and extending over and covering the path.

Is this temporary arrangement to allow for work on building the tracks and station or a change to the station design? The project agreement seems to indicate that the path would remain lower than the station, but at the moment it looks like the trail is being brought up to the height of the station.

[jerryhung]

from UW's website

Columbia Street to be fully open July 2

The ION-related construction work on Columbia Street West will continue this week.

It is anticipated that a portion of Columbia Street from the railway tracks to Hagey Boulevard will be open by Wednesday, July 1 to allow Canada Day celebration visitors access to the parking lots on the University's north campus.

This information is subject to change.

Please check the ION-related travel disruption site for more information, especially information about any Canada Day detours.