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Economist’s report claims P3s are considerably more expensive

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by Journal Of Commerce

The cost penalty paid by governments for financing hospitals and other public infrastructure projects through public private partnerships (P3s) has jumped substantially since the onset of the financial crisis, warns a report released by the Ontario Council of Hospital Unions (OCHU/CUPE).

Public Private Partnerships

The cost penalty paid by governments for financing hospitals and other public infrastructure projects through public private partnerships (P3s) has jumped substantially since the onset of the financial crisis, warns a report released by the Ontario Council of Hospital Unions (OCHU/CUPE).

Economist Hugh Mackenzie’s report states that the financial crisis has made P3s an even more expensive and risky way to build public facilities such as hospitals, roads and schools.

“The financial crisis has been bad news for private investors looking to profit from so-called public private partnerships,” said MacKenzie, the report’s author and an independent economist.

“The financial crisis has increased the spread between borrowing costs for the private and public sectors and made it harder to attract investors to highly leveraged projects. If P3 financing was bad before the financial crisis, it’s even worse now, and all governments should take notice.”

The report finds that the financing cost disadvantage for P3s had reached as much as 60 per cent in the early stages of the credit crunch and now has reached 83 per cent, even assuming that P3 operators are prepared to accept lower rates of profit.

That means that governments can afford to invest 83 per cent more in infrastructure projects if they are publicly financed than if they are privately financed.

The Ontario government remains fully committed to the P3 model, even though P3s increase costs for every large project, the union said

At the St Catharines General P3, private investors backed away from the project, causing the provincial government to scramble for financing.

JOC News Service

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